Caribou Coffee's Q4 net income up 14% year-over-year to US$4.9M, driven by 77.5% increase in commercial sales, 24.6% growth in franchise sales; net sales up 18.8% to US$14.6M

MINNEAPOLIS , February 23, 2012 (press release) – 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 fourth quarter and fiscal year 2011 (periods ended January 1, 2012) and confirmed fiscal year 2012 guidance.  

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

HIGHLIGHTS FOR THE FOURTH QUARTER OF 2011 INCLUDE:

  • Consolidated sales increased 18.8%
  • Comparable coffeehouse store sales increased 5.6%
  • Commercial and Franchise sales increased 68.6%
  • Net income attributable to Caribou Coffee Company, Inc. was $4.9 million, or $0.24 per diluted share
  • Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. was $2.8 million, or $0.14 per diluted share, compared to pro forma net income of $2.6 million, or $0.13 per diluted share for the same period in 2010 (see non-GAAP reconciliation at the end of this release)

HIGHLIGHTS FOR FISCAL YEAR 2011:

  • Consolidated sales increased 15.0%
  • Comparable coffeehouse store sales increased 4.7%
  • Commercial and Franchise sales increased 62.3%
  • Net income attributable to Caribou Coffee Company, Inc. was $35.2 million, or $1.69 per diluted share
  • Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. was $8.7 million, or $0.42 per diluted share, compared to pro forma net income of $5.6 million, or $0.27 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 CEO commented, “Our fourth quarter marked the conclusion of a fantastic year for Caribou Coffee, in which we made progress strategically, financially and culturally. We are pleased to have delivered another solid quarter, one that rounds out a record year of financial performance for Caribou. Looking ahead, we are optimistic about what we can achieve across each of our business lines, but are particularly excited to be resuming meaningful development of company-owned coffeehouses. As always, we will continue to provide the meaningful experiences our guest’s love, while enhancing returns for our shareholders."

FOURTH QUARTER 2011 RESULTS

Net sales for the quarter of $92.5 million increased $14.6 million, or 18.8%, from $77.9 million in the comparable quarter of 2010.

  • Coffeehouse sales were $66.0 million in the fourth quarter of 2011, an increase of 6.1% compared to $62.1 million in the fourth quarter of 2010. The Company’s food platform, specifically the addition of breakfast and lunch sandwiches, continued to drive comparable coffeehouse sales, which were a 5.6% increase in the quarter.
  • Commercial sales were $23.3 million in the fourth quarter of 2011, an increase of 77.5% compared to $13.1 million in the fourth quarter of 2010, largely driven by sales related to the Keurig single-serve platform, as well as new and existing customers in the Company’s grocery channel and increased penetration in foodservice channels.
  • Franchise sales were $3.3 million in the fourth quarter of 2011, an increase of 24.6% compared to $2.7 million in the fourth quarter of 2010. Growth in product sales and royalties from 169 franchise locations, a net increase of 38 locations from the prior year, drove the increase in franchise sales versus last year.

Cost of sales and related occupancy costs in the fourth quarter of 2011 was $49.6 million, an increase of $13.1 million, or 36.0%, compared to the fourth 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 53.6% in the fourth quarter of 2011 versus 46.8% in the fourth quarter of 2010. The higher coffee commodity costs drove the increase as a percentage of revenue compared to the prior year as well as a shift in the overall mix change to the Company’s commercial and franchise channels, which have higher cost of sales as a percentage of sales.

Operating expenses in the fourth quarter of 2011 were $27.5 million, an increase of $1.5 million, or 5.7%, compared to 26.0 million in the fourth quarter of 2010. The increase in operating expenses was driven by expenses tied to sales volume increases and new company-owned coffeehouse openings. As a percentage of revenue, operating costs were 29.7%, compared to 33.4% in the fourth quarter of 2010. The decrease as a percentage of revenue 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 decreased $0.3 million, or 3.3%, to $7.5 million in the fourth quarter of 2011, from $7.8 million in the fourth quarter of 2010. As a percentage of total net sales, general and administrative expenses decreased to 8.1% in the fourth quarter of 2011, compared to 10.0% in the fourth quarter of 2010 as the Company leveraged fixed costs against higher sales.

The Company’s net income attributable to Caribou Coffee Company, Inc. for the fourth quarter of 2011 was $4.9 million or $0.24 per diluted share, compared to $4.3 million, or $0.21 per diluted share, in the same period in 2010. The Company ended the quarter with $44.5 million in cash and cash equivalents and no long term debt.

The Company’s non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc. in the fourth quarter of 2011 was $2.9 million, or $0.14 per diluted share, compared to a pro forma net income of $2.6 million, or $0.13 per diluted share for the same period in 2010 (see non-GAAP reconciliation at the end of this release).

FISCAL YEAR 2012 OUTLOOK

Looking ahead, Caribou Coffee confirmed the following fiscal year 2012 guidance:

  • Net sales growth of approximately 10%.
    • Comparable coffeehouse sales growth of 2% to 4%.
    • Commercial sales growth of approximately 20%.
    • New coffeehouse unit growth of 55 – 70, of which approximately 20 will be Company-owned coffeehouse openings.
  • Capital expenditure investments of $13 million to $15 million.
  • Diluted earnings per share of $0.48 to $0.51.

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 January 1, 2012, the Company had 581 coffeehouses, including 169 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 provide 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.

   
   

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
                               
       

Thirteen Weeks Ended

     

Fifty-Two Weeks Ended

 

 

      January 1,

2012

    January 2,

2011

      January 1,

2012

    January 2,

2011

 
        (In thousands, except for per share amounts)

(Unaudited)

 
Coffeehouse sales       $ 65,955       $ 62,134         $ 242,293       $ 232,108    
Commercial and franchise sales         26,565         15,755           84,211         51,889    
Total net sales         92,520         77,889           326,504         283,997    
Cost of sales and related occupancy costs         49,567         36,443           162,667         131,094    
Operating expenses         27,481         26,010           105,993         101,169    
Depreciation and amortization         3,052         3,013           11,425         12,284    
General and administrative expenses         7,523         7,780           31,226         29,343    
Operating income         4,897         4,643           15,193         10,107    
Other income (expense):                              
Interest income         1         3           16         22    
Interest expense         (99 )       (174 )         (283 )       (408 )  
Income before provision for income taxes         4,799         4,472           14,926         9,721    
(Benefit) provision for income taxes         (192 )       30           (20,676 )       (76 )  
Net income         4,991         4,442           35,602         9,797    
Less: Net income attributable to noncontrolling interest         51         108           379         397    
Net income attributable to Caribou Coffee Company, Inc.       $ 4,940       $ 4,334         $ 35,223       $ 9,400    
Basic net income attributable to Caribou Coffee Company, Inc. common shareholders per share       $ 0.24       $ 0.22         $ 1.75       $ 0.48    
Diluted net income attributable to Caribou Coffee Company, Inc. common shareholders per share       $ 0.24       $ 0.21         $ 1.69       $ 0.46    
Basic weighted average number of shares outstanding         20,289         19,685           20,129         19,639    
Diluted weighted average number of shares outstanding         20,982         20,834           20,803         20,641    
   
   

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
                 
        January 1,

2012

    January 2,

2011

 
        In thousands, except per share amounts

(Unaudited)

 
ASSETS                
Current assets:                
Cash and cash equivalents       $ 44,495       $ 23,092    
Accounts receivable, net         14,646         8,096    
Other receivables, net         1,743         1,227    
Inventories         22,965         25,931    
Deferred tax assets - current         5,071            
Prepaid expenses and other current assets         1,514         1,122    
Total current assets         90,434         59,468    
Property and equipment, net of accumulated depreciation and amortization         36,965         41,075    
Restricted cash                 837    
Deferred tax assets – non-current         15,642            
Other assets         323         345    
Total assets       $ 143,364       $ 101,725    
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable       $ 10,480       $ 8,080    
Accrued compensation         6,272         5,954    
Accrued expenses         8,502         6,916    
Deferred revenue         8,591         8,726    
Total current liabilities         33,845         29,676    
                 
Asset retirement liability         1,248         1,196    
Deferred rent liability         5,132         6,296    
Deferred revenue         1,883         2,091    
Total long term liabilities         8,263         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; 20,848 and 20,141 shares issued and outstanding at January 1, 2012 and January 2, 2011, respectively         208         202    
Additional paid-in capital         132,643         129,026    
Accumulated comprehensive income                 12    
Accumulated deficit         (31,718 )       (66,941 )  
Total Caribou Coffee Company, Inc. shareholders’ equity         101,133         62,299    
Noncontrolling interest         123         167    
Total equity         101,256         62,466    
Total liabilities and equity       $ 143,364       $ 101,725    
   
   

Coffeehouse Openings and Closings

 
                   
        Thirteen Weeks Ended       Fifty-Two Weeks Ended  
        January 1, 2012     January 2, 2011       January 1, 2012     January 2, 2011  
        (In thousands, except operating data)  
Non-GAAP Metrics:                              
EBITDA(1)       $ 8,423       $ 8,056         $ 28,234       $ 23,979    
                               
Operating Data:                              
Percentage change in comparable coffeehouse net sales(2)         5.6 %       3.5 %         4.7 %       4.5 %  
Company-Owned:                              
Coffeehouses open at beginning of period         409         410           410         413    
Coffeehouses opened during the period         5         0           8         0    
Coffeehouses closed during the period         2         0           6         3    
Coffeehouses open at end of period:                              
Total Company-Owned         412         410           412         410    
Franchised:                              
Coffeehouses open at beginning of period         150         126           131         121    
Coffeehouses opened during the period         19         7           45         20    
Coffeehouses closed during the period         0         2           7         10    
Coffeehouses open at end of period:                              
Total Franchised         169         131           169         131    
Total coffeehouses open at end of period         581         541           581         541    
                                               
  (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 reconciliation 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 52 week period results to the Company’s fiscal year 2010 results.
                             
       

Thirteen Weeks Ended

 
        January 1, 2012     January 2, 2011     January 1, 2012     January 2, 2011  
        (Thousands)     Diluted EPS  
Net income attributable to Caribou Coffee Company, Inc. as reported       $ 4,940       $ 4,334     $ 0.24       $ 0.21  
(Benefit from) provision for income taxes         (192 )       30       (0.01 )       0.00  
Non-GAAP pro-forma pre-tax income attributable to Caribou Coffee Company, Inc.         4,748         4,364       0.23         0.21  
Pro forma tax expense at 40% effective tax rate (2)         1,899         1,746       0.09         0.08  
Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc.       $ 2,849       $ 2,618     $ 0.14       $ 0.13  
Diluted weighted average number of shares outstanding         20,982         20,834       20,982         20,834  
                             
       

Fifty-Two Weeks Ended

 
        January 1, 2012     January 2, 2011     January 1, 2012     January 2, 2011  
        (Thousands)     Diluted EPS  
Net income attributable to Caribou Coffee Company, Inc. as reported       $ 35,223       $ 9,400     $ 1.69       $ 0.46  
Deferred tax asset valuation allowance reversal (1)         20,529         -       0.98         0.00  
Other benefit from income taxes         147         76       0.01         0.01  
Non-GAAP pro-forma pre-tax income attributable to Caribou Coffee Company, Inc.         14,547         9,324       0.70         0.45  
Pro forma tax expense at 40% effective tax rate (2)         5,819         3,730       0.28         0.18  
Non-GAAP pro forma net income attributable to Caribou Coffee Company, Inc.       $ 8,728       $ 5,594     $ 0.42       $ 0.27  
Diluted weighted average number of shares outstanding         20,803         20,641       20,803         20,641  
               
          (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
   
   

EBITDA RECONCILIATION

 
   

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

 
                             
        Thirteen Weeks Ended     Fifty-Two Weeks Ended  
        January 1, 2012     January 2, 2011     January 1, 2012     January 2, 2011  
        (In thousands)  
Net Income attributable to Caribou Coffee Company, Inc.       $ 4,940       $ 4,334       $ 35,223       $ 9,400    
Interest expense         99         174         283         408    
Interest income         (1 )       (3 )       (16 )       (22 )  
Depreciation and amortization(1)         3,577         3,521         13,420         14,269    
(Benefit from) provision for income taxes         (192 )       30         (20,676 )       (76 )  
EBITDA       $ 8,423       $ 8,056       $ 28,234       $ 23,979    
      (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 209 company-operated coffeehouses from the beginning of fiscal year 2003 through the end of the fourth quarter of 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.

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.


FISCAL YEAR 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 2011 performance with the Company’s fiscal year 2012 guidance.

           

Year ended

December 30,

2012

     

Year ended

January 1, 2012

(non-GAAP)

 
            Diluted EPS  
                       
    Net income attributable to Caribou Coffee Company, Inc.,       $0.81 - $0.85       $1.69  
    Deferred tax asset valuation allowance reversal, net of other tax expense (1)       $0.00       $0.99  
    Pre-tax income attributable to Caribou Coffee Company, Inc., expected and non-GAAP, respectively       $0.81 – $0.85       $0.70  
    Tax expense at 40% effective tax rate (2)       $0.33 – $0.34       $0.28  
    Net income attributable to Caribou Coffee Company, Inc, expected and pro forma, respectively.       $0.48 – $0.51       $0.42  
    (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)   For fiscal year ended January 1, 2012 amount represents pro forma effective tax rate. For fiscal year ended December 30, 2012, amount represents expected effective tax rate.

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