CBOU Caribou Coffee Company, Inc. (MM)

Caribou Coffee Company, Inc. (NASDAQ:CBOU), the second largest company-owned premium coffeehouse operator in the United States based on the number of coffeehouses, today reported financial results for the third quarter of 2011 (thirteen weeks ended October 2, 2011). The Company also provided a preliminary view on 2012.

HIGHLIGHTS FOR THE THIRD QUARTER OF 2011 INCLUDE:

• Consolidated sales increased 16.1%
• Comparable coffeehouse store sales increased 4.1%
• Commercial and Franchise sales increased 67.9%
• Net income attributable to Caribou Coffee Company, Inc. was $1.8 million, or $0.09 per diluted share
• Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. was $1.6 million, or $0.07 per diluted share, compared to pro forma net income of $1.0 million, or $0.05 per diluted share for the same period in 2010 (see non-GAAP reconciliation at the end of this release)

Speaking on behalf of the Company, Michael Tattersfield, the Company’s President and Chief Executive Officer commented, “We are extremely pleased with our third quarter performance, not only from a financial standpoint, but through the strategic execution that drives those results and builds our brand. Our multi-channel business model is the catalyst of our success and is driving synergistic benefits across our company. We’re also excited that we have activated another growth lever and opened three company owned stores in the quarter, our first openings in over three years.”

THIRD QUARTER 2011 RESULTS

Net sales for the quarter of $81.4 million increased $11.2 million, or 16.1%, from $70.2 million in the comparable quarter of 2010.

• Coffeehouse sales were $58.7 million in the third quarter of 2011, an increase of 3.7% compared to $56.6 million in the third quarter of 2010. Growth was driven by a 4.1% increase in comparable coffeehouse sales in the third quarter of 2011, primarily due to the successful expansion of the Company’s food platform through the launch of breakfast sandwiches and grilled cheese lunch sandwiches.
• Commercial sales were $19.8 million in the third quarter of 2011, an increase of 75.5% compared to $11.3 million in the third quarter of 2010. Growth was driven by sales from new and existing customers in the Company’s grocery channel, sales in to the Keurig single-serve platform and increased penetration in foodservice channels.
• Franchise sales were $3.0 million in the third quarter of 2011, an increase of 30.3% compared to $2.3 million in the third quarter of 2010. Growth in product sales and royalties from 150 franchise locations, a net increase of 24 locations from the prior year, drove the increase in franchise sales versus last year.

Cost of sales and related occupancy costs in the third quarter of 2011 were $41.9 million, an increase of $9.2 million, or 28.3%, compared to the third quarter of 2010, and were driven by the Company’s consolidated sales growth. As a percentage of revenue, cost of sales and related occupancy costs were 51.5% in the third quarter of 2011 versus 46.6% in the third quarter of 2010. The increase as a percentage of sales was due to higher coffee commodity costs versus the prior year as well as a shift in the overall mix to the Company’s commercial and franchise channels, which have higher cost of sales as a percentage of sales.

Operating expenses in the third quarter of 2011 were $26.3 million, an increase of $1.2 million, or 4.6%, compared to $25.1 million in the third quarter of 2010. The increase in operating expenses was driven by new company-owned store openings as well as higher maintenance on existing stores. As a percentage of revenue, operating costs were 32.3%, compared to 35.8% in the same period of the prior year. The decrease as a percentage of sales is the result of leverage gained on fixed costs within the Company’s business channels as well as a shift in the overall sales mix to the Company’s commercial channel, which has a lower operating expense component than its retail coffeehouses.

General and administrative expenses increased $0.4 million, or 4.6%, to $7.8 million in the third quarter of 2011, from $7.4 million in the third quarter of 2010. As a percentage of total net sales, general and administrative expenses decreased to 9.5% in the third quarter of 2011 from 10.6% in the third quarter of 2010, as the Company leveraged fixed costs against higher sales.

Depreciation and amortization decreased $0.4 million to $2.7 million during the third quarter of 2011 due to a lower depreciable asset base.

The Company’s net income attributable to Caribou Coffee Company, Inc. for the third quarter of 2011 was $1.8, million or $0.09 per diluted share, compared to $1.6 million, or $0.08 per diluted share, in the same period in 2010.

EBITDA was $5.8 million in the third quarter of 2011, compared to EBITDA of $5.3 million in the third quarter of 2010, an improvement of 9.7% (EBITDA is a non-GAAP measure. See EBITDA reconciliation at the end of this release).

The Company’s non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. in the third quarter of 2011 was $1.6 million, or $0.07 per diluted share, compared to a pro forma net income of $1.0 million, or $0.05 per diluted share for the same period in 2010 (see non-GAAP reconciliation at the end of this release).

FINANCIAL GUIDANCE

Given the year-to-date results and expectations for the fourth quarter of 2011, the Company is confirming its financial guidance for the full year 2011:

• Net sales growth of approximately 13%.
• Pro forma earnings at the top end of the previous outlook of $0.39 to $0.41 per share.

The Company is also providing a preliminary view for the full year 2012 based upon the following assumptions:

• Net sales growth of approximately 10% to 12%.
• Comparable coffeehouse sales growth in the 2% to 4% range.
• Commercial sales growth of 20% to 25%.
• Earnings per share in the range of $0.48 to $0.51.

CONFERENCE CALL

The Company will host a conference call on November 8, 2011, 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.

Listeners may also access the call by dialing 888-318-7459 or 719-457-2692 for international callers. A replay of the call will be available until Tuesday, November 15, 2011, by dialing 877-870-5176 or 858-384-5517 for international callers; the password is 2498705.

The conference call will also be webcast and can be accessed from the Investor Relations section of the Company’s website at www.cariboucoffee.com.

ABOUT THE COMPANY

Founded in 1992, Caribou Coffee Company is one of the leading branded coffee companies in the United States, with a compelling multi-channel approach to their customers. Based on the number of coffeehouses, Caribou Coffee is the second largest company-operated premium coffeehouse operator in the United States. As of October 2, 2011, the Company had 559 coffeehouses, including 150 franchised locations, in 20 states, the District of Columbia and nine international markets. The Company’s coffeehouses aspire to be the community place loved by guests who are provided an extraordinary experience that makes their day better. Caribou Coffee provides the highest quality handcrafted beverages, foods and coffee lifestyle items with a unique blend of expertise, fun and authentic human connection in a comfortable and welcoming coffeehouse environment. In addition, Caribou Coffee’s unique coffees are available within grocery stores, mass merchandisers, club stores, office coffee and foodservice providers, hotels, entertainment venues and e-commerce channels. Caribou Coffee is a proud recipient of the Rainforest Alliance Corporate Green Globe Award and is committed to operating practices that promote sustainability and environmental protection. 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 contain forward-looking statements concerning Caribou Coffee’s expected financial performance (including, without limitation, statements and information in the Fiscal 2011 Outlook and the quotation from management), as well as Caribou Coffee’s strategic and operational plans. Risks and uncertainties may cause actual results to differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among others, our ability to develop and maintain our brand; our ability to maintain or expand our commercial business, including maintaining our relationship with Keurig; our ability to locate superior sites and increase the density of our coffeehouses; Caribou Coffee’s ability to compete with new or existing competitors; the implementation and results of Caribou Coffee’s ongoing strategic and cost initiatives; the fluctuations in cost and availability of our raw ingredients; the demand by customers for Caribou Coffee’s premium products; acceptance by customers of new products and services; dependence on third parties for supplies, services, and distribution; dependence on key personnel; failure to manage growth and diversification; risks related to Caribou Coffee’s international franchise operations; Caribou Coffee’s ability to protect its intellectual property and the value of its brands; and general economic conditions and changes in economic conditions. All information set forth in this press release and its attachments is as of November 8, 2011. Caribou Coffee does not intend, and undertakes no duty, to update this information to reflect subsequent events or circumstances; however, Caribou Coffee may update its business outlook or any portion thereof at any time in its discretion. More information about potential factors that could affect the Company’s business and financial results is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended January 2, 2011, which is on file with the SEC and available on the SEC’s website at www.sec.gov. Additional information will also be set forth in those sections in any future filings we may make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.

               

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

  Thirteen Weeks Ended Thirty-Nine Weeks Ended

 

October 2,

2011

October 3,

2010

October 2,

2011

October 3,

2010

(In thousands, except for per share amounts)

(Unaudited)

Coffeehouse sales $ 58,695 $ 56,626 $ 176,338 $ 169,974 Commercial and franchise sales 22,744 13,547 57,646 36,134 Total net sales 81,439 70,173 233,984 206,108 Cost of sales and related occupancy costs 41,941 32,701 113,100 94,651 Operating expenses 26,291 25,130 78,512 75,159 Depreciation and amortization 2,669 3,099 8,373 9,271 General and administrative expenses 7,763 7,421 23,703 21,563 Operating income 2,775 1,822 10,296 5,464 Other income (expense): Interest income 3 9 15 19 Interest expense (70) (63) (184) (234) Income before provision for (benefit from) income taxes 2,708 1,768 10,127 5,249 Provision for (benefit from) income taxes 803 32 (20,484) (106) Net income 1,905 1,736 30,611 5,355 Less: Net income attributable to noncontrolling interest 118 129 328 289 Net Income attributable to Caribou Coffee Company, Inc. $ 1,787 $ 1,607 $ 30,283 $ 5,066 Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.09 $ 0.08 $ 1.51 $ 0.26 Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.09 $ 0.08 $ 1.46 $ 0.25 Basic weighted average number of shares outstanding 20,232 19,610 20,076 19,599 Diluted weighted average number of shares outstanding 20,953 20,710 20,751 20,540        

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

October 2,

January 2, 2011 2011 In thousands, except per share amounts (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 41,659 $ 23,092 Accounts receivable, net 10,382 8,096 Other receivables, net 2,227 1,227 Inventories 23,008 25,931 Deferred tax assets - current 2,922 — Prepaid expenses and other current assets   912     1,122  

Total current assets

81,110 59,468 Property and equipment, net of accumulated depreciation and amortization 37,443 41,075 Restricted cash 837 837 Deferred tax assets – non-current 17,708 — Other assets   380     345  

Total assets

$ 137,478   $ 101,725     LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,762 $ 8,080 Accrued compensation 8,282 5,954 Accrued expenses 8,098 6,916 Deferred revenue   5,615     8,726   Total current liabilities 32,757 29,676   Asset retirement liability 1,249 1,196 Deferred rent liability 5,526 6,296 Deferred revenue   2,144     2,091   Total long term liabilities 8,919 9,583   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; 20,076 and 20,141 shares issued and outstanding at October 2, 2011 and January 2, 2011, respectively 208 202 Additional paid-in capital 132,046 129,026 Accumulated comprehensive income 16 12 Accumulated deficit   (36,658 )   (66,941 ) Total Caribou Coffee Company, Inc. shareholders’ equity 95,612 62,299 Noncontrolling interest   190     167   Total equity   95,802     62,466   Total liabilities and equity $ 137,478   $ 101,725        

Coffeehouse Openings and Closings

  Thirteen Weeks Ended Thirty-Nine Weeks Ended October 2, 2011     October 3, 2010 October 2, 2011     October 3, 2010 (In thousands, except operating data) Non-GAAP Metrics: EBITDA(1) $ 5,812 $ 5,300 $ 19,811 $ 15,923   Operating Data: Percentage change in comparable coffeehouse net sales(2)

4.1

%

4.4 % 4.3 % 4.8 % Company-Owned: Coffeehouses open at beginning of period 407 411 410 413 Coffeehouses opened during the period 3 0 3 0 Coffeehouses closed during the period   1     1     4     3   Coffeehouses open at end of period: Total Company-Owned 409 410 409 410 Franchised: Coffeehouses open at beginning of period 147 125 131 121 Coffeehouses opened during the period 5 6 26 13 Coffeehouses closed during the period   2     5     7     8   Coffeehouses open at end of period: Total Franchised   150     126     150     126   Total coffeehouses open at end of period   559     536     559     536                                          

(1)

 

See reconciliation and discussion of non-GAAP measures which follow at the end of this section.

(2)

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.

 

NON-GAAP FINANCIAL INFORMATION(Unaudited, in thousands, except per share data)

The following reconciliations and non-GAAP financial information are provided to assist the reader with understanding the financial impact of the reversal of the valuation allowance against accumulated net operating losses and other deferred tax assets on the Company’s net income attributable to Caribou Coffee Company, Inc. and earnings per share when comparing current 13 and 39 week period results to the Company’s 2010 results.

   

Thirteen Weeks Ended

October 2,     October 2,     October 3,     October 3, 2011 2010 2011 2010 (Thousands) Diluted EPS Net income attributable to Caribou Coffee Company, Inc. as reported $ 1,787 $ 1,607 $ 0.09 $ 0.08 Provision for income taxes   803   32   0.03   0.00 Non-GAAP pro-forma pre-tax income attributable to Caribou Coffee Company, Inc. 2,590 1,639 0.12 0.08 Pro forma tax expense at 40% effective tax rate (2)   1,036   656   0.05   0.03 Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. $ 1,554 $ 983 $ 0.07 $ 0.05 Diluted weighted average number of shares outstanding   20,953   20,710   20,953   20,710    

Thirty-Nine Weeks Ended

October 2,     October 3,     October 2,     October 3, 2011 2010 2011 2010 (Thousands) Diluted EPS Net income attributable to Caribou Coffee Company, Inc. as reported $ 30,283 $ 5,066 $ 1.46

 

$ 0.25 Deferred tax asset valuation allowance reversal (1) 21,284 - 1.03 0.00 Other (expense) benefit from income taxes   (800 )   106   (0.04 )   0.01 Non-GAAP pro-forma pre-tax income attributable to Caribou Coffee Company, Inc. 9,799 4,960 0.47 0.24 Pro forma tax expense at 40% effective tax rate (2)   3,920     1,984   0.19     0.10 Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. $ 5,879   $ 2,976 $ 0.28   $ 0.14 Diluted weighted average number of shares outstanding   20,751     20,540   20,751     20,540

(1)

 

Relates to the tax benefit from the reversal of an accounting reserve against tax net operating loss carryforwards and other deferred tax assets.

(2)

Pro forma effective tax rate for illustrative purposes. Actual results could be different.

       

EBITDA RECONCILIATION

 

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

  Thirteen Weeks Ended Thirty-Nine Weeks Ended October 2,     October 3, October 2,     October 3, 2011 2010 2011 2010 (In thousands) Net income attributable to Caribou Coffee Company, Inc. $ 1,787 $ 1,607 $ 30,283 $ 5,066 Interest expense 70 63 184 234 Interest income (3 ) (9 ) (15 ) (19 ) Depreciation and amortization(1) 3,155 3,607 9,843 10,748 Provision for (benefit from) income taxes   803     32     (20,484 )   (106 ) EBITDA $ 5,812   $ 5,300   $ 19,811   $ 15,923    

(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 206 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the third quarter of fiscal 2011. 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. Furthermore, the Company recorded a significant tax benefit in the second quarter of fiscal 2011 related to the reversal of a valuation allowance against accumulated net operating losses and other deferred tax assets. Consequently, management believes that adjusting for the impact of income taxes is useful in evaluating the overall performance of the Company.

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.

FISCAL 2012 GUIDANCE

The following reconciliation and non-GAAP financial information are provided to assist the reader with understanding the financial impact of taxes on our pro-forma earnings per share when adjusted for pro-forma tax impacts when comparing expected 2011 performance with the Company’s 2012 guidance.

       

Year ended

Year ended

January 1, 2012

December 30, 2012

Diluted EPS Net income attributable to Caribou Coffee Company, Inc.,estimated $1.68 - $1.71 $0.81 - $0.85 Deferred tax asset valuation allowance reversal (1) $1.03 $0.00 Non-GAAP pro-forma pre-tax income attributable to Caribou Coffee Company, Inc. $0.65 – $0.68 $0.81 – $0.85 Pro forma tax expense at 40% effective tax rate (2) $0.26 – $0.27 $0.33 – $0.34 Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. $0.39 – $0.41 $0.48 – $0.51  

(1)

Relates to the tax benefit from the reversal of an accounting reserve against tax net operating loss carryforwards and other deferred tax assets.

(2)

Pro forma effective tax rate for illustrative purposes. Actual results could be different.