CBOU Caribou Coffee Company, Inc. (MM)

Caribou Coffee Company, Inc. (NASDAQ:CBOU), the second largest company-owned gourmet coffeehouse operator in the United States based on the number of coffeehouses, today reported financial results for the first quarter of 2010 (thirteen weeks ended April 4, 2010).

HIGHLIGHTS FOR THE FIRST QUARTER OF 2010 INCLUDE:

• Consolidated sales increased 11% compared to the first quarter of 2009
• Comparable coffeehouse store sales for the quarter increased 5.2%
• Commercial and Franchise sales for the quarter increased 52% compared to the first quarter of 2009
• Net income for the quarter was $1.0 million compared to a net income of $0.3 million for the same period in 2009
• Earnings per share of $0.05 compared to $0.02 per share in the first quarter of 2009

Speaking on behalf of the Company, Michael Tattersfield, the Company’s President and CEO commented, “I am very pleased with our progress in the quarter. We are seeing positive signs of traction across our three lines of business, each of which contributed significantly to our 11% growth in consolidated sales. As a Company, we are transitioning from a financial turn-around to executing against our long-term strategic growth initiatives. The first quarter financial performance is reflective or our commitment to deliver profitable growth, while continuing to invest in the areas necessary to build the Caribou brand through our multi-channel growth strategy.

FIRST QUARTER 2010 RESULTS

Net sales for the quarter increased $6.7 million, or 11.0%, to $67.1 million from $60.4 million for the comparable quarter of 2009.

• Coffeehouse sales were $55.6 million in the first quarter 2010, an increase of 5.2% as compared with $52.9 million in the first quarter of 2009. The increase reflects a 5.2% increase in comparable coffeehouse sales in the first quarter of 2010 as compared to the same period in fiscal 2009.
• Commercial sales were $9.0 million in the first quarter of 2010, an increase of 58% as compared with $5.7 million in the first quarter of 2009. The increase was due to sales growth to existing and new customers, primarily grocery stores and Keurig, Inc.
• Franchise sales were $2.5 million in the first quarter of 2010, an increase of 36% as compared with $1.8 million in the first quarter of 2009. The increase was primarily due to higher product sales and royalties from 123 franchise locations.

Cost of sales and related occupancy costs in the first quarter of 2010 were $31.4 million, a 19.6% increase over the first quarter of 2009. As a percentage of revenue, cost of sales were 46.8% in the first quarter of 2010 versus 43.5% in the first quarter of 2009. This increase as a percentage of sales was due to an overall mix change with a higher percentage of sales coming from the commercial and franchise segments. In addition, we invested in higher levels of trade promotional programs in our commercial segment and invested in higher quality product platforms launched in our retail coffeehouse segment.

Operating expenses in the first quarter of 2010 were $25.0 million, an increase of $1.6 million or 6.7% compared to $23.4 million in the same period of the prior year. This increase was primarily driven by our sales growth and investments in marketing and product initiatives. As a percentage of revenue, operating costs were 37.2%, down from 38.8% in the same period of the prior year, as we experienced operating efficiencies while making the investments in marketing and product to build the brand and to drive traffic and average check.

General and administrative expenses decreased $0.1 million, or 1.5%, to $6.5 million in the first quarter of 2010, from $6.6 million in the first quarter of 2009. As a percentage of total net sales, general and administrative expenses decreased to 9.7% in the quarter of 2010, from 10.9% in the first quarter of 2009.

Depreciation and amortization decreased $0.6 million, or 15.9%, to $3.1 million during the first quarter of 2010, from $3.7 million during the same period in the prior year. Depreciation and amortization was lower in the quarter from reduced capital spending in 2009 and 2010 compared with prior years.

The Company’s net income for the first quarter of 2010 was $1.0 million or $0.05 per share compared to a net income of $0.3 million or $0.02 per share for the same period in 2009.

CONFERENCE CALL

Caribou Coffee will host a conference call on May 6, 2010, at 4:30 p.m. (Eastern Time) to discuss these results. Hosting the call will be Mike Tattersfield, Chief Executive Officer, and Tim Hennessy, Chief Financial Officer. The call will be webcast and can be accessed from the Company's website at www.cariboucoffee.com. The webcast link is in the Investor Relations section. Dial in number: 1-800-218-2154 or for international callers 1-913-312-0853. Passcode: 6574196. To listen to a replay of the conference call, dial toll-free 1-888-203-1112 or 1-719-457-0820 for international callers and enter pin number 6574196. The replay will be available beginning at 7:30 p.m. Eastern Time on May 6, 2010 through 11:59 p.m. on May 13, 2010. In addition, the webcast will be archived on the Company’s website.

ABOUT THE COMPANY

Caribou Coffee Company, Inc., founded in 1992 and headquartered in Minneapolis, Minnesota, is the second largest company-owned premium coffeehouse operator in the United States based on the number of coffeehouses. As of April 4, 2010, Caribou Coffee had 413 company-owned coffeehouses and 123 franchised and licensed locations. Caribou Coffee offers its customers premium coffee and hand crafted espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and other coffee lifestyle items. In addition, Caribou Coffee sells products to grocery stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels, entertainment venues and e-commerce channels. In addition, Caribou Coffee licenses third parties to use the Caribou Coffee brand on quality food and merchandise items. Caribou Coffee focuses on delivering a guest experience with a unique blend of expertise, fun and authentic human connection in a comfortable and welcoming coffeehouse environment. For more information, visit the Caribou Coffee web site at www.cariboucoffee.com.

FORWARD-LOOKING STATEMENTS

Certain statements in this release, and other written or oral statements made by or on behalf of Caribou Coffee are "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Caribou Coffee brand and other factors disclosed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

 

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

(A Majority Owned Subsidiary of Caribou Holding Company Limited)

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

Thirteen Weeks Ended

 

April 4,

2010

    March 29,

2009

(In thousands, except for per share amounts)

(Unaudited)

Coffeehouse sales $ 55,597 $ 52,864 Commercial and franchise sales   11,454     7,516   Total net sales 67,051 60,380 Cost of sales and related occupancy costs 31,399 26,252 Operating expenses 24,962 23,405 Depreciation and amortization 3,145 3,741 General and administrative expenses   6,509     6,606   Operating income 1,036 376 Other income (expense): Interest income 5 - Interest expense   (106 )   (58 ) Income before benefit from income taxes 935 318 Benefit from income taxes   157     101   Net income 1,092 419 Less: Net income attributable to noncontrolling interest   54     73   Net Income attributable to Caribou Coffee Company, Inc. $ 1,038   $ 346   Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.05   $ 0.02   Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.05   $ 0.02   Basic weighted average number of shares outstanding   19509     19,371   Diluted weighted average number of shares outstanding   20,313     19,526  

   

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

(A Majority Owned Subsidiary of Caribou Holding Company Limited)

 

CONDENSED CONSOLIDATED BALANCE SHEETS

  April 4,

2010

January 3,

2010

In thousands, except per share amounts

(Unaudited)

ASSETS

 

Current assets: Cash and cash equivalents $ 17,728 $ 23,578

Accounts receivable (net of allowance for doubtful accounts of $20 and $3 at  April 4, 2010 and January 3, 2010, respectively)

6,599 5,887

Other receivables (net of allowance for doubtful accounts of $134 and $128  at April 4, 2010 and January 3, 2010, respectively)

1,306 1,268 Income tax receivable 204 193 Inventories 18,900 13,278 Prepaid expenses and other current assets   1,310     1,546   Total current assets 46,047 45,750 Property and equipment, net of accumulated depreciation and amortization 44,323 47,135 Restricted cash 604 605 Other assets   519     237   Total assets $ 91,493   $ 93,727     LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,328 $ 9,042 Accrued compensation 5,104 6,296 Accrued expenses 6,908 7,563 Deferred revenue   6,558     8,747   Total current liabilities 28,898 31,648   Asset retirement liability 1,139 1,120 Deferred rent liability 7,415 7,955 Deferred revenue 2,072 2,072 Income tax liability   10     156   Total long term liabilities 10,636 11,303   Equity: Caribou Coffee Company, Inc. Shareholders’ equity:

Preferred stock, par value $.01, 20,000 shares authorized; no shares issued  and outstanding

— —

Common stock, par value $.01, 200,000 shares authorized; 20,014  and 19,814 shares issued and outstanding at April 4, 2010 and  January 3, 2010, respectively

200 198 Additional paid-in capital 126,974 126,770 Accumulated comprehensive loss (25 ) (7 ) Accumulated deficit   (75,303 )   (76,341 ) Total Caribou Coffee Company, Inc. shareholders’ equity 51,846 50,620 Noncontrolling interest   113     156   Total equity   51,959     50,776   Total liabilities and equity $ 91,493   $ 93,727  

   

Coffeehouse Openings and Closings

  Thirteen Weeks Ended     April 4, 2010 March 29, 2009 Operating Data: Percentage change in comparable coffeehouse net sales(1) 5.2 % (5.0 )% COFFEEHOUSE DATA Company-Owned: Coffeehouses open at beginning of period 413 414 Coffeehouses opened during the period 0 0 Coffeehouses closed during the period 0   0   Total Company-Owned Open at Period End 413 414 Franchised: Coffeehouses open at beginning of period 121 97 Coffeehouses opened during the period 2 6 Coffeehouses closed during the period 0   2   Total Franchised Open at Period End 123   101   Total coffeehouses open at end of period 536   515    

(1) Percentage change in comparable coffeehouse net sales compares the net sales of coffeehouses during a fiscal period to the net sales from the same coffeehouses for the equivalent period in the prior year. A coffeehouse is included in this calculation beginning in its thirteenth full fiscal month of operations. A closed coffeehouse is included in the calculation for each full month that the coffeehouse was open in both fiscal periods. Franchised coffeehouses are not included in the comparable coffeehouse net sales calculations.

   

EBITDA RECONCILIATION

 

The following is a reconciliation of the Company’s net income to EBITDA.

  Thirteen Weeks Ended April 4, 2010     March 29, 2009 (Thousands) Net income attributable to Caribou Coffee Company, Inc. $ 1,038 $ 346 Interest expense 106 58 Interest income (5 ) - Depreciation and amortization(1) 3,628 4,294 Benefit from income taxes   (157 )   (101 ) EBITDA $ 4,610   $ 4,597    

(1) Includes depreciation and amortization associated with the headquarters and roasting facility that are categorized as general and administrative expenses and cost of sales and related occupancy costs on the statement of operations.

EBITDA is equal to net income excluding: (a) interest expense; (b) interest income; (c) depreciation and amortization; and (d) income taxes.

Management believes EBITDA is useful to investors in evaluating the Company’s operating performance for the following reason:

• Coffeehouse leases are generally short-term (5-10 years) and Caribou must depreciate all of the cost associated with those leases on a straight-line basis over the initial lease term excluding renewal options (unless such renewal periods are reasonably assured at the inception of the lease). The Company opened a net 210 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the first quarter of fiscal 2010. As a result, management believes depreciation expense is disproportionately large when compared to the sales from a significant percentage of the coffeehouses that are in their initial years of operations. Also, many of the assets being depreciated have actual useful lives that exceed the initial lease term excluding renewal options. Consequently, management believes that adjusting for depreciation and amortization is useful for evaluating the operating performance of the coffeehouses.

Management uses EBITDA:

• As a measurement of operating performance because it assists management in comparing its operating performance on a consistent basis as it removes the impact of items not directly resulting from coffeehouse operations;
• For planning purposes, including the preparation of our internal annual operating budget;
• To evaluate the Company’s capacity to incur and service debt, fund capital expenditures and expand the business.

EBITDA as calculated by Caribou Coffee is not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA: (a) does not represent net income or cash flows from operating activities as defined by GAAP; (b) is not necessarily indicative of cash available to fund cash flow needs; and (c) should not be considered an alternative to net income, operating income, cash flows from operating activities or Caribou Coffee’s other financial information as determined under GAAP.