Peet's Beats, Earnings Up 23% - Analyst Blog
August 03 2011 - 10:45AM
Zacks
Peet's Coffee & Tea Inc. (PEET) reported
second quarter 2011 diluted earnings per share of 38 cents, up 23%
versus 2010 proforma diluted earnings per share of 31 cents. It
also surpassed the Zacks Consensus Estimate of 32 cents by
18.75%.
The company Expects 2011 full-year diluted earnings per share to
be toward the higher end of the previous guidance range of $1.43 to
$1.50.
Revenues and Operating Profits
Net revenue climbed 12% to $90.6 million from $80.8 million for
the corresponding period of fiscal 2010. Strong sales growth was
fuelled by grocery business that was at its strongest at 30% for
this quarter. Revenues also surpassed Zacks Consensus Estimate of
$88.0 million.
Management stated that the quarter marked strong fundamentals
with strong business growth. There was good sales growth across all
channels. With excellent overall cost management, the company
reported first quarter operating margin of 8.8%.
The company expects full-year total net revenue growth to be in
the range of 10% to 12%.
Cost of sales was 49.2% of total net revenue, compared to 46.3%
last year. The increase resulted primarily from higher coffee costs
and to a lesser extent higher milk costs and a mix shift towards
the specialty business, which has a higher cost of sales. Price
increases across the channels and lower shipping expenses partially
offset the impact of these higher costs.
Operating expenses as a percentage of net revenue came down to
31.1% from 33.3% last year, owing to a favorable mix shift to the
specialty business, the impact of price increases across all
channels, leveraging the retail overhead costs, and lower training
expenses in retail stores.
Segment Details
Retail net sales inched up 6% to $53.4 million for the first
quarter 2011, from $50.6 million a year ago. The growth was
attributable to sales growth in existing stores. Operating income
for Retail climbed 21.6% year over year to $6.5 million.
Specialty segment’s net revenue climbed 23% to $37.3 million for
the quarter, compared to $30.2 million for the corresponding period
of fiscal 2010. Grocery business grew 30% over last year; the
foodservice and office business grew 19%; and home delivery net
revenue grew 2%. Specialty segment reported operating income of
$8.2 million, 5.7% higher than the year ago period.
Management sees momentum and plenty of new growth opportunities
for the company. It expects to make up for most of the
year-over-year coffee cost increase in the years to come.
Recommendation
Peet’s Coffee & Tea is a growing company. The company’s high
quality standard and its variety are maintained by its vertically
integrated business model. However, the highly competitive nature
of specialty coffee category, presence of strong competitors like
Coca-Cola Enterprises Inc. (CCE) and
Starbucks Corporation (SBUX) and the vulnerability
of coffee prices to weather and damage by pest concern us.
Currently, we prefer to rate the stock as Neutral. Further,
Supervalu (SVU) holds the Zacks #2 Rank, which
translates into a short-term Buy rating.
COCA-COLA ENTRP (CCE): Free Stock Analysis Report
PEETS COFFE&TEA (PEET): Free Stock Analysis Report
STARBUCKS CORP (SBUX): Free Stock Analysis Report
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