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Caribou Coffee Reports Second Quarter 2012 Results

MINNEAPOLIS--(BUSINESS WIRE)--Aug. 6, 2012-- 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 second quarter of 2012 (thirteen weeks ended July 1, 2012). The Company also adjusted its fiscal 2012 outlook.

HIGHLIGHTS FOR THE SECOND QUARTER OF 2012 INCLUDE:

  • Comparable coffeehouse store sales increased 2.8%
  • Net income attributable to Caribou Coffee Company, Inc. was $2.8 million, or $0.13 per diluted share compared to $4.4 million, or $0.21 per diluted share, in the second quarter of 2011. The year-ago period was impacted by a tax benefit related to the reversal of a portion of our tax valuation allowance. Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. in the second quarter of 2011 was $2.7 million, or $0.13 per diluted share (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 were pleased to have held pro forma net income steady compared to the prior year period in the face of coffee commodity cost pressure and a lower contribution from the Keurig single-serve platform. Growth in comparable coffeehouse sales has also now been extended to eleven consecutive quarters and benefited from our continued focus on product innovation. In addition we also reached a new franchise milestone of 100 international coffeehouses further demonstrating the extensive popularity of Caribou Coffee outside of the US.”

Tattersfield concluded, “Although our updated projections for Caribou-branded K-cups have led us to adjust our full year outlook, we view the dynamics affecting our single-serve business as temporary challenges and remain committed to strengthening our Green Mountain relationship. More importantly, the diversification afforded to us through our multi-channel model provides us numerous levers to achieve sustainable growth in sales and profitability over the long-term.”

SECOND QUARTER 2012 RESULTS

Net sales for the quarter of $81.1 million increased $0.8 million, or 1.1%, from $80.3 million in the comparable quarter of 2011.

  • Coffeehouse sales were $62.0 million in the second quarter of 2012, an increase of 3.3% compared to $60.0 million in the second quarter of 2011. Growth was driven by a 2.8% increase in comparable coffeehouse sales, primarily due to increased beverage sales.
  • Commercial sales were $15.5 million in the second quarter of 2012, a decrease of 7.9% compared to $16.8 million in the second quarter of 2011. This change was driven by a decrease in sales of blended coffee into the Keurig single-serve platform and related royalties, partially offset by increased sales to new and existing customers in the Company’s grocery and foodservice channels.
  • Franchise sales were $3.6 million in the second quarter of 2012, an increase of 6.0% compared to $3.4 million in the second quarter of 2011. Growth in product sales and royalties from 188 franchise locations, a net increase of 41 locations from the prior year, drove the increase in franchise sales versus last year.

Cost of sales and related occupancy costs in the second quarter of 2012 were $39.8 million, an increase of $1.9 million, or 5.0%, compared to the second quarter of 2011, and were driven by significantly higher coffee commodity costs. As a percentage of revenue, cost of sales and related occupancy costs were 49.1% in the second quarter of 2012 versus 47.2% in the same period of the prior year. The increase as a percentage of sales was due to higher coffee commodity costs versus the prior year.

Operating expenses in the second quarter of 2012 were $26.4 million, a decrease of $0.4 million, or 1.6%, compared to $26.8 million in the second quarter of 2011. The decrease in operating expenses was driven by lower labor costs that were partially offset by higher fees for debit card transactions due to recent legislation changes. As a percentage of revenue, operating costs were 32.5%, compared to 33.4% 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.

General and administrative expenses decreased $0.6 million, or 7.0%, to $7.6 million in the second quarter of 2012, from $8.1 million in the second quarter of 2011. As a percentage of total net sales, general and administrative expenses decreased to 9.3% in the second quarter of 2012 from 10.1% in the second quarter of 2011, as the Company leveraged fixed costs on higher sales.

Depreciation and amortization decreased $0.3 million to $2.5 million during the second quarter of 2012 due to a lower depreciable asset base.

Tax expense was $2.0 million in the second quarter of 2012 compared to a tax expense of less than $0.1 million in the second quarter of 2011. The tax benefit in 2011 related to the reversal of a portion of the Company’s valuation allowance against accumulated net operating losses and other deferred tax assets and the corresponding recognition of those deferred tax assets on the Company’s balance sheet.

The Company’s net income attributable to Caribou Coffee Company, Inc. in the second quarter of 2012 was $2.8 million, or $0.13 per diluted share, compared to $4.4 million, or $0.21 per diluted share, in the same period in 2011. When adjusting for the reversal of the valuation allowance on the Company’s deferred tax assets, the Company’s non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. in the second quarter of 2011 was $2.7 million, or $0.13 per diluted share (see non-GAAP reconciliation at the end of this release).

FISCAL YEAR 2012 OUTLOOK

  • Net sales flat compared with 2011.
  • Net coffeehouse unit growth of 60 to 70, of which approximately 15 will be Company-owned coffeehouse openings.
  • Diluted earnings per share of $0.43 to $0.46.

The change in the Company’s outlook is primarily attributable to the expectation of lower sales related to its Green Mountain relationship, which is driven by continued channel shifting, the short-term impact of new price tiers in the category, as well as the loss of a significant account in the club business. While these factors have created shifts to the near term, Caribou remains confident in its long-term growth prospects in the single-serve marketplace.

CONFERENCE CALL

The Company will host a conference call on August 6, 2012, 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 (877) 741-4251 or (719) 325-4853 for international callers. A replay of the call will be available until Monday, August 13, 2012, by dialing (877) 870-5176 or (858) 384-5517 for international callers; the password is 1634554.

The conference call will also be webcast and can be accessed from the Investor Relations section of the Caribou Coffee 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 July 1, 2012, the Company had 596 coffeehouses, including 188 franchised locations, in 22 states, the District of Columbia and ten 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, 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 August 3, 2012. 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 1, 2012, 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 Twenty-Six Weeks Ended
July 1,   July 3, July 1,   July 3,
2012 2011 2012 2011
(In thousands, except for per share amounts)
(Unaudited)
Coffeehouse sales $ 62,008 $ 60,032 $ 121,745 $ 117,643
Commercial and franchise sales   19,117     20,238     39,921     34,902  
Total net sales 81,125 80,270 161,666 152,545
Cost of sales and related occupancy costs 39,809 37,923 81,861 71,159
Operating expenses 26,387 26,811 52,980 52,221
Depreciation and amortization 2,467 2,768 4,972 5,704
General and administrative expenses   7,572     8,142     14,848     15,940  
Operating income 4,890 4,626 7,005 7,521
Other income (expense):
Interest income 12 7 24 12
Interest expense   (20 )   (58 )   (41 )   (114 )
Income before provision for (benefit from) income taxes 4,882 4,575 6,988 7,419
Provision for (benefit from) income taxes   2,030     47     2,857     (21,287 )
Net income 2,852 4,528 4,131 28,706
Less: Net income attributable to noncontrolling interest   93     103     131     210  
Net income attributable to Caribou Coffee Company, Inc. $ 2,759   $ 4,425   $ 4,000   $ 28,496  
Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.14   $ 0.22   $ 0.20   $ 1.43  
Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share $ 0.13   $ 0.21   $ 0.19   $ 1.38  
Basic weighted average number of shares outstanding   20,347     19,995     20,446     19,925  
Diluted weighted average number of shares outstanding   20,914     20,670     21,104     20,605  
 

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS
   
July 1, January 1,
2012 2012
In thousands, except per share amounts
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 36,902 $ 44,495
Accounts receivable, net 7,543 14,646
Other receivables, net 1,712 1,743
Inventories 35,192 22,965
Deferred tax assets - current 4,238 6,766
Prepaid expenses and other current assets   1,386     1,514  
Total current assets 86,973 92,129
Property and equipment, net of accumulated depreciation and amortization 35,531 36,965
Deferred tax assets – non-current 15,624 13,947
Other assets   300     323  
Total assets $ 138,428   $ 143,364  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities:
Accounts payable $ 14,561 $ 10,480
Accrued compensation 3,047 6,272
Accrued expenses 9,169 8,502
Deferred revenue   6,246     8,591  
Total current liabilities 33,023 33,845
 
Asset retirement liability 1,237 1,248
Deferred rent liability 4,514 5,132
Deferred revenue   1,863     1,883  
Total long term liabilities 7,614 8,263
 
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; 20,325 and 20,848 shares issued and outstanding at July 1, 2012 and January 1, 2012, respectively 203 208
Additional paid-in capital 125,540 132,643
Accumulated comprehensive loss (379 )
Accumulated deficit   (27,718 )   (31,718 )
Total Caribou Coffee Company, Inc. shareholders’ equity 97,646 101,133
Noncontrolling interest   145     123  
Total equity   97,791     101,256  
Total liabilities and equity $ 138,428   $ 143,364  
 

Coffeehouse Openings and Closings

   
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 1,   July 3, July 1,   July 3,
2012 2011 2012 2011
(In thousands, except operating data)
Non-GAAP Metrics:
EBITDA(1) $ 7,788 7,776 $ 12,897 13,999
 
Operating Data:
Percentage change in comparable coffeehouse net sales(2) 2.8 % 4.6 % 2.6 % 4.5 %
Company-Owned:
Coffeehouses open at beginning of period 411 409 412 410
Coffeehouses opened during the period 1 1
Coffeehouses closed during the period   4   2     5   3  
Coffeehouses open at end of period:
Total Company-Owned 408 407 408 407
Franchised:
Coffeehouses opened at beginning of period 174 135 169 131
Coffeehouses opened during the period 17 12 25 21
Coffeehouses closed during the period   3       6   5  
Coffeehouses open at end of period:
Total Franchised   188   147     188   147  
Total coffeehouses open at end of period   596   554     596   554  
 
(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 2011 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 thirteen week period and twenty-six week period results to the Company’s 2011 results.

  Thirteen Weeks     Twenty-Six Weeks
Ended July 3, 2011 Ended July 3, 2011
Thousands   Diluted EPS Thousands   Diluted EPS
Net income attributable to Caribou Coffee Company, Inc. as reported $ 4,425 $ 0.21 $ 28,496 $ 1.38
Provision for income taxes (1)   47   0.00   21,287   1.03
Non-GAAP pro-forma pre-tax income attributable to Caribou Coffee Company, Inc. 4,472   0.21 7,209   0.35
Pro forma tax expense at 40% effective tax rate (2)   1,789   0.08   2,884   0.14
Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. $ 2,683 $ 0.13 $ 4,325 $ 0.21
Diluted weighted average number of shares outstanding   20,670   20,670   20,605   20,605
 
(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 differ.
 

EBITDA RECONCILIATION

   
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 1,   July 3, July 1,   July 3,
2012 2011 2012 2011
(Thousands)
Net income attributable to Caribou Coffee Company, Inc. $ 2,759 $ 4,425 $ 4,000 $ 28,496
Interest expense 20 58 41 114
Interest income (12 ) (7 ) (24 ) (12 )
Depreciation and amortization(1) 2,991 3,253 6,023 6,688
Provision for (benefit from) income taxes   2,030     47     2,857     (21,287 )
EBITDA $ 7,788   $ 7,776   $ 12,897   $ 13,999  
 

_______

(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 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 202 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the second quarter of fiscal 2012. 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 first 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; and

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.

Source: Caribou Coffee Company, Inc.

Investor Relations:
Raphael Gross, 203-682-8253
ir@cariboucoffee.com


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