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Tim Hortons Inc. (THI)

Q3 2009 Earnings Call Transcript

October 30, 2009, 10:30 am ET


Scott Bonikowsky – Vice President, Investor Relations

Donald B. Schroeder – President and Chief Executive Officer

Cynthia J. Devine – Chief Financial Officer


Irene Nattel – RBC Capital Markets

Jim Durran – National Bank Financial

Steven Kron – Goldman Sachs

Peter Sklar – CIBC World Markets

Michael Van Aelst – TD Newcrest

Keith Howlett – Desjardins Securities



Ladies and gentlemen thank you very much for standing by. And welcome to the 2009 Third Quarter Tim Hortons Earning Conference Call. During this presentation, all participants will be in a listen-only mode. (Operator Instructions) As a reminder this conference is being recorded. It's now my pleasure to turn the conference over to Scott Bonikowsky, Vice President of Investor Relations at Tim Hortons. Please proceed sir.

Scott Bonikowsky

Thanks, [Thelma] and good morning everyone. Thanks for joining us for our third quarter 2009 conference call this morning. Earlier this morning, we issued our third quarter earnings results and as always we have slides that support today's discussion and they're available on our website at and if you just click on the Investment Presentations tab you'll see it there, it will be there for a period of about a year.

Both Don Schroeder, our President and CEO; and Cynthia Devine, our Chief Financial Officer join me as usual this morning on the call, and after their remarks, we will be pleased to take your questions.

Before we begin, please note that we may provide forward-looking statements this morning within the meaning of the Private Securities Litigation Reform Act of 1995 and this includes discussions about future performance based on our current expectations and information. Various risks and uncertainties could cause the Company's results to differ materially from those expressed in our forward-looking statements, which speak only as of the date and time made. We do not intend to update our forward-looking statements after today except as required by actual law.

More detailed information about the risks and uncertainties affecting our future performance is included in our 2008 end report on Form 10-K, which is filed on February the 26th 2009. This is also available on our website under the Regulatory Filings tab, other public securities filings, and in our Safe Harbor statement, which are also located on the website.

I would remind you that all of our results are presented in accordance with U.S. GAAP and reported in Canadian dollars unless we otherwise note.

So, with I'm going to turn the call over to Don Schroeder, President and CEO of Tim Hortons. Don?

Donald B. Schroeder

Thanks Scott and good morning everyone. Tim Hortons delivered a very strong quarter with same-store sales growth of 3.1% in Canada, and 4.3% in the U.S. Operating income grew 5.4% and adjusted operating income was up 8% year-over-year, excluding the anticipated impact of our public company reorganization. So, I'm pleased to report that we had good operating income growth in our Canadian business and a substantial $3.2 million year-over-year profit improvement in our U.S. segments.

Performance was delivered in a tough operating environment that continued to be framed by persistently high unemployment levels as well as other pressures in the North American economy. We grew transactions in Canada and slightly increased the average check, demonstrating our position as an industry leader able to grow sales in tough operating conditions.

Our scale competitive advantage in our developed markets and brand position standing for quality products at reasonable prices continues to result in positive operating results. Consensus heading into 2009, generally pointed toward gradual economic recoveries by the second half of the year. Well, I think it's certainly obvious to most of absorbers that economic recovery has been a challenge and meaningful recovery has not been seen to this point.

One of the greatest challenges is the high levels of unemployment we have seen in both countries. In the U.S., the unemployment rate reached nearly 10% in September, and as high as 17% in Detroit, which is one of our key U.S. markets. In Canada, unemployment levels vary, but was persistently high in the key Ontario market at 9.2% in September and was also high in other markets such as British Columbia. By reinforcing the value we represent and by focusing on restaurant fundamentals such as our always-fresh philosophy, speed of service, and the overall customer experience, we are committed to remain at the first choice for our loyal customers.

Grew system-wide sales by 6.2% on a constant currency basis in the third quarter, a strong financial position allows us to take advantage of prudent market opportunities, as we continue to grow our system by developing new restaurants. And to demonstrate, our system-wide growth was supported by 233 net restaurant openings since the third quarter of last year. And that number includes both for serve and self-serve restaurants. In the third quarter of 2009, we opened 36 locations in Canada and 20 in the U.S.

A solid same-store sales growth are outlined and our ongoing initiatives and support of menu innovation and marketing programs contributed to our overall performance. This past quarter, we focused our advertising and promotional activities on product specific news, and on reinforcing the everyday value we provide to the customers. As an illustration, we offered the popular sausage and a biscuit product in both Canada and the U.S., at very attractive price points. We continue to put marketing weight behind our popular Ranch and Barbecue Chicken Wrap Snackers, targeted at the key snacking and lunch day parts. We also had a $1.99 Iced Cappuccino promotion in our U.S. market.

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