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Caribou Coffee Hits 100th Milestone

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Minneapolis, Minnesota-based Caribou Coffee Company, Inc. recently announced the opening of its 100th international location in Istanbul, Turkey. The new opening marks the company’s sixth store in Turkey and was opened in partnership with its principal franchise Al Sayer Group and Turkey's Yildiz Holding.

Al Sayer Group is the major franchisee of the US-based company-owned premium coffeehouse operator, as it operates almost 90% of international outlets. Last year, Al Sayer Group and Yildiz Holding entered into a joint venture to open Caribou coffeehouse in Turkey.

The new store is located in Istanbul, the largest city in Turkey and one of the world’s largest cities by population within city limits. Coffee is quite popular in Turkey as the people in the country generally socialize over coffee and coffee houses are a central place for meeting of cultured people and politicians. Thus, given its strategic location, we believe this new store is on right track to drive growth in the coming days.

Despite more business from the new units, Caribou coffeehouse will face stiff competition in Turkey from Starbucks Corporation Inc. (SBUX - Free Report) and Second Cup, which already boast of a strong presence in the area.

Caribou coffeehouse currently owns and operates 585 coffeehouses, including 174 franchised locations, in 21 states, the District of Columbia and nine international markets. The company continues to drive growth through unit expansion and plans to open 55 to 70 locations in 2012 in both domestic and international markets, implying an upside of 10% to 12%.

The company is expanding further in the international market and intends to consolidate its position in its existing markets, before entering into new markets. The company also remains focused on growing its commercial business in the international markets after increasing the commercial business significantly in the domestic market. In the recently concluded first quarter 2012, the company’s sales from the commercial segment surged 49.9% to $11.7 million, compared with an upside of 3.7% in coffeehouse sales.

We believe that Caribou Coffee remains well positioned to sustain its growth momentum, while generating improved earnings on the heels of innovative offerings. However, lowered outlook for 2012 and food cost pressure make us cautious. Hence, we maintain a Zacks #3 Rank on Caribou Coffee, which translates into a short-term Hold rating. Our long-term recommendation remains Neutral.

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