Caribou Coffee Reports Decrease In Third Quarter 2012 Sales

Caribou Coffee Co. Inc. reported financial results for the third quarter of 2012 (thirteen weeks ended Sept. 30, 2012). The company also provided a preliminary view of fiscal 2013. Net sales for the quarter of $77.2 million decreased $4.2 million, or 5.2 percent, from $81.4 million in the comparable quarter of 2011.

Coffeehouse sales were $61.0 million in the third quarter of 2012, an increase of 4.0 percent compared to $58.7 million in the third quarter of 2011. Growth was driven by a 3.5 percent increase in comparable coffeehouse sales, primarily due to increased beverage sales.

Commercial sales were $11.9 million in the third quarter of 2012, a decrease of 39.9 percent compared to $19.8 million in the third quarter of 2011. The 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 $4.3 million in the third quarter of 2012, an increase of 45.0 percent compared to $3.0 million in the third quarter of 2011. Growth in product sales and royalties from 202 franchise locations, a net increase of 52 locations from the prior year, drove the increase in franchise sales versus last year.

Cost of sales and related occupancy costs in the third quarter of 2012 were $37.2 million, a decrease of $4.7 million, or 11.3 percent, compared to the third quarter of 2011, and were driven by lower sales of blended coffee in the Keurig® single-serve platform. As a percentage of revenue, cost of sales and related occupancy costs were 48.2 percent in the third quarter of 2012 versus 51.5 percent in the same period of the prior year. The favorability in cost of sales was driven by lower sales of green coffee related to Caribou Coffee K-cups, which have significantly lower margins.

Operating expenses in the third quarter of 2012 were $26.6 million, an increase of $0.3 million, or 1.0 percent, compared to $26.3 million in the third quarter of 2011. The increase in operating expenses was driven by higher fees for debit card transactions due to recent legislation changes, partially offset by lower labor costs. As a percentage of revenue, operating costs were 34.4 percent, compared to 32.3 percent in the same period of the prior year. The increase as a percentage of sales was the result of deleveraging on lower green coffee sales and royalties related to Caribou Coffee K-cups which have lower operating expenses associated with those sales.

General and administrative expenses increased $0.4 million, or 5.1 percent, to $8.2 million in the third quarter of 2012, from $7.8 million in the third quarter of 2011. As a percentage of total net sales, general and administrative expenses increased to 10.6 percent in the third quarter of 2012 from 9.5 percent in the third quarter of 2011. The increase was due to deleveraging on lower green coffee sales and royalties related to Caribou Coffee K-cups.

Depreciation and amortization decreased $0.1 million to $2.5 million during the third quarter of 2012 due to a lower depreciable asset base.

Tax expense was $0.9 million in the third quarter of 2012 compared to a tax expense of $0.8 million in the third quarter of 2011.

The company’s net income attributable to Caribou Coffee Co., Inc. in the third quarter of 2012 was $1.7 million, or $0.08 per diluted share, compared to $1.8 million, or $0.09 per diluted share, in the same period in 2011.

Speaking on behalf of the company, Michael Tattersfield, president and chief executive officer commented, in a prepared statement, "Our third quarter performance was in-line with our expectations. We leveraged on-going product innovation and an unyielding focus on customer service to grow comparable coffeehouse sales of 3.5 percent inthe quarter. We also opened 20 new coffeehouses in the quarter, six of which were company owned. We continue to focus on our multi-channel premium coffee business model to build the Caribou brand, and are confident in our ability to drive future growth across all of our lines of business."

Tattersfield continued, "Subsequent to our fiscal third quarter, Hurricane Sandy caused damage to a portion of our green coffee inventory that is being stored in a third-party warehouse in New Jersey. We are currently assessing the extent of the damage, including the reclamation and usability potential of the product, as well as possible avenues for recovery. While this situation is rather unfortunate, we estimate our maximum liability will not exceed $5 million, and thankfully, our coffeehouse operations were not materially impacted by the storm."

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