Tim Hortons Q3 revenue up nearly 11 per cent to $563.6 million

By David Friend, The Canadian Press

TORONTO - Tim Hortons Inc. (TSX: THI.TO) served investors another quarter of revenue growth, although its profit shrank compared with the same time last year due to $23.1 million in costs associated with its conversion into a Canadian legal entity.

The iconic coffee, doughnut and sandwich chain said Friday its revenue increased to $563.6 million in the third quarter ended Sept. 27, up 10.7 per cent from just under $509 million in the comparable quarter of 2008.

The biggest increase was at Tim's Canadian stores, which brought in $492 million, up $50 million from the third quarter of 2008.

But U.S. stores also increased total sales, which grew by $7.8 million or nearly 25 per cent to $38.9 million.

Same-store sales, which measure performance of locations open for at least a year, increased 3.1 per cent in Canada and 4.3 per cent in the United States.

Despite the sales growth, net income fell to $61.2 million or 34 cents per share in the quarter, down 22.3 per cent from a year ago.

"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," president and CEO Don Schroeder said in a conference call with analysts.

"I think its fairly obvious to most observers that economic recovery has been a challenge and meaningful recovery has not been seen to this point."

Tim Hortons said the lower profit was due to $23.1 million in costs associated with reorganizing the company into a Canadian legal entity. It had formerly been a subsidiary of the Wendy's hamburger chain and was previously registered as a U.S. company.

Operating income increased 5.4 per cent to $129.2 million in the third quarter compared to $122.6 million in the prior year.

Adjusted adjusted operating income, excluding $3.2 million in professional advisory fees and shareholder-related transaction costs associated with the reorganization, was up eight per cent to $132.4 million.

Analysts estimates compiled by Thomson Reuters, which usually excludes unusual items and the impact of currency fluctuation, had been for revenue of $552 million and 43 cents per share of earnings.

CIBC analyst Perry Caicco said in a report that the third quarter numbers were "ahead of our forecast on most metrics, largely due to strong revenues."

Tim Hortons has been ramping up its presence in the United States this year, opening locations at several key tourist spots like Fort Knox and Times Square. The company also had its coffee featured on the U.S. network sitcom "How I Met Your Mother."

Tim Hortons shares were down 39 cents, or 1.2 per cent, to $31.40 Friday morning on the Toronto Stock Exchange.