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Caribou Coffee Company, Inc. , the second largest premium coffeehouse operator in the United States, posted earnings of 13 cents per share in the second quarter of 2012, surpassing the Zacks Consensus Estimate of 10 cents, but in line with the year-ago quarter adjusted earnings of 8 cents.

The company’s sales during the quarter inched up 1.1% to $81.1 million, aided by 11 consecutive quarters of growth in comparable coffeehouse sales and continuous expansion of franchise in international locations.

Quarter Highlights

Segment wise, Coffeehouse sales crept up 3.3% year over year to $62.0 million during the quarter, driven by a 3.3% rise in comparable coffeehouse sales. The increase in comparable coffeehouse sales was driven by higher traffic and favorable beverages sales mix. Commercial sales fell 7.9% to $15.5 million, on the back of drop in sales from the Keurig single-serve platform and royalties, partially offset by higher sales from existing and new customers in the foodservice and grocery channels. Franchise revenues rose 6.0% to $3.6 million, attributable to unit growth and higher product sales and royalties.

Cost of sales and related occupancy cost increased 5.0% to $39.8 million in the second quarter of 2012, driven by increased commodity costs. Operating expenses slipped 1.6% to $26.4 million, attributable to lower labor costs. General and administrative expense fell 7.0% to $7.6 million and depreciation and amortization expenses were down $0.3 million to $2.5 million.

Total operating income jumped 5.7% to $4.9 million, while operating margin expanded 20 basis points (bps) to 6.0%, due to lower operating, general and administrative and depreciation and amortization expenses.

Financial Position

Caribou Coffee ended the year with cash and cash equivalents of $36.9 million and shareholders’ equity of $97.8 million.


The Minneapolis, Minnesota-based company trimmed its financial outlook for 2012 based on decline in sales related to its Green Mountain relationship. The company expects earnings per share in the range of 43 cents to 46 cents compared with the earlier expectations of 47 cents to 50 cents. Moreover, the company anticipates net sales to be flat year over year, lower than it’s previous expectation of growth in the range of 6% to 8%.

Our Take

With the company lowering its outlook for fiscal 2012, we expect estimates to dip for the same. Moreover, food cost pressure will continue to be a headwind. However, to drive sales, Caribou Coffee remains focused on introducing innovative food and beverage products in the retail coffeehouses. The company also continues to drive growth by unit expansion and plans to open 60 to 70 locations in 2012, of which 15 will be company-owned coffeehouse openings. The Zacks Consensus Estimates for fiscal 2012 and 2013 are 45 cents and 62 cents per share, respectively, reflecting year-over-year growth of 6.0% and 8.2%.

One of Caribou Coffee’s competitors, Panera Bread Co. (PNRA - Analyst Report) posted second quarter 2012 adjusted earnings of $1.50 per share, comfortably surpassing the Zacks Consensus Estimate of $1.39 and year-ago-quarter’s earnings of $1.18.

Caribou currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.

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