CBOU Caribou Coffee Company, Inc. (MM)

Caribou Coffee Company, Inc. (CBOU), the second largest premium coffeehouse operator in the United States, posted adjusted earnings of 14 cents per share in the fourth quarter of 2011, exceeding both the Zacks Consensus Estimate and the year-ago quarter earnings by a penny. In fiscal 2011, adjusted earnings stood at 42 cents per share versus 27 cents in the prior year.

The company’s sales during the quarter increased 18.8% to $92.5 million, aided by improved performance across all its business lines. In fiscal 2011, revenue jumped 15.0% year over year to $326.5 million.

Quarter Highlights

Segment wise, Coffeehouse sales escalated 6.1% year over year to $66.0 million during the quarter, driven by a 5.6% rise in comparable coffeehouse sales. Commercial sales shot up 77.5% to $23.3 million, due to higher sales from the Keurig single-serve platform as well as existing and new customers. Franchise revenues rose 24.6% to $3.3 million, attributable to higher product sales and royalties.

Cost of sales and related occupancy cost increased 36.0% to $49.6 million in the fourth quarter of 2011, driven by higher sales in the quarter. Operating expense climbed 5.7% to $27.5 million, attributable to unit growth and higher sales volume. General and administrative expense fell 3.3% to $7.5 million, but depreciation and amortization expenses upped 1.3% to $3.1 million.

Total operating income expanded 5.5% to $4.9 million, but operating margin contracted 70 basis points (bps) to 5.3% due to higher cost of sales and related occupancy cost.

Store Update

During the quarter, Caribou Coffee opened 5 company-owned and 19 franchised-owned coffeehouses. The company also closed 2 company-owned coffeehouses. At the end of the quarter, the company had 412 company-owned and 169 franchised coffeehouses.

Financial Position

Caribou Coffee ended the year with cash and cash equivalents of $44.5 million and shareholders’ equity of $101.3 million.

Outlook

The Minneapolis, Minnesota-based company reaffirmed its financial outlook for 2012. The company expects comparable sales growth of 2% to 4% and adjusted earnings per share in the range of 48 cents to 51 cents. However, the company expects net sales growth of 10%, lower than its previously expected range of 10% to 12%.

Our Take

We expect estimates to increase for fiscal 2012 as the company remains optimistic regarding growth across all the segments. Caribou Coffee continues to focus on unit growth and plans to open 55 to 70 locations in 2012, implying an upside of 10% to 12%. The Zacks Consensus Estimates for fiscal 2012 and 2013 are 50 cents and 66 cents per share, respectively, reflecting year-over-year growth of 20.0% and 30.2%.

One of Caribou Coffee’s competitors, Texas Roadhouse Inc (TXRH) recently posted third quarter 2011 earnings of 22 cents, which surpassed the Zacks Consensus Estimate of 19 cents and grew 15% year over year. The higher-than-expected results were attributable to lower-than-anticipated workers compensation expense, property tax expense and income tax rate.

Caribou currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.

 
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