Caribou Tops, Outlook Reaffirmed

Caribou Coffee Company, Inc. (CBOU - Snapshot Report), the second largest premium coffeehouse operator in the United States, posted adjusted earnings of 7 cents per share in the third quarter of 2011, surpassing the Zacks Consensus Estimate by a penny and the year-ago quarter earnings by 2 cents.

The company’s net sales during the quarter increased 16.1% to $81.4 million, aided by improved performance across all its business lines.

Performance Highlights

Segment wise, Coffeehouse sales escalated 3.7% year over year to $58.7 million during the quarter, driven by a 4.1% jump in comparable coffeehouse sales. Commercial sales soared 75.5% to $19.8 million, due to higher sales from existing and new customers. Franchise revenues rose 30.3% to $3.0 million attributable to higher product sales and royalties.

Cost of sales and related occupancy cost increased 28.3% to $41.9 million in the third quarter of 2011, driven by higher sales in the quarter. Operating expense rose 4.6% to $26.3 million attributable to unit growth and maintenance of existing stores. General and administrative expense spiked 4.6% to $7.8 million, but depreciation and amortization expenses declined 12.9% to $2.7 million due to less depreciable assets.

Total operating income expanded 52.3% to $2.8 million and operating margin enhanced 80 basis points (bps) to 3.4% and total expense, as a percentage of revenue, dropped due to operating efficiencies.

Store Update

During the quarter, Caribou Coffee opened 3 company-owned coffeehouses. At the end of the quarter, the company had 409 company-owned and 150 franchised coffeehouses.

Financial Position

Caribou Coffee ended the quarter with cash and cash equivalents of $41.7 million and shareholders’ equity of $95.8 million.

Outlook

The Minneapolis, Minnesota-based company reaffirmed its financial outlook for 2011, and expects to achieve the higher end of its guidance. The company expects net sales growth in the range of 11% to 13%. Adjusted earnings are estimated in the range of 39 cents to 41 cents per share.

The company also provided its outlook for 2012. The company expects net sales growth in the range of 10% to 12%, comparable sales growth of 2% to 4% and adjusted earnings per share in the range of 48 cents to 51 cents.

Our Take

We expect estimates to increase for fiscal 2011 and 2012 as the company witnesses robust growth across all the segments and remains optimistic on its outlook. Caribou Coffee continues to focus on unit growth and plans to open 55 to 70 locations in 2012, implying a growth of 10% to 12%. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 41 cents and 50 cents, respectively.

One of Caribou Coffee’s competitors, Domino's Pizza Inc. (DPZ - Snapshot Report) reported third quarter 2011 adjusted earnings of 35 cents per share, which outpaced the Zacks Consensus Estimate by 2 cents and the year-ago quarter adjusted earnings by 8 cents. The upbeat result was attributable to strong international and domestic performance.

Read the full analyst report on DPZ

Read the full analyst report on CBOU