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Peet’s Coffee & Tea, Inc. Reports First Quarter 2010 Results

2010-05-05

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Restaurant News Resource “Sales were a bit stronger than expected across all channels, particularly grocery where we grew 39%, and our key growth initiatives are on track.”

Peet’s Coffee & Tea, Inc. (NASDAQ:PEET) announced its first quarter results for the fiscal quarter ended April 4, 2010, which included 13 weeks.

Reports net revenue growth for the quarter of 13%
Reports non-GAAP diluted earnings per share of $0.26 and GAAP diluted earnings per share of $0.22
Confirms 2010 non-GAAP diluted earnings per share guidance of $1.27 to $1.30, excluding legal and related expenses the company incurs to comply with a subpoena it received from the Federal Trade Commission in connection with its anti-trust review of the proposed Green Mountain Coffee Roasters acquisition of Diedrich Coffee.


Financial Highlights

	First Quarter				%
	2010		2009		Change

Net revenue, as reported	$	81,196	$	72,104	13	%

Net income per diluted share, as reported	$	0.22	$	0.23	-4	%

Non-GAAP diluted net income per share,
excluding unusual items	$	0.26	$	0.23	13	%

For the 13 weeks ended April 4, 2010, net revenue increased 13% to $81.2 million from $72.1 million for the corresponding period of fiscal 2009.

Net income for the 13 weeks ended April 4, 2010, was $3.1 million which was equal to the net income for the corresponding 13-week period of fiscal 2009. Diluted earnings per share were $0.22 for the 13-week period of fiscal 2010 compared to $0.23 per share for the corresponding period of fiscal 2009. Net income for the quarter includes pre-tax expense of $0.8 million of legal and related expenses the company incurred to comply with a subpoena it received from the Federal Trade Commission in connection with its anti-trust review of the proposed Green Mountain Coffee Roasters acquisition of Diedrich Coffee. Excluding this unusual item, non-GAAP diluted earnings per share would have been $0.26.

“Overall, we’re off to a good start in the first quarter driven by strong grocery growth and improving retail sales trends,” said Patrick O’Dea, president and CEO of Peet's Coffee & Tea. “Sales were a bit stronger than expected across all channels, particularly grocery where we grew 39%, and our key growth initiatives are on track.”

Consolidated Financial and Operating Summary

Retail net revenue increased 4% to $50.1 million for the 13 weeks ended April 4, 2010, from $48.0 million for the corresponding period of fiscal 2009. The increase was primarily attributable to growth in existing stores. The company ended the quarter with 193 stores versus 190 stores at the end of the first quarter in 2009.

Specialty net revenue increased 29% to $31.1 million for the 13 weeks ended April 4, 2010 compared to $24.1 million for the corresponding period of fiscal 2009. Within specialty sales, the grocery business continues to grow the most rapidly, up 39% over last year; the foodservice and office business grew 27%; and home delivery sales were down 1%.

Cost of sales and related occupancy expenses were 46.2% of total net revenue, compared to 45.2% for the corresponding period last year. The increase resulted from a mix shift towards the specialty channels which have a higher cost of sales, and, secondarily, higher milk costs in retail.

Operating expenses as a percentage of net revenue decreased to 34.3% from 34.9% for the corresponding period last year due to a favorable mix shift to the specialty business and lower operating expenses in specialty driven by sales leverage of the direct-store-delivery selling system, partially offset by higher retail costs in maintenance and healthcare benefits.

In the quarter the company incurred $0.8 million in legal and related fees to comply with a subpoena the company received from the Federal Trade Commission in connection with its anti-trust review of the proposed Green Mountain Coffee Roasters acquisition of Diedrich Coffee.

General and administrative expenses as a percentage of net revenue decreased to 7.8% of net sales compared to 8.2% for the corresponding period last year. General and administrative expenses increased to $6.3 million, compared to $5.9 million for the corresponding period last year primarily due to higher payroll related costs and legal expenses.

Depreciation and amortization expenses as a percentage of net revenue decreased to 4.8% of net sales compared to 5.0% for the corresponding period last year. Depreciation and amortization expenses increased to $3.9 million, compared to $3.6 million for the corresponding period last year primarily due to depreciation from our new Enterprise Resource Planning (ERP) system.

The company ended the first quarter of 2010 with cash and cash equivalents plus investments of $55.8 million, compared to $47.9 million at year end 2009.


PEET’S COFFEE & TEA, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)

	April 4,		January 3,
	2010		2010

ASSETS

Current assets
Cash and cash equivalents	$	55,824	$	47,934
Accounts receivable, net		12,539		15,209
Inventories		24,239		25,936
Deferred income taxes - current		3,592		3,592
Prepaid expenses and other		6,481		5,863
Total current assets		102,675		98,534

Property, plant and equipment, net		101,623		103,494
Other assets, net		2,176		2,775

Total assets	$	206,474	$	204,803

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and other accrued liabilities	$	11,840	$	13,669
Accrued compensation and benefits		6,601		10,832
Deferred revenue		5,513		6,845
Total current liabilities		23,954		31,346

Deferred income taxes - non current		316		321
Deferred lease credits		7,070		7,059
Other long-term liabilities		1,135		1,021
Total liabilities		32,475		39,747

Shareholders' equity
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding:13,309,000 and 13,104,000 shares		97,946		92,054
Retained earnings		76,053		73,002

Total shareholders' equity		173,999		165,056

Total liabilities and shareholders' equity	$	206,474	$	204,803


PEET’S COFFEE & TEA, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

	Thirteen weeks ended
	April 4,			March 29,
	2010			2009

Retail stores	$	50,071		$	47,982
Specialty sales		31,125			24,122
Net revenue		81,196			72,104

Cost of sales and related occupancy expenses		37,539			32,568
Operating expenses		27,837			25,171
Transaction related expenses		824			-
General and administrative expenses		6,302			5,938
Depreciation and amortization expenses		3,877			3,607
Total costs and expenses from operations		76,379			67,284

Income from operations		4,817			4,820


Interest (expense) income, net		(1	)		78

Income before income taxes		4,816			4,898

Income tax provision		1,765			1,845

Net income	$	3,051		$	3,053

Net income per share:
Basic	$	0.23		$	0.23
Diluted	$	0.22		$	0.23

Shares used in calculation of net income per share:
Basic		13,188			13,039
Diluted		13,809			13,241


PEET’S COFFEE & TEA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Thirteen weeks ended
	April 4,			March 29,
	2010			2009

Cash flows from operating activities:
Net income	$	3,051		$	3,053
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		4,422			4,141
Amortization of interest purchased		-			27
Stock-based compensation		742			643
Excess tax benefit from exercise of stock options		(1,113	)		(28	)
Tax benefit from exercise of stock options		946			17
Loss on disposition of assets and asset impairment		31			7
Deferred income taxes		(5	)		(9	)
Changes in other assets and liabilities:
Accounts receivable, net		2,670			1,809
Inventories		1,697			3,552
Prepaid expenses and other current assets		(618	)		1,694
Other assets		29			177
Accounts payable, accrued liabilities and deferred revenue		(7,354	)		(3,235	)
Deferred lease credits and other long-term liabilities		125			453
Net cash provided by operating activities		4,623			12,301

Cash flows from investing activities:
Purchases of property, plant and equipment		(2,623	)		(3,787	)
Proceeds from sales of property, plant and equipment		13			-
Changes in restricted investments		560			884
Proceeds from sales and maturities of marketable securities		-			3,972
Net cash (used in) provided by investing activities		(2,050	)		1,069

Cash flows from financing activities:
Net proceeds from issuance of common stock		4,732			450
Purchase of common stock		(528	)		(6,564	)
Excess tax benefit from exercise of stock options		1,113			28
Net cash provided by (used in) financing activities		5,317			(6,086	)

Increase in cash and cash equivalents		7,890			7,284
Cash and cash equivalents, beginning of year		47,934			4,719

Cash and cash equivalents, end of year	$	55,824		$	12,003

Non-cash investing activities:
Capital expenditures incurred, but not yet paid	$	118		$	1,548
Other cash flow information:
Cash paid for income taxes		91			21


SEGMENT REPORTING
(Dollars in thousands)

	Retail				Specialty				Unallocated			Total
			Percent				Percent							Percent
			of Net				of Net							of Net
	Amount		Revenue		Amount		Revenue					Amount		Revenue

For the thirteen weeks ended April 4, 2010
Net revenue	$	50,071	100.0	%	$	31,125	100.0	%				$	81,196	100.0	%
Cost of sales and occupancy		21,654	43.2	%		15,885	51.0	%					37,539	46.2	%
Operating expenses		21,130	42.2	%		6,707	21.5	%					27,837	34.3	%
Depreciation and amortization		2,749	5.5	%		432	1.4	%	$	696			3,877	4.8	%
Segment operating income		4,538	9.1	%		8,101	26.0	%		(7,822	)		4,817	5.9	%

For the thirteen weeks ended March 29, 2009
Net revenue	$	47,982	100.0	%	$	24,122	100.0	%				$	72,104	100.0	%
Cost of sales and occupancy		20,525	42.8	%		12,043	49.9	%					32,568	45.2	%
Operating expenses		19,756	41.2	%		5,415	22.4	%					25,171	34.9	%
Depreciation and amortization		2,762	5.8	%		427	1.8	%	$	418			3,607	5.0	%
Segment operating income		4,939	10.3	%		6,237	25.9	%		(6,356	)		4,820	6.7	%

NON-GAAP FINANCIAL INFORMATION

The following reconciliation and non-GAAP financial information are provided to assist the reader with understanding the financial impact of the previously discussed unusual items and the extra week during the year. Management believes this information is relevant because the nature and magnitude of the charges do not reflect our on-going operating performance.


Reconciliation of Non-GAAP Financial Information to Net Income (Unaudited, in thousands, except per share data)

	Thirteen		Thirteen
	weeks ended		weeks ended
	April 4,		March 29,
	2010		2009


Net Income
Net income, as reported	$	3,051	$	3,053
Transaction related expenses, net of tax		522
Non-GAAP net income	$	3,573	$	3,053

Diluted Net Income Per Share
Net income per diluted share, as reported	$	0.22	$	0.23
Transaction related expenses		0.04
Non-GAAP diluted net income per share	$	0.26	$	0.23


Non-GAAP Financial Information
(Unaudited, in thousands, except per share data)

	Quarter ended April 4, 2010
				Transaction
	As			related			Non-GAAP
	Reported			expenses			Adjusted


Retail stores	$	50,071					$	50,071
Specialty sales		31,125						31,125
Net revenue		81,196						81,196
Cost of sales and related		37,539						37,539
occupancy expenses
Operating expenses		27,837						27,837
Transaction related expenses		824		$	(824	)		-
General and administrative		6,302						6,302
Depreciation and amortization		3,877						3,877
Total costs and expenses		76,379			(824	)		75,555
Income from operations		4,817			824			5,641
Interest expense, net		(1	)					(1	)
Income before income taxes		4,816			824			5,640
Income tax provision		1,765			302			2,067
Net income	$	3,051		$	522		$	3,573
Net income per diluted share	$	0.22		$	0.04		$	0.26