PEET Peets Coffee & Tea, Inc. (MM)

Peet’s Coffee & Tea, Inc. (NASDAQ: PEET) today announced its third quarter 2011 results for the period ended October 2, 2011, which included 13 weeks.

In this release, the company:

• Reports net revenue growth of 14% for the quarter
• Reports third quarter diluted earnings per share of $0.11 and non-GAAP diluted earnings per share of $0.28
• Expects 2011 full-year GAAP diluted earnings per share to be toward the higher end of the $1.27 to $1.34 range, which includes litigation-related expenses equating to $0.16 diluted earnings per share
• Confirms 2011 full-year non-GAAP diluted earnings per share expected to be toward the higher end of the previous guidance range of $1.43 to $1.50
• Provides 2012 guidance including net revenue growth of around 10% and diluted earnings per share of $1.70 to $1.80

Financial Highlights

                                    Third Quarter % Year to Date %

2011

2010

Change

2011

2010

Change

  Net revenue, as reported $ 91,208 $ 80,208 14 % $ 270,296 $ 242,180 12 %   Net income per diluted share, as reported $ 0.11 $ 0.28 -61 % $ 0.91 $ 0.81 12 %  

Non-GAAP net income per diluted share

$ 0.28 $ 0.28 0 % $ 1.07 $ 0.85 26 %  

For the 13 weeks ended October 2, 2011, net revenue increased 14% to $91.2 million from $80.2 million for the corresponding period of 2010.

Net income for the quarter was $1.5 million, or $0.11 per diluted share, compared to $3.8 million, or $0.28 per diluted share, for the corresponding period last year. Net income for the quarter includes the anticipated settlement and legal costs of a class action lawsuit ($2.2 million after tax). Excluding this item, non-GAAP diluted earnings per share would have been $0.28, equal to the third quarter of 2010.

“Our third quarter business performance was right on track with our plan for the year,” said Patrick O’Dea, CEO and president of Peet’s Coffee & Tea. “Our sales growth accelerated to 14% driven by strong grocery growth of 38%, and we weathered significantly higher coffee costs. We’re on target to finish the full year consistent with our previous non-GAAP guidance. Looking forward to 2012, we have existing plans in place to deliver strong sales and earnings growth, while continuing to invest in and explore additional growth initiatives.”

Consolidated Financial and Operating Summary

Retail net revenue increased 5% to $52.3 million for the 13 weeks ended October 2, 2011, from $49.8 million for the corresponding period last year. The increase was driven by a 7% increase in sales of beverages and pastries. The company opened one store in the quarter, ending the quarter with 194 stores versus 193 stores at the end of the third quarter 2010.

Specialty net revenue increased 28% to $38.9 million compared to $30.4 million for the corresponding period last year. Within the specialty business, grocery sales grew 38%, the foodservice and office business was up 18%, and home delivery sales were up 3% compared to the same period last year.

Cost of sales and related occupancy costs increased as a percentage of net revenue to 51.6%, compared to 47.5% for the corresponding period last year. The increase resulted primarily from higher coffee costs and to a lesser extent higher milk costs and a mix shift towards the specialty business, which has a higher cost of sales. Price increases across the channels and lower shipping expenses partially offset the impact of these higher costs.

Operating expenses decreased as a percentage of net revenue to 31.3%, compared to 33.1% for the corresponding period last year. The decrease was due primarily to a favorable mix shift to the specialty business, the impact of price increases across all channels, leveraging of overhead costs, and continued effective cost management in retail stores.

Litigation related expenses of $3.2 million include all costs incurred related to the pending settlement of a class action lawsuit that was filed in February 2010 against the company.

General and administrative expenses as a percentage of net revenue were 6.9%, compared to 7.2% for the corresponding period last year. General and administrative expenses increased to $6.3 million from $5.8 million for the corresponding period last year, primarily due to higher marketing spend.

Depreciation and amortization expenses as a percentage of net revenue decreased to 4.2%, compared to 4.9% for the corresponding period last year. Depreciation and amortization expenses were $3.9 million, consistent with last year.

The company ended the quarter with cash and cash equivalents plus investments of $12 million, compared to $49 million at year end 2010.

Fiscal 2011 Full-Year Outlook

The company provided the following full-year guidance for 2011:

• Confirms full-year net revenue growth expected to be in the 10% to 12% range
• Expects full-year GAAP diluted earnings per share to be toward the higher end of the $1.27 to $1.34 range. This guidance includes the anticipated settlement and legal costs of a class action lawsuit equating to $0.16 diluted earnings per share
• Confirms full-year non-GAAP diluted earnings per share expected to be toward the higher end of the previous guidance range of $1.43 to $1.50

Fiscal 2012 Outlook

Looking ahead, Peet’s provided the following fiscal 2012 guidance:

• Total net revenue growth of around 10%
• Diluted earnings per share in the range of $1.70 to $1.80

Peet’s Coffee & Tea, Inc. Q3 2011 Conference Call

Peet’s will discuss its third quarter 2011 earnings via conference call today, November 1, 2011. The teleconference call will begin at 2:00 p.m. PT/5:00 p.m. ET and can be accessed by calling 1-866-748-8653. 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 November 1, 2011 through 8:59 p.m. PT/11:59 p.m. ET on November 8, 2011, at 1-855-859-2056 or 1-404-537-3406 using access code 15966123. It will also be archived at http://investor.peets.com/events.cfm through November 1, 2012, at 8:59 p.m. PT/11:59 p.m. ET.

About Peet’s Coffee & Tea, Inc.

Peet’s Coffee & Tea, Inc. (NASDAQ: 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 forecasted net revenue and earnings per diluted share for both 2011 and 2012. 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; court approval of the class action lawsuit settlement; 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 2, 2011. 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)   October 2, January 2,

2011

2011

  ASSETS   Current assets Cash and cash equivalents $ 5,890 $ 44,629 Short-term marketable securities 5,957 4,183 Accounts receivable, net 17,465 14,852 Inventories 60,486 33,534 Deferred income taxes - current 3,949 4,420 Prepaid expenses and other   12,629   7,798 Total current assets 106,376 109,416   Property, plant and equipment, net 90,919 97,279 Other assets, net   1,331   2,137   Total assets $ 198,626 $ 208,832   LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities Accounts payable and other accrued liabilities $ 13,628 $ 9,138 Accrued compensation and benefits 7,686 11,555 Deferred revenue   5,778   7,102 Total current liabilities 27,092 27,795   Deferred income taxes - non current 596 46 Deferred lease credits 6,783 7,023 Other long-term liabilities   1,040   1,468 Total liabilities 35,511 36,332   Shareholders' equity Common stock, no par value; authorized 50,000,000 shares; issued and outstanding: 12,903,000 and 13,063,000 shares 60,470 81,995 Accumulated other comprehensive income 2 2 Retained earnings   102,643   90,503   Total shareholders' equity   163,115   172,500   Total liabilities and shareholders' equity $ 198,626 $ 208,832   PEET’S COFFEE & TEA, INC.         CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except per share amounts)   Thirteen weeks ended Thirty-nine weeks ended October 2, October 3, October 2, October 3,

2011

2010

2011

2010

  Retail stores $ 52,283 $ 49,791 $ 157,723 $ 150,422 Specialty sales   38,926     30,417     112,573   91,758   Net revenue 91,209 80,208 270,296 242,180   Cost of sales and related occupancy expenses 47,062 38,138 132,840 113,054 Operating expenses 28,554 26,526 84,583 81,301 Transaction related expenses - - - 970 Litigation related expenses 3,181 (66 ) 3,260 (49 ) General and administrative expenses 6,308 5,811 19,087 17,718 Depreciation and amortization expenses   3,865     3,947     11,665   11,844   Total costs and expenses from operations   88,970     74,356     251,435   224,838     Income from operations 2,239 5,852 18,861 17,342   Interest income, net   (9 )   2     9   6     Income before income taxes 2,230 5,854 18,870 17,348   Income tax provision   714     2,091     6,730   6,279     Net income $ 1,516   $ 3,763   $ 12,140 $ 11,069     Net income per share: Basic $ 0.12 $ 0.29 $ 0.94 $ 0.85 Diluted $ 0.11 $ 0.28 $ 0.91 $ 0.81   Shares used in calculation of net income per share: Basic 12,889 12,847 12,951 13,094 Diluted 13,278 13,425 13,357 13,706   PEET’S COFFEE & TEA, INC.     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)     Thirty-nine weeks ended October 2, October 3,

2011

2010

  Cash flows from operating activities: Net income $ 12,140 $ 11,069 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,397 13,456 Amortization of interest purchased 287 - Stock-based compensation 3,024 2,457 Excess tax benefit from exercise of stock options (7,892 ) (1,579 ) Tax benefit from exercise of stock options 7,142 1,311 Loss on disposition of assets and asset impairment 709 110 Deferred income taxes 1,021 - Changes in other assets and liabilities: Accounts receivable, net (2,613 ) 1,541 Inventories (26,952 ) (14,424 ) Prepaid expenses and other current assets (4,831 ) (2,332 ) Other assets (4 ) 26 Accounts payable, accrued liabilities and deferred revenue (741 ) (6,249 ) Deferred lease credits and other long-term liabilities   (668 )   389   Net cash (used in)/provided by operating activities   (5,981 )   5,775     Cash flows from investing activities: Purchases of property, plant and equipment (7,696 ) (8,396 ) Proceeds from sales of property, plant and equipment - 17 Changes in restricted investments 798 558 Proceeds from sales and maturities of marketable securities 6,323 - Purchases of marketable securities   (8,384 )   -   Net cash used in investing activities   (8,959 )   (7,821 )   Cash flows from financing activities: Net proceeds from issuance of common stock 19,588 9,315 Purchase of common stock (51,279 ) (28,231 ) Excess tax benefit from exercise of stock options   7,892     1,579   Net cash used in financing activities   (23,799 )   (17,337 )   Decrease in cash and cash equivalents (38,739 ) (19,383 ) Cash and cash equivalents, beginning of period   44,629     47,934     Cash and cash equivalents, end of period $ 5,890   $ 28,551     Non-cash investing activities: Capital expenditures incurred, but not yet paid $ 450 $ 641 Other cash flow information: Cash paid for income taxes 3,042 5,402   PEET’S COFFEE & TEA, INC.               SEGMENT REPORTING (Unaudited, 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 October 2, 2011 Net revenue $ 52,283 100.0 % $ 38,926 100.0 % $ 91,209 100.0 % Cost of sales and occupancy 24,207 46.3 % 22,854 58.7 % 47,061 51.6 % Operating expenses 20,630 39.5 % 7,924 20.4 % 28,554 31.3 % Litigation related expenses 3,181 6.1 % 3,181 3.5 % Depreciation and amortization 2,714 5.2 % 412 1.1 % $ 739 3,865 4.2 % Segment operating income 1,551 3.0 % 7,736 19.9 % (7,048 ) 2,239 2.5 %   For the thirteen weeks ended October 3, 2010 Net revenue $ 49,791 100.0 % $ 30,417 100.0 % $ 80,208 100.0 % Cost of sales and occupancy 22,082 44.3 % 16,056 52.8 % 38,138 47.5 % Operating expenses 20,457 41.1 % 6,069 20.0 % 26,526 33.1 % Litigation related expenses (66 ) -0.1 % (66 ) -0.1 % Depreciation and amortization 2,825 5.7 % 426 1.4 % $ 696 3,947 4.9 % Segment operating income 4,493 9.0 % 7,866 25.9 % (6,507 ) 5,852 7.3 %   For the thirty-nine weeks ended October 2, 2011 Net revenue $ 157,723 100.0 % $ 112,573 100.0 % $ 270,296 100.0 % Cost of sales and occupancy 70,143 44.5 % 62,697 55.7 % 132,840 49.1 % Operating expenses 61,497 39.0 % 23,086 20.5 % 84,583 31.3 % Litigation related expenses 3,260 2.1 % 3,260 1.2 % Depreciation and amortization 8,182 5.2 % 1,289 1.1 % $ 2,194 11,665 4.3 % Segment operating income 14,641 9.3 % 25,501 22.7 % (21,281 ) 18,861 7.0 %   For the thirty-nine weeks ended October 3, 2010 Net revenue $ 150,422 100.0 % $ 91,758 100.0 % $ 242,180 100.0 % Cost of sales and occupancy 65,700 43.7 % 47,354 51.6 % 113,054 46.7 % Operating expenses 61,938 41.2 % 19,363 21.1 % 81,301 33.6 % Litigation related expenses (49 ) 0.0 % (49 ) 0.0 % Depreciation and amortization 8,441 5.6 % 1,315 1.4 % $ 2,088 11,844 4.9 % Segment operating income 14,392 9.6 % 23,726 25.9 % (20,776 ) 17,342 7.2 %  

NON-GAAP FINANCIAL INFORMATION

The following reconciliation and non-GAAP financial information are provided to assist the reader with understanding the financial impact of certain transaction- and litigation-related expenses. Management believes this information is relevant because the nature and magnitude of these expenses do not reflect our on-going operating performance.

        PEET'S COFFEE & TEA, INC.   Reconciliation of Non-GAAP Financial Information to Net Income (Unaudited, in thousands, except per share data)   Thirteen Thirteen Thirty-Nine Thirty-Nine weeks ended weeks ended weeks ended weeks ended October 2, October 3, October 2, October 3,

2011

2010

2011

2010

 

Net Income

Net income, as reported $ 1,516 $ 3,763 $ 12,140 $ 11,069 Transaction expense, net of tax - - - 619

Litigation-related expenses, net of tax

  2,163   (42 )   2,097   (31 ) Non-GAAP net income $ 3,679 $ 3,721   $ 14,237 $ 11,657      

Net Income Per Diluted Share *

Net income per diluted share, as reported $ 0.11 $ 0.28 $ 0.91 $ 0.81 Transaction expense, net of tax - - - 0.05

Litigation-related expenses, net of tax

  0.16   -     0.16   -   Non-GAAP net income per diluted share $ 0.28 $ 0.28   $ 1.07 $ 0.85     * per share data may not sum due to rounding