PEET Peets Coffee & Tea, Inc. (MM)

Peet’s Coffee & Tea, Inc. (NASDAQ:PEET) today announced its fourth quarter and annual results for the fiscal year ended January 2, 2011, which included 13 weeks and 52 weeks, respectively. The fiscal fourth quarter and fiscal year ended January 3, 2010, included 14 weeks and 53 weeks, respectively.

In this release, the company:

• Achieves annual diluted earnings per share of $1.28
• Reports non-GAAP annual diluted earnings per share of $1.33, up 28% versus 2009 non-GAAP diluted earnings per share
• Reports net revenue growth for the quarter and the year of 6% and 9% on a comparable 13-week and 52-week basis, respectively
• Confirms 2011 diluted earnings per share guidance of $1.53 to $1.60

Financial Highlights

(Unaudited, in thousands, except per share amounts)

    Fourth Quarter     %     Fiscal Year     %

2010

   

2009

Change

2010

   

2009

Change

  Net revenue, as reported $ 91,628 $ 91,695 - $ 333,808 $ 311,270 7 % Non-GAAP net revenue, excluding 53rd week $ 91,628 $ 86,103 6 % $ 333,808 $ 305,678 9 %   Net income per diluted share, as reported $ 0.48 $ 0.76 -37 % $ 1.28 $ 1.44 -11 %   Non-GAAP net income per diluted share, excluding unusual items and 53rd week $ 0.48 $ 0.36 33 % $ 1.33 $ 1.04 28 %  

See the Reconciliation of Non-GAAP Financial Information to Net Revenue and Net Income at the end of this document for further detail.

For the 13 weeks ended January 2, 2011, net revenue was approximately the same as the corresponding 14-week period of fiscal 2009. For the 52 weeks ended January 2, 2011, net revenue increased 7% from fiscal 2009, which included 53 weeks. Excluding the impact of the 53rd week in 2009, the company would have reported sales growth of 6% and 9% for the quarter and the year on a comparable 13-week and 52-week basis, respectively.

Diluted earnings per share was $1.28 for fiscal 2010, compared to $1.44 per share for fiscal 2009. Excluding the items outlined below, non-GAAP diluted earnings per share increased 28% to $1.33 for 2010, compared to $1.04 per share for fiscal 2009.

“I’m pleased with the results we achieved in 2010, and I’m excited about the many opportunities ahead of us,” said Patrick O’Dea, president and chief executive officer of Peet’s Coffee & Tea, Inc. “This past year we delivered impressive operating margin improvement, strong earnings per share, and increased sales in line with our target, led by 24% growth in our consumer packaged grocery business. We believe the opportunities for continued strong sales and profit growth over the long term are rich and varied, both on our existing business and as we expand the Peet’s brand into new geographies, to new customers, and with new product offerings.”

Non-GAAP Items in 2009 and 2010 Results

Fiscal year net income and diluted earnings per share for 2010 include $1.0 million pre-tax ($0.05 per diluted share) of legal and related expenses incurred by the company for its response to the subpoena it received from the Federal Trade Commission (FTC) in connection with the FTC’s anti-trust review of the acquisition of Diedrich Coffee by Green Mountain Coffee Roasters.

In the fourth quarter of fiscal 2009, the company recognized $5.6 million in net revenue during the 53rd week of the fiscal year.

Fourth quarter and fiscal year 2009 net income and diluted earnings per share included a pre-tax benefit of $8.6 million ($5.3 million after tax or $0.40 per diluted share) comprised of unusual items including:

• Net gain received from the company’s attempted acquisition of Diedrich Coffee ($7.2 million after tax)
• Estimated settlement and legal costs of a class action lawsuit ($1.8 million after tax)
• Costs related to closing 4 stores during the quarter ($0.7 million after tax)
• Net income from the 53rd week of operation ($0.7 million after tax)

Fourth Quarter Consolidated Financial and Operating Summary

Retail net revenue decreased to $54.7 million for the 13 weeks ended January 2, 2011, from $56.5 million for the corresponding 14-week period of fiscal 2009. Excluding the impact of the extra week in 2009, retail net revenue increased 4% from $52.8 million. The increase was solely attributed to sales growth in existing stores.

Specialty net revenue increased 5% to $36.9 million for the 13 weeks ended January 2, 2011, compared to $35.2 million for the corresponding 14-week period of fiscal 2009. Excluding the impact of the extra week in 2009, total specialty net revenue increased 11%. Within specialty, the grocery business was up 4% over last year (11% on a comparable 13-week basis); foodservice and office business grew 9% (15% on a comparable 13-week basis); and home delivery sales were down 1% (up 3% on a comparable 13-week basis).

Cost of sales and related occupancy expenses were 45.7% of total net revenue for the 13 weeks ended January 2, 2011, compared to 46.9% for the corresponding 14-week period of fiscal 2009. The decrease was driven by a favorable pricing impact in retail and lower operating costs at the roasting facility as a percentage of sales.

Operating expenses as a percentage of net revenue decreased to 30.9% for the 13 weeks ended January 2, 2011, from 32.6% for the corresponding period of fiscal 2009, primarily due to the store closure costs in fiscal 2009 and leverage of retail overhead costs.

Transaction income in 2009 includes the $8.5 million break-up fee received for the termination of a definitive agreement for Peet’s to acquire Diedrich Coffee, net of $4.2 million of costs incurred related to the transaction.

Litigation related expenses of $2.8 million in 2009 includes costs incurred related to the settlement of a wage and hour class action lawsuit that was filed in July 2008 against the company.

General and administrative expenses increased to $7.3 million for the 13 weeks ended January 2, 2011, compared to $7.0 million for the corresponding period of fiscal 2009 primarily due to higher payroll and marketing costs, partially offset by the costs of the 53rd week of operations in 2009.

Depreciation and amortization expenses decreased to $3.9 million for the 13 weeks ended January 2, 2011, compared to $4.0 million for the corresponding 14-week period of fiscal 2009.

The company ended 2010 with cash and cash equivalents plus investments of $49 million, compared to $48 million at year end 2009.

Fiscal 2011 Outlook

Looking ahead, Peet’s confirmed the following fiscal 2011 guidance:

• Total net revenue is expected to grow 8% to 10%
• Diluted earnings per share is expected to be in the range of $1.53 to $1.60

Peet’s Coffee & Tea, Inc. Q4 and 2010 Year-End Conference Call

Peet’s will report its fourth quarter and 2010 year-end earnings via conference call on Wednesday, February 16, 2011. The teleconference call will begin at 2:00 p.m. PT/5:00 p.m. ET and can be accessed by calling 866-748-8653. The call will be simultaneously webcast on Peet’s website at www.peets.com.

A replay of the teleconference will be available from 5:00 p.m. PT/8:00 p.m. ET on February 16, 2011, until 8:59 p.m. PT/11:59 p.m. ET on February 23, 2011, at 800-642-1687 or 706-645-9291, using access code 40582091. It will also be archived at http://investor.peets.com/medialist.cfm through February 16, 2012, at 8:59 p.m. PT/11:59 p.m. ET.

The company has also posted on its website at http://investor.peets.com/events.cfm a detailed reconciliation of all non-GAAP reporting for the year and quarter, including non-GAAP segment reporting.

About Peet’s Coffee & Tea, Inc.

Peet’s Coffee & Tea, Inc., (PEET), is the premier specialty coffee and tea company in the United States. The company was founded in 1966 in Berkeley, Calif. by Alfred Peet. Peet was an early tea authority who later became widely recognized as the grandfather of specialty coffee in the U.S. Today, Peet’s Coffee & Tea offers superior quality coffees and teas in multiple forms, by sourcing the best quality coffee beans and tea leaves in the world, adhering to strict high quality and taste standards, and controlling product quality through its unique direct store delivery selling and merchandising system. Peet’s is committed to strategically growing its business through many channels while maintaining the extraordinary quality of its coffees and teas. For more information about Peet’s Coffee & Tea, Inc. visit www.peets.com.

This press release contains statements that are not based on historical fact and are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to 2011 forecasted net revenue growth, earnings per diluted share, and opportunities for continued strong sales and profit growth. Forward-looking statements are based on management’s beliefs, as well as assumptions made by and information currently available to management, including financial and operational information, the company’s stock price volatility, commodity price expectations, and current competitive conditions. As a result, these statements are subject to various risks and uncertainties. The company’s actual results could differ materially from those set forth in forward-looking statements depending on a variety of factors including, but not limited to, general economic conditions, including the recent recession and its ongoing negative impact on consumer spending; volatility of commodity costs; the outcome of the current wage and hour litigation involving the company and potential future claims and litigation involving the company, and the company’s ability to manage its expenses related to such claims and litigation; the company’s ability to implement its business strategy, attract and retain customers, and obtain and expand its market presence in new geographic regions; the availability and cost of high-quality Arabica coffee beans; consumers’ tastes and preferences; and competition in its market as well as other risk factors as described more fully in the company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended January 3, 2010. These factors may not be exhaustive. The company operates in a continually changing business environment, and new risks emerge from time to time. Any forward-looking statements speak only as of the date of this press release.

    PEET’S COFFEE & TEA, INC.   CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share amounts)   January 2, January 3,

2011

2010

  ASSETS   Current assets Cash and cash equivalents $ 44,629 $ 47,934 Short-term marketable securities 4,183 - Accounts receivable, net 14,852 15,209 Inventories 33,534 25,936 Deferred income taxes - current 4,420 3,592 Prepaid expenses and other   7,798   5,863 Total current assets 109,416 98,534   Property, plant and equipment, net 97,279 103,494 Other assets, net   2,137   2,775   Total assets $ 208,832 $ 204,803   LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities Accounts payable and other accrued liabilities $ 9,138 $ 13,669 Accrued compensation and benefits 11,555 10,832 Deferred revenue   7,102   6,845 Total current liabilities 27,795 31,346   Deferred income taxes - non current 46 321 Deferred lease credits 7,023 7,059 Other long-term liabilities   1,468   1,021 Total liabilities 36,332 39,747   Shareholders' equity Common stock, no par value; authorized 50,000,000 shares;

issued and outstanding:13,063,000 and 13,104,000 shares

81,995 92,054 Accumulated other comprehensive income 2 - Retained earnings   90,503   73,002   Total shareholders' equity   172,500   165,056   Total liabilities and shareholders' equity $ 208,832 $ 204,803     PEET’S COFFEE & TEA, INC.         CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except per share amounts)   Thirteen weeks Fourteen weeks Fifty-two weeks Fifty-three weeks ended January 2, ended January 3, ended January 2, ended January 3,

2011

2010

2011

2010

  Retail stores $ 54,694 $ 56,453 $ 205,116 $ 201,139 Specialty sales   36,934   35,242     128,692     110,131   Net revenue 91,628 91,695 333,808 311,270   Cost of sales and related occupancy expenses 41,838 42,964 154,892 142,776 Operating expenses 28,345 29,848 109,646 106,652 Transaction related expenses/(income) - (4,311 ) 970 (4,183 ) Litigation related expenses - 2,811 (93 ) 2,957 General and administrative expenses 7,326 7,000 25,088 24,508 Depreciation and amortization expenses   3,923   3,967     15,767     15,167   Total costs and expenses from operations   81,432   82,279     306,270     287,877     Income from operations 10,196 9,416 27,538 23,393   Gain on sale of marketable securities - 7,305 - 7,305 Interest income, net   2   1     8     112     Income before income taxes 10,198 16,722 27,546 30,810   Income tax provision   3,766   6,400     10,045     11,558     Net income $ 6,432 $ 10,322   $ 17,501   $ 19,252     Net income per share: Basic $ 0.50 $ 0.79 $ 1.34 $ 1.48 Diluted $ 0.48 $ 0.76 $ 1.28 $ 1.44   Shares used in calculation of net income per share: Basic 12,871 13,055 13,038 12,997 Diluted 13,453 13,591 13,643 13,349     PEET’S COFFEE & TEA, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)     Fifty-two Fifty-three weeks ended weeks ended January 2, January 3,

2011

2010

  Cash flows from operating activities: Net income $ 17,501 $ 19,252 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,959 17,279 Amortization of interest purchased 16 36 Stock-based compensation 3,354 3,018 Excess tax benefit from exercise of stock options (5,501 ) (892 ) Tax benefit from exercise of stock options 4,936 695 Gain on sale of marketable securities

-

(7,305 ) Loss on disposition of assets and asset impairment 129 1,141 Deferred income taxes (1,103 ) 2,710 Changes in other assets and liabilities: Accounts receivable, net 357 (3,285 ) Inventories (7,598 ) 188 Prepaid expenses and other current assets (1,935 ) 1,330 Other assets 47 161 Accounts payable, accrued liabilities and deferred revenue (3,809 ) 6,887 Deferred lease credits and other long-term liabilities   411     695   Net cash provided by operating activities   24,764     41,910     Cash flows from investing activities: Purchases of property, plant and equipment (11,603 ) (14,505 ) Proceeds from sales of property, plant and equipment 19 11 Changes in restricted investments 558 877 Proceeds from sales and maturities of marketable securities

-

16,183 Purchases of marketable securities   (4,195 )   (371 ) Net cash (used in)/provided by investing activities   (15,221 )   2,195     Cash flows from financing activities: Net proceeds from issuance of common stock 17,978 4,782 Purchase of common stock (36,327 ) (6,564 ) Excess tax benefit from exercise of stock options   5,501     892   Net cash used in financing activities   (12,848 )   (890 )   (Decrease) increase in cash and cash equivalents (3,305 ) 43,215 Cash and cash equivalents, beginning of period   47,934     4,719     Cash and cash equivalents, end of period $ 44,629   $ 47,934     Non-cash investing activities: Capital expenditures incurred, but not yet paid $ 412 $ 156 Other cash flow information: Cash paid for income taxes 7,227 7,213     PEET’S COFFEE & TEA, INC.               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 January 2, 2011 Net revenue $ 54,694 100.0 % $ 36,934 100.0 % $ 91,628 100.0 % Cost of sales and occupancy 22,922 41.9 % 18,916 51.2 % 41,838 45.7 % Operating expenses 20,824 38.1 % 7,521 20.4 % 28,345 30.9 % Depreciation and amortization 2,775 5.1 % 432 1.2 % $ 716 3,923 4.3 % Segment operating income 8,173 14.9 % 10,065 27.3 % (8,042 ) 10,196 11.1 %   For the fourteen weeks ended January 3, 2010 Net revenue $ 56,453 100.0 % $ 35,242 100.0 % $ 91,695 100.0 % Cost of sales and occupancy 24,913 44.1 % 18,051 51.2 % 42,964 46.9 % Operating expenses 23,198 41.1 % 6,650 18.9 % 29,848 32.6 % Litigation related expenses 2,811 5.0 % 2,811 3.1 % Depreciation and amortization 2,817 5.0 % 433 1.2 % $ 717 3,967 4.3 % Segment operating income 2,714 4.8 % 10,108 28.7 % (3,406 ) 9,416 10.3 %   For the fifty-two weeks ended January 2, 2011 Net revenue $ 205,116 100.0 % $ 128,692 100.0 % $ 333,808 100.0 % Cost of sales and occupancy 88,622 43.2 % 66,270 51.5 % 154,892 46.4 % Operating expenses 82,762 40.3 % 26,884 20.9 % 109,646 32.8 % Litigation related expenses (93 )

-

(93 ) 0.0 % Depreciation and amortization 11,216 5.5 % 1,746 1.4 % 2,805 15,767 4.7 % Segment operating income 22,609 11.0 % 33,792 26.3 % (28,863 ) 27,538 8.2 %   For the fifty-three weeks ended January 3, 2010 Net revenue $ 201,139 100.0 % $ 110,131 100.0 % $ 311,270 100.0 % Cost of sales and occupancy 87,843 43.7 % 54,933 49.9 % 142,776 45.9 % Operating expenses 83,616 41.6 % 23,036 20.9 % 106,652 34.3 % Litigation related expenses 2,957 1.5 % 2,957 0.9 % Depreciation and amortization 11,267 5.6 % 1,758 1.6 % $ 2,142 15,167 4.9 % Segment operating income 15,456 7.7 % 30,404 27.6 % (22,467 ) 23,393 7.5 %    

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.

  PEET'S COFFEE & TEA, INC.         Reconciliation of Non-GAAP Financial Information to Net Revenue and Net Income (Unaudited, in thousands, except per share data)   Thirteen Fourteen Fifty-two Fifty-three weeks ended weeks ended weeks ended weeks ended January 2, January 3, January 2, January 3,

2011

2010

2011

2010

 

Net Revenue

Net revenue, as reported $ 91,628 $ 91,695 $ 333,808 $ 311,270 53rd week sales   -     (5,592 )   -     (5,592 ) Non-GAAP net revenue, excluding 53rd week $ 91,628   $ 86,103   $ 333,808   $ 305,678     Net revenue growth, as reported -0.1 % 7.2 % Net revenue growth, excluding 53rd week 6.4 % 9.2 %  

 

Net Income

Net income, as reported $ 6,432 $ 10,322 $ 17,501 $ 19,252 Transaction (income)/expense, net of tax - (7,170 ) 616 (7,178 ) Litigation related expenses, net of tax - 1,735 (59 ) 1,848 Store closures, net of tax   19     664     88     672   Non-GAAP net income 6,451 5,551 18,147 14,594 Non-GAAP 53rd week net income   -     (677 )   -     (686 ) Non-GAAP net income, excluding 53rd week $ 6,451   $ 4,874   $ 18,147   $ 13,908      

Net Income Per Diluted Share

Net income per diluted share, as reported $ 0.48 $ 0.76 $ 1.28 $ 1.44 Transaction (income)/expense, net of tax - (0.53 ) 0.05 (0.54 ) Litigation related expenses, net of tax - 0.13 - 0.14 Store closures, net of tax   -     0.05     0.01     0.05   Non-GAAP net income per diluted share 0.48 0.41 1.33 1.09 Non-GAAP 53rd week   -     (0.05 )   -     (0.05 ) Non-GAAP, excluding 53rd week $ 0.48   $ 0.36   $ 1.33   $ 1.04