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 third quarter of 2010 (thirteen weeks ended October 3, 2010).

HIGHLIGHTS FOR THE THIRD QUARTER OF 2010 INCLUDE:

• Consolidated sales increased 11.8% compared to the same period in 2009
• Comparable coffeehouse store sales increased 4.4%
• Commercial and Franchise sales increased 64.0% compared to the third quarter of 2009
• Net income attributable to Caribou Coffee Company, Inc. was $1.6 million compared to net income of $0.7 million for the same period in 2009
• Earnings per share of $0.08 compared to $0.03 per share in the third quarter of 2009

Michael Tattersfield, the Company’s President and CEO commented, “Our third quarter results demonstrated successful execution across our three business lines as we delivered on our commitment to providing our shareholders with profitable growth. In addition to the continued momentum we experienced in our comparable coffeehouse sales, our commercial and franchise sales generated an exceptionally strong performance, reflecting increased traction in our consumer packaged goods business. With our success to date and long-term strategic growth initiatives in place, we are well on our way to building the Caribou brand through a disciplined multi-channel growth strategy.”

THIRD QUARTER 2010 RESULTS

Net sales of $70.2 million for the quarter increased $7.5 million, or 11.8%, from $62.7 million for the comparable quarter of 2009.

• Coffeehouse sales were $56.6 million in the third quarter 2010, an increase of 3.9% as compared with $54.5 million in the third quarter of 2009. The increase reflects a 4.4% increase in comparable coffeehouse sales in the third quarter of 2010 as compared with the same period in fiscal 2009. The increase in comparable coffeehouse sales was driven by increased traffic in our coffeehouses and a higher average guest check, primarily due to higher food sales, attributable to the launch of hot cereal in all of our coffeehouses at the beginning of the year and the phased rollout of breakfast sandwiches during the quarter which are now in 200 of our coffeehouses.
• Commercial sales were $11.3 million in the third quarter of 2010, an increase of 71.6% as compared with $6.6 million in the third quarter of 2009. We periodically align our inventory weeks of supply on hand across our various coffee blends, we took advantage of the 13-year highs in the coffee commodity market and sold $2.0 million of raw coffee beans for blends no longer needed. The remaining increase was primarily due to continued sales growth within our consumer packaged goods business.
• Franchise sales were $2.3 million in the third quarter of 2010, an increase of 34.6% as compared with $1.7 million in the third quarter of 2009.

Cost of sales and related occupancy costs in the third quarter of 2010 were $32.7 million, an increase of $4.9 million or 17.4% compared to the third quarter of 2009. This increase was primarily related to our sales increase for the quarter. As a percentage of revenue, cost of sales were 46.6% in the third quarter of 2010 versus 44.4% in the third 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 third quarter of 2010 were $25.1 million, an increase of $0.7 million or 2.9% compared to $24.4 million in the same period of the prior year. This increase was primarily driven by the impact of our sales growth on our variable costs. As a percentage of revenue, operating costs were 35.8%, down from 38.9% in the same period of the prior year, as we were able to gain leverage on fixed costs within these categories from our increase in sales and lower marketing spend in the quarter.

General and administrative expenses increased $1.1 million, or 17.6%, to $7.4 million in the third quarter of 2010, from $6.3 million in the third quarter of 2009. As a percentage of total net sales, general and administrative expenses increased to 10.6% in the third quarter of 2010, from 10.1% in the third quarter of 2009. This increase was due to resources added in support of key initiatives, including marketing, product management, and real estate.

Depreciation and amortization decreased $0.4 million to $3.1 million during the third quarter of 2010. Depreciation and amortization was lower in the quarter from reduced capital spending in 2009 and the first half of 2010 compared with previous years.

The Company’s net income attributable to Caribou Coffee Company, Inc. for the third quarter of 2010 was $1.6 million or $0.08 per share compared to $0.7 million or $0.03 per share for the same period in 2009.

CONFERENCE CALL

Caribou Coffee will host a conference call on November 11, 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: 1-888-245-0962 or for international callers 1-913-312-1500. To listen to a replay of the conference call, dial toll-free 1-877-870-5176 or 1-858-384-5517 for international callers and enter pin number 5439249. The replay will be available beginning at 7:30 p.m. Eastern Time on November 11, 2010 through 11:59 p.m. on November 18, 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 October 3, 2010, Caribou Coffee had 410 company-owned coffeehouses and 129 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

Thirty-Nine Weeks Ended

 

October 3,

2010

  September 27,

2009

October 3,

2010

  September 27,

2009

(In thousands, except for per share amounts) (Unaudited) Coffeehouse sales $ 56,626 $ 54,479 $ 169,974 $ 162,637 Commercial and franchise sales   13,547     8,260     36,134     23,436   Total net sales 70,173 62,739 206,108 186,073 Cost of sales and related occupancy costs 32,701 27,849 94,651 81,438 Operating expenses 25,130 24,426 75,159 71,684 Depreciation and amortization 3,099 3,465 9,271 10,776 General and administrative expenses   7,421     6,313     21,563     19,708   Operating income 1,822 686 5,464 2,467 Other income (expense): Interest income 9 10 19 17 Interest expense   (63 )   (68 )   (234 )   (189 ) Income before provision for (benefit from) income taxes 1,768 628 5,249 2,295 Provision for (benefit from) income taxes   32     (140 )   (106 )   (182 ) Net income 1,736 768 5,355 2,477 Less: Net income attributable to noncontrolling interest   129     114     289     309   Net Income attributable to Caribou Coffee Company, Inc. $ 1,607   $ 654   $ 5,066   $ 2,168   Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.08   $ 0.03   $ 0.26   $ 0.11   Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.08   $ 0.03   $ 0.25   $ 0.11   Basic weighted average number of shares outstanding   19,610     19,470     19,599     19,418   Diluted weighted average number of shares outstanding   20,710     20,169     20,540     19,830     CARIBOU COFFEE COMPANY, INC. AND AFFILIATES (A Majority Owned Subsidiary of Caribou Holding Company Limited)   CONDENSED CONSOLIDATED BALANCE SHEETS   October 3,

2010

January 3,

2010

In thousands, except per share amounts (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 10,018 $ 23,578 Accounts receivable (net of allowance for doubtful accounts of $3 at October 3, 2010 and January 3, 2010) 9,130 5,887 Other receivables (net of allowance for doubtful accounts of $202 and $128 at October 3, 2010 and January 3, 2010, respectively) 1,806 1,268 Income tax receivable 102 193 Inventories 31,182 13,278 Prepaid expenses and other current assets 1,085 1,546 Total current assets 53,323 45,750 Property and equipment, net of accumulated depreciation and amortization 42,228 47,135 Restricted cash 605 605 Other assets 403 237 Total assets $ 96,559 $ 93,727   LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,350 $ 9,042 Accrued compensation 6,821 6,296 Accrued expenses 6,476 7,563 Deferred revenue 5,847 8,747 Total current liabilities 29,494 31,648   Asset retirement liability 1,176 1,120 Deferred rent liability 6,716 7,955 Deferred revenue 2,072 2,072 Income tax liability 2 156 Total long term liabilities 9,966 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; 20,042 and 19,814 shares issued and outstanding at October 3, 2010 and January 3, 2010, respectively 200 198 Additional paid-in capital 127,964 126,770 Accumulated other comprehensive income (loss) 21 (7) Accumulated deficit (71,275) (76,341) Total Caribou Coffee Company, Inc. shareholders’ equity 56,910 50,620 Noncontrolling interest 189 156 Total equity 57,099 50,776 Total liabilities and equity $ 96,559 $ 93,727    

     Coffeehouse Openings and Closings

  13 Weeks Ended 39 Weeks Ended

October 3,2010

 

September 27,2009

October 3,2010

 

September 27,2009

Operating Data: Percentage change in comparable coffeehouse net sales (1) 4.4 % (0.5 )% 4.8 % (3.0 )%   COFFEEHOUSE COUNT Company-Owned: Coffeehouses open at beginning of period 411 414 413 414 Coffeehouses opened during the period 0 0 0 0 Coffeehouses closed during the period (1 ) (1 ) (3 ) (1 ) Total Company-Owned Open at Period End 410 413 410 413   Franchised: Coffeehouses open at beginning of period 128 108 121 97 Coffeehouses opened during the period 6 4 13 18 Coffeehouses closed during the period (5 ) 0   (5 ) (3 ) Total Franchised Open at Period End 129   112   129   112   Total coffeehouses open at end of period 539   525   539   525       (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 Thirty-Nine Weeks Ended

October 3, 2010

 

September 27, 2009

October 3, 2010

 

September 27, 2009

(In thousands) Net income attributable to Caribou Coffee Company, Inc. $ 1,607 $ 654 $ 5,066 $ 2,168 Interest expense 63 68 234 189 Interest income (9 ) (10 ) (19 ) (17 ) Depreciation and amortization(1) 3,607 3,964 10,748 12,360 Provision for (benefit from) income taxes   32     (140 )   (106 )   (182 ) EBITDA $ 5,300   $ 4,536   $ 15,923   $ 14,518         (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 207 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the third 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.