Caribou Coffee Co., Inc. Reports Sales Increase, Income Decrease In First Quarter

Caribou Coffee Co., Inc. reported financial results for the first quarter of 2012.

Total net sales increased 11.4 percent.

Comparable coffeehouse store sales increased 2.5 percent.

Commercial and franchise sales increased 41.9 percent.

Net income attributable to Caribou Coffee Co., Inc. was $1.2 million, or $0.06 per diluted share compared to $24.1 million, or $1.17 per diluted share, in the first quarter of 2011. The year-ago period included a $21.3 million tax benefit related to the reversal of a tax valuation allowance. Non-GAAP pro forma net income attributable to Caribou Coffee Co., Inc. in the first quarter of 2011 was $1.6 million, or $0.08 per diluted share.

Speaking on behalf of the company, Michael Tattersfield, the company’s president and chief executive officer commented in a prepared statement, “As we had anticipated, our EPS was slightly down versus the year-ago pro forma result due to ongoing commodity pressure expected in the first half of the year. Looking ahead, we are excited to be launching several high quality food and beverage products in our retail coffeehouses and we continue to expand our commercial and franchise segments.”

Tattersfield concluded, “While the single cup business continues to experience significant growth, recent industry trends lead us to believe this business line will experience a moderation in its growth trajectory for the remainder of 2012. Therefore, we are lowering our outlook for net sales as well as our expected range for EPS compared to our original guidance. We remain confident in our business and firmly believe that our multi-channel model affords us the opportunity to build sustainable success on a longer term basis.”

Net sales for the quarter of $80.5 million increased $8.3 million, or 11.4 percent, from $72.3 million in the comparable quarter of 2011.

Coffeehouse sales were $59.7 million in the first quarter of 2012, an increase of 3.7 percent compared to $57.6 million in the first quarter of 2011. Growth was driven by a 2.5 percent increase in comparable coffeehouse sales, primarily due to increased traffic and changes in the beverage sales mix.

Commercial sales were $17.5 million in the first quarter of 2012, an increase of 49.9 percent compared to $11.7 million in the first quarter of 2011. Increased sales in to the Keurig single-serve platform, as well as to new and existing customers in the company’s grocery and foodservice channels all contributed to the quarter over quarter sales growth.

Franchise sales were $3.3 million in the first quarter of 2012, an increase of 10.6 percent compared to $3.0 million in the first quarter of 2011. Growth in product sales and royalties from 174 franchise locations, a net increase of 39 locations from the prior year, drove the increase in franchise sales versus last year.

Cost of sales and related occupancy costs in the first quarter of 2012 were $42.1 million, an increase of $8.8 million, or 26.5 percent, compared to the first quarter of 2011, and were driven by significantly higher coffee commodity costs and the company’s consolidated sales growth. As a percentage of revenue, cost of sales and related occupancy costs were 52.2 percent in the first quarter of 2012 versus 46.0 percent in the first quarter of 2011. 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 first quarter of 2012 were $26.6 million, an increase of $1.2 million, or 4.7 percent, compared to $25.4 million in the first quarter of 2011. The increase in operating expenses was driven by labor costs to support higher sales and higher fees for debit card transactions due to recent legislation changes. As a percentage of revenue, operating costs were 33.0 percent, compared to 35.2 percent 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 decreased $0.5 million, or 6.8 percent, to $7.3 million in the first quarter of 2012, from $7.8 million in the first quarter of 2011. As a percentage of total net sales, general and administrative expenses decreased to 9.0 percent in the first quarter of 2012 from 10.8 percent in the first quarter of 2011, as the company leveraged fixed costs on higher sales.

Depreciation and amortization decreased $0.4 million to $2.5 million during the first quarter of 2012 due to a lower depreciable asset base.

Tax expense was $0.8 million in the first quarter of 2012 compared to a tax benefit of $21.3 million in the first 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 Co., Inc. for the first quarter of 2012 was $1.2 million, or $0.06 per diluted share, compared to $24.1 million, or $1.17 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 Co., Inc. for the first quarter of 2011 was $1.6 million, or $0.08 per diluted share.