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Tim Hortons Inc. (THI)

Q2 2008 Earnings Call

August 7, 2008 2:30 pm ET


Scott Bonikowsky - Vice President Investor Relations

Donald B. Schroeder - President, Chief Executive Officer, Director

Cynthia J. Devine - Chief Financial Officer, Executive Vice President


Irene Nattel - RBC Capital Markets

Steven Kron - Goldman Sachs

Turan Quettawala - Scotia Capital

David Hartley - BMO Capital Markets

Jim Durran - National Bank Financial

Adina Bloom - TD Newcrest

Rachael Rothman - Merrill Lynch

Winston Lee - Credit Suisse

John Ivankoe - J.P. Morgan



Ladies and gentlemen, thank you for standing by and welcome to the 2008 second quarter Tim Hortons earnings conference call. (Operator Instructions) It is now my pleasure to turn the conference over to Scott Bonikowsky, Vice President of Investor Relations at Tim Hortons. Please proceed.

Scott Bonikowsky

Thanks and good afternoon, everyone. Thanks for joining us for our second quarter 2008 conference call. We released our second quarter results earlier today. If you’ve not had the opportunity yet to review this material, you can access the information on our newly relaunched investor relations section of our website at and by clicking on the events and presentations tab.

We have prepared a presentation to support today’s discussion. You can also access this and other material associated with our call on the website in the same section, and it will be available to you for a period of one year.

Joining me on the call this afternoon for remarks are Don Schroeder, our President and CEO; and Cynthia Devine, our Chief Financial Officer. And after the remarks, we’d be pleased to take questions, for which our Executive Chairman, Paul House, will also be available and joining us for the call as well.

Before we begin today, I would like to remind everyone on the call that we may have forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which includes discussions about future performance based on current expectations and information. Various risks and uncertainties could cause our company’s results to differ materially from those expressed in our forward-looking statements, which speak only as of the date and time made. More detailed information about these risks and uncertainties is contained within the Safe Harbor statement included in the earnings release issued and additional risk factors are also described in our public securities filings and our 2007 annual report on Form 10-K, also available on our website under the regulatory filings tab, and we’d encourage you to read that.

All Tim Hortons results are presented in accordance with U.S. GAAP and reported in Canadian dollars, unless otherwise noted. In the event we reference non-GAAP financial information that we have not already reconciled in the earnings release and today’s slide presentation, we will post a reconciliation to the most directly comparable GAAP financial measure on our website, as required by Regulation G.

And with that, it’s now my pleasure to turn the call over to Don Schroeder, our President and CEO. Don.

Donald B. Schroeder

Thanks, Scott and hello, everyone. Thanks for joining us today. Tim Hortons has a proven business model that has stood the test of time throughout our 44 year history. Our second quarter results reflect the strength of our business model in what can only be described as a difficult and challenging macroeconomic environment. We were very pleased with both our top line growth and earnings performance in these circumstances.

Consumers today face daunting challenges, stemming from economic weakness, compounded by high gas and food prices and greater uncertainty about the future. At the same time, restaurant companies are facing volatile commodity prices and increasing labor costs, creating additional pressures within the food service industry.

While we have seen some challenges in Canada, those macroeconomic challenges are deeper and more embedded in the U.S. I would point out that the Canadian segment accounts for 92% of our revenues.

On slide five, you will see that in this environment, we delivered solid same-store sales growth in both the Canadian and U.S. businesses. In Canada, same-store sales were up 5.7%, lapping growth of 6.6%. In the U.S., same-store sales were up 3.1%, lapping growth of 3.8%.

On slide 6, we have listed several sales catalysts which contributed to the second quarter performance. The largest contributor and first item I will discuss is pricing. During the quarter, pricing contributed significantly to our growth in both markets, supported by organic growth.

Our differentiation with our customers as a destination for great quality food at a reasonable price supports our ability to take price when necessary. Generally, a measure taken to help offset restaurant level cost pressures. The timing of Easter also benefited sales this quarter, contributing about 0.5% to Canadian same-store sales and less than 0.4% to U.S. same-store sales.

We were also pleased in this quarter with continued system-wide sales growth, which includes all sales from company-operated and franchised restaurants.

In the U.S. business, our system-wide sales grew by just over 30% over a two-year period, reflecting continued growth of our brand through the expansion of our restaurant base in the U.S. markets where we operate.

Positive same-store sales growth and unit expansion in both markets contributed to an increase in operating income of 10% in the second quarter and earnings per share growth of more than 14%.

If you would turn to page seven in the slide presentation, you will get a sense of the active menu and promotional program we had in the second quarter. Our growth came, as always, from several catalysts in the quarter, including pricing, store level operations, menu innovation, and promotions.

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