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 second quarter of 2010 (thirteen weeks ended July 4, 2010).

HIGHLIGHTS FOR THE SECOND QUARTER OF 2010 INCLUDE:

• Consolidated sales increased 9.4% compared to the second quarter of 2009
• Comparable coffeehouse store sales for the quarter increased 4.8%
• Commercial and Franchise sales for the quarter increased 45.3% compared to the second quarter of 2009
• Net income attributable to Caribou Coffee Company, Inc. for the quarter was $2.4 million compared to net income of $1.2 million for the same period in 2009
• Earnings per share of $0.12 compared to $0.06 per share in the second quarter of 2009

Michael Tattersfield, the Company’s President and CEO commented, “I am very pleased with our solid financial performance for the quarter and more importantly with the progress we are making in building our future towards becoming a multi-channel branded coffee company. We continue to experience strong growth momentum across each of our three lines of business as evident in our latest results.”

SECOND QUARTER 2010 RESULTS

Net sales for the quarter increased $5.9 million, or 9.4%, to $68.9 million from $63.0 million for the comparable quarter of 2009.

• Coffeehouse sales were $57.8 million in the second quarter 2010, an increase of 4.4% as compared with $55.3 million in the second quarter of 2009. The increase reflects a 4.8% increase in comparable coffeehouse sales in the second quarter of 2010 as compared to the same period in fiscal 2009.
• Commercial sales were $8.7 million in the second quarter of 2010, an increase of 51.0% as compared with $5.7 million in the second quarter of 2009. The increase was primarily due to continued sales growth within our consumer packaged goods business.
• Franchise sales were $2.5 million in the second quarter of 2010, an increase of 28.6% as compared with $1.9 million in the second quarter of 2009.

Cost of sales and related occupancy costs in the second quarter of 2010 were $30.6 million, an 11.8% increase over the second quarter of 2009. This increase is primarily related to our sales increase for the quarter. As a percentage of revenue, cost of sales were 44.4% in the second quarter of 2010 versus 43.4% in the second 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.

Operating expenses in the second quarter of 2010 were $25.1 million, an increase of $1.2 million or 5.0% compared to $23.9 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 36.4%, down from 37.9% in the same period of the prior year, as we experienced operating efficiencies while making the investments in marketing and product platforms to build our brand, drive traffic and increase the average amount our guests spend during each visit.

General and administrative expenses increased $0.8 million, or 12.4%, to $7.6 million in the second quarter of 2010, from $6.8 million in the second quarter of 2009. As a percentage of total net sales, general and administrative expenses increased to 11.1% in the second quarter of 2010, from 10.8% in the second quarter of 2009. This increase is due resources added in support of our marketing, product management, and commercial activities in the latter half of 2009 and the timing of other initiatives in the quarter.

Depreciation and amortization decreased $0.6 million to $3.0 million during the second quarter of 2010. Depreciation and amortization was lower in the quarter from reduced capital spending in 2009 and 2010 compared with previous years.

The Company’s net income attributable to Caribou Coffee Company, Inc. for the second quarter of 2010 was $2.4 million or $0.12 per share compared to $1.2 million or $0.06 per share for the same period in 2009.

CONFERENCE CALL

Caribou Coffee will host a conference call on August 4, 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: 1-888-812-8594 or for international callers 1-913-312-0867. Passcode: 2804766. 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 2804766. The replay will be available beginning at 7:30 p.m. Eastern Time on August 4, 2010 through 11:59 p.m. on August 11, 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 July 4, 2010, Caribou Coffee had 411 company-owned coffeehouses and 128 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 Twenty-Six Weeks Ended

 

July 4,

2010

  June 28,

2009

July 4,

2010

  June 28,

2009

(In thousands, except for per share amounts)

(Unaudited)

Coffeehouse sales $ 57,751 $ 55,294 $ 113,348 $ 108,158 Commercial and franchise sales   11,133     7,660     22,587     15,176   Total net sales 68,884 62,954 135,935 123,334 Cost of sales and related occupancy costs 30,551 27,317 61,950 53,589 Operating expenses 25,067 23,873 50,029 47,258 Depreciation and amortization 3,028 3,570 6,172 7,311 General and administrative expenses   7,633     6,789     14,142     13,395   Operating income 2,606 1,405 3,642 1,781 Other income (expense): Interest income 5 7 10 7 Interest expense   (64 )   (63 )   (171 )   (121 ) Income before provision for (benefit from) income taxes 2,547 1,349 3,481 1,667 Provision for (benefit from) income taxes   20     59     (138 )   42   Net income 2,527 1,290 3,619 1,709 Less: Net income attributable to noncontrolling interest   106     122     160     195   Net Income attributable to Caribou Coffee Company, Inc. $ 2,421   $ 1,168   $ 3,459   $ 1,514   Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.12   $ 0.06   $ 0.18   $ 0.08   Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.12   $ 0.06   $ 0.17   $ 0.08   Basic weighted average number of shares outstanding   19,515     19,371     19,514     19,371   Diluted weighted average number of shares outstanding   20,520     20,118     20,381     19,865       CARIBOU COFFEE COMPANY, INC. AND AFFILIATES (A Majority Owned Subsidiary of Caribou Holding Company Limited)   CONDENSED CONSOLIDATED BALANCE SHEETS   July 4, January 3, 2010 2010 In thousands, except per share amounts

(Unaudited)

ASSETS Current assets: Cash and cash equivalents $ 16,188 $ 23,578 Accounts receivable (net of allowance for doubtful accounts of $21 and $3 at July 4, 2010 and January 3, 2010, respectively) 5,536 5,887 Other receivables (net of allowance for doubtful accounts of $191 and $128 at July 4, 2010 and January 3, 2010, respectively) 1,132 1,268 Income tax receivable 164 193 Inventories 24,776 13,278 Prepaid expenses and other current assets 1,016 1,546 Total current assets 48,812 45,750 Property and equipment, net of accumulated depreciation and amortization 41,349 47,135 Restricted cash 605 605 Other assets 627 237 Total assets $ 91,393 $ 93,727   LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 9,381 $ 9,042 Accrued compensation 4,566 6,296 Accrued expenses 6,379 7,563 Deferred revenue 6,112 8,747 Total current liabilities 26,438 31,648   Asset retirement liability 1,157 1,120 Deferred rent liability 6,725 7,955 Deferred revenue 2,072 2,072 Income tax liability 10 156 Total long term liabilities 9,964 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; 20,039 and 19,814 shares issued and outstanding at July 4, 2010 and January 3, 2010, respectively 200 198 Additional paid-in capital 127,518 126,770 Accumulated comprehensive loss (12) (7) Accumulated deficit (72,882) (76,341) Total Caribou Coffee Company, Inc. shareholders’ equity 54,824 50,620 Noncontrolling interest 166 156 Total equity 54,990 50,776 Total liabilities and equity $ 91,393 $ 93,727    

Coffeehouse Openings and Closings

  13 Weeks Ended 26 Weeks Ended July 4,   June 28, July 4,   June 28, 2010   2009   2010   2009 Operating Data: Percentage change in comparable coffeehouse net sales (1) 4.8 % (3.3 )% 5.0 % (4.2 )%   COFFEEHOUSE COUNT Company-Owned: Coffeehouses open at beginning of period 413 414 413 414 Coffeehouses opened during the period 0 0 0 0 Coffeehouses closed during the period 2     0     2     0   Total Company-Owned Open at Period End 411 414 411 414   Franchised: Coffeehouses open at beginning of period 123 101 121 97 Coffeehouses opened during the period 5 8 7 14 Coffeehouses closed during the period 0     1     0     3   Total Franchised Open at Period End 128     108     128     108   Total coffeehouses open at end of period 539     522     539     522         (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 Twenty-Six Weeks Ended July 4, 2010   June 28, 2009 July 4, 2010   June 28, 2009 (In thousands) Net income attributable to Caribou Coffee Company, Inc. $ 2,421 $ 1,168 $ 3,459 $ 1,514 Interest expense 65 63 171 121 Interest income (5 ) (7 ) (10 ) (7 ) Depreciation and amortization(1) 3,512 4,102 7,140 8,396 Provision for (benefit from) income taxes   20     59     (137 )   (42 ) EBITDA $ 6,013   $ 5,385   $ 10,623   $ 9,982       (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 208 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the second 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.