UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 28, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________to __________________
Commission
file number: 0-32233
PEET’S
COFFEE & TEA, INC.
(Exact
Name of Registrant as Specified in Its Charter)
Washington
|
|
91-0863396
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
1400
Park Avenue
Emeryville,
California 94608-3520
(Address
of Principal Executive Offices)(Zip Code)
(510)
594-2100
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
No
o
.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every
Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
Large
Accelerated Filer
o
|
|
Accelerated
Filer
x
|
Non-Accelerated
Filer
o
|
|
Smaller
reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule 12b-2). Yes
o
No
x
As of
August 2, 2009, 12,973,769 shares of registrant’s Common Stock were
outstanding.
|
INDEX
|
|
|
|
Page
|
PART
I
|
FINANCIAL
INFORMATION
|
|
|
|
|
Item
1.
|
Consolidated
Financial Statements
|
3
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
10
|
Item
3.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
17
|
Item
4.
|
Controls
and Procedures
|
17
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
17
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
18
|
Item
6.
|
Exhibits
|
18
|
|
Signatures
|
18
|
PART
I – FINANCIAL INFORMATION
ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS
PEET’S
COFFEE & TEA, INC.
CONSOLIDATED
BALANCE SHEETS
(Unaudited,
in thousands, except share amounts)
|
|
June
28,
|
|
|
December
28,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
15,148
|
|
|
$
|
4,719
|
|
Short-term
marketable securities
|
|
|
5,548
|
|
|
|
8,600
|
|
Accounts
receivable, net
|
|
|
9,565
|
|
|
|
11,924
|
|
Inventories
|
|
|
29,473
|
|
|
|
26,124
|
|
Deferred
income taxes - current
|
|
|
2,922
|
|
|
|
2,922
|
|
Prepaid
expenses and other
|
|
|
4,998
|
|
|
|
7,193
|
|
Total
current assets
|
|
|
67,654
|
|
|
|
61,482
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
109,063
|
|
|
|
107,914
|
|
Deferred
income taxes - non current
|
|
|
3,069
|
|
|
|
3,059
|
|
Other
assets, net
|
|
|
2,801
|
|
|
|
3,897
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
182,587
|
|
|
$
|
176,352
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and other accrued liabilities
|
|
$
|
10,242
|
|
|
$
|
9,858
|
|
Accrued
compensation and benefits
|
|
|
8,058
|
|
|
|
8,852
|
|
Deferred
revenue
|
|
|
5,008
|
|
|
|
6,350
|
|
Total
current liabilities
|
|
|
23,308
|
|
|
|
25,060
|
|
|
|
|
|
|
|
|
|
|
Deferred
lease credits
|
|
|
7,179
|
|
|
|
6,645
|
|
Other
long-term liabilities
|
|
|
871
|
|
|
|
740
|
|
Total
liabilities
|
|
|
31,358
|
|
|
|
32,445
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
|
|
|
|
Common
stock, no par value; authorized 50,000,000 shares; issued and
outstanding:12,944,000 and 13,174,000 shares
|
|
|
86,763
|
|
|
|
90,123
|
|
Accumulated
other comprehensive income
|
|
|
4,255
|
|
|
|
34
|
|
Retained
earnings
|
|
|
60,211
|
|
|
|
53,750
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
151,229
|
|
|
|
143,907
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
182,587
|
|
|
$
|
176,352
|
|
See notes
to consolidated financial statements.
PEET’S
COFFEE & TEA, INC.
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited,
in thousands, except per share amounts)
|
|
Thirteen
weeks ended
|
|
|
Twenty-six
weeks ended
|
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
$
|
48,840
|
|
|
$
|
46,309
|
|
|
$
|
96,823
|
|
|
$
|
90,918
|
|
Specialty
sales
|
|
|
24,725
|
|
|
|
23,746
|
|
|
|
48,847
|
|
|
|
46,272
|
|
Net
revenue
|
|
|
73,565
|
|
|
|
70,055
|
|
|
|
145,670
|
|
|
|
137,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and related occupancy expenses
|
|
|
32,953
|
|
|
|
32,240
|
|
|
|
65,521
|
|
|
|
64,229
|
|
Operating
expenses
|
|
|
25,580
|
|
|
|
24,689
|
|
|
|
50,752
|
|
|
|
48,218
|
|
General
and administrative expenses
|
|
|
6,074
|
|
|
|
5,434
|
|
|
|
12,012
|
|
|
|
10,996
|
|
Depreciation
and amortization expenses
|
|
|
3,631
|
|
|
|
3,176
|
|
|
|
7,238
|
|
|
|
6,246
|
|
Total
costs and expenses from operations
|
|
|
68,238
|
|
|
|
65,539
|
|
|
|
135,523
|
|
|
|
129,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
5,327
|
|
|
|
4,516
|
|
|
|
10,147
|
|
|
|
7,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
48
|
|
|
|
202
|
|
|
|
126
|
|
|
|
506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
5,375
|
|
|
|
4,718
|
|
|
|
10,273
|
|
|
|
8,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
1,967
|
|
|
|
1,682
|
|
|
|
3,812
|
|
|
|
2,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,408
|
|
|
$
|
3,036
|
|
|
$
|
6,461
|
|
|
$
|
5,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
0.22
|
|
|
$
|
0.50
|
|
|
$
|
0.37
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.21
|
|
|
$
|
0.49
|
|
|
$
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in calculation of net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
12,915
|
|
|
|
13,916
|
|
|
|
12,977
|
|
|
|
13,936
|
|
Diluted
|
|
|
13,217
|
|
|
|
14,197
|
|
|
|
13,229
|
|
|
|
14,217
|
|
See notes
to consolidated financial statements.
PEET’S
COFFEE & TEA, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited,
in thousands)
|
|
Twenty-six
weeks ended
|
|
|
|
June 28,
|
|
|
June 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,461
|
|
|
$
|
5,127
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,304
|
|
|
|
7,322
|
|
Amortization
of interest purchased
|
|
|
36
|
|
|
|
114
|
|
Stock-based
compensation
|
|
|
1,508
|
|
|
|
1,297
|
|
Excess
tax benefit from exercise of stock options
|
|
|
(249
|
)
|
|
|
(68
|
)
|
Tax
benefit from exercise of stock options
|
|
|
124
|
|
|
|
52
|
|
Loss
on disposition of assets and asset impairment
|
|
|
18
|
|
|
|
136
|
|
Deferred
income taxes
|
|
|
(10
|
)
|
|
|
(10
|
)
|
Changes
in other assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
2,359
|
|
|
|
(31
|
)
|
Inventories
|
|
|
(3,349
|
)
|
|
|
(2,884
|
)
|
Prepaid
expenses and other current assets
|
|
|
2,195
|
|
|
|
(2,006
|
)
|
Other
assets
|
|
|
184
|
|
|
|
(72
|
)
|
Accounts
payable, accrued liabilities and deferred revenue
|
|
|
(2,322
|
)
|
|
|
(449
|
)
|
Deferred
lease credits and other long-term liabilities
|
|
|
665
|
|
|
|
1,091
|
|
Net
cash provided by operating activities
|
|
|
15,924
|
|
|
|
9,619
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(8,853
|
)
|
|
|
(14,943
|
)
|
Proceeds
from sales of property, plant and equipment
|
|
|
-
|
|
|
|
6
|
|
Changes
in restricted investments
|
|
|
864
|
|
|
|
-
|
|
Proceeds
from sales and maturities of marketable securities
|
|
|
7,607
|
|
|
|
5,597
|
|
Purchases
of marketable securities
|
|
|
(370
|
)
|
|
|
(917
|
)
|
Net
cash used in investing activities
|
|
|
(752
|
)
|
|
|
(10,257
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
1,572
|
|
|
|
634
|
|
Purchase
of common stock
|
|
|
(6,564
|
)
|
|
|
(8,277
|
)
|
Excess
tax benefit from exercise of stock options
|
|
|
249
|
|
|
|
68
|
|
Net
cash used in financing activities
|
|
|
(4,743
|
)
|
|
|
(7,575
|
)
|
|
|
|
|
|
|
|
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
10,429
|
|
|
|
(8,213
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
4,719
|
|
|
|
15,312
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
15,148
|
|
|
$
|
7,099
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures incurred, but not yet paid
|
|
$
|
1,304
|
|
|
$
|
3,673
|
|
Other
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
2,136
|
|
|
|
4,972
|
|
See notes
to consolidated financial statements.
Peet’s
Coffee & Tea, Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
The
accompanying consolidated financial statements of Peet’s Coffee & Tea, Inc.
and its subsidiaries (collectively, the “Company” or “Peet’s”) as of June 28,
2009 and for the thirteen and twenty-six weeks ended June 28, 2009 and June 29,
2008 are unaudited and, in the opinion of management, contain all adjustments,
consisting only of normal recurring items necessary to present fairly the
financial position and results of operations for such periods.
The information
included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read
in conjunction with the Company’s annual consolidated financial statements in
Peet’s Annual Report on Form 10-K for the year ended December 28, 2008 (the
“2008 Form 10-K”).
The
results of operations for the thirteen and twenty-six weeks ended June 28, 2009
are not necessarily indicative of the results expected for the full
year.
We
evaluated all subsequent events that occurred after the balance sheet date
through the date and time our financial statements were issued on August 6,
2009.
Recently Adopted Accounting
Pronouncements:
On June
28, 2009, we adopted SFAS No. 165, “Subsequent Events.” This statement
establishes general standards of accounting and disclosures of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. The adoption of this standard required the Company to
evaluate all subsequent events that occurred after the balance sheet date
through the date and time the financial statements are issued.
Newly Issued Accounting
Pronouncements:
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles — A Replacement of
FASB Statement No. 162.” The FASB Accounting Standards Codification
(“Codification”) will become the source of authoritative GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date, the Codification
will supersede all then-existing non-SEC accounting and reporting standards.
This standard will become effective for the Company on June 29, 2009. We do not
expect that this standard will have a material impact on our consolidated
financial statements upon adoption.
Comprehensive Income
For the
thirteen weeks ended June 28, 2009 and June 29, 2008, comprehensive income was
$7,671,000 and $2,989,000, respectively. For the twenty-six weeks
ended June 28, 2009 and June 29, 2008, comprehensive income was $10,682,000 and
$5,161,000, respectively. Comprehensive income consists of net income and net
unrealized gains and losses on investments.
Net Income per Share
Basic net
income per share is computed as net income divided by the weighted average
number of common shares outstanding for the period. Diluted net income per share
reflects the potential dilution that could occur from common shares issued
through stock options. Anti-dilutive shares of 1,380,920 and 1,221,139 have been
excluded from diluted weighted average shares outstanding for the thirteen week
periods ended June 28, 2009 and June 29, 2008, respectively and 1,408,319 and
1,164,475 for the twenty-six week periods, respectively.
The
number of incremental shares from the assumed exercise of stock options was
calculated by applying the treasury stock method. The following table summarizes
the differences between basic weighted average shares outstanding and diluted
weighted average shares outstanding used to compute diluted net income per share
(in thousands):
|
|
13
weeks ended
|
|
|
26
weeks ended
|
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
June
28,
2009
|
|
|
June
29,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
12,915
|
|
|
|
13,916
|
|
|
|
12,977
|
|
|
|
13,936
|
|
Incremental
shares from assumed exercise of stock options
|
|
|
302
|
|
|
|
281
|
|
|
|
252
|
|
|
|
281
|
|
Diluted
weighted average shares outstanding
|
|
|
13,217
|
|
|
|
14,197
|
|
|
|
13,229
|
|
|
|
14,217
|
|
2.
|
Fair
Value Measurements
|
Statement
of Financial Accounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”)
establishes a single authoritative definition of fair value, a framework for
measuring fair value and expands disclosure of fair value measurements.
The Company adopted the standard for financial assets and liabilities as of the
beginning of the 2008 fiscal year and the impact of adoption was not
significant. Effective December 29, 2008, the Company adopted the remaining
provisions of FAS No. 157 that were initially delayed by FSP FAS No.
157-2. The adoption of the remaining provisions of FAS No. 157 as it
relates to nonfinancial assets and liabilities did not have a material impact on
our financial position or results of operations. As of the twenty-six
weeks ended June 28, 2009, no changes were made to the recorded costs of
long-lived assets requiring disclosure under SFAS No.157.
SFAS
No. 157 requires financial assets and liabilities to be categorized based
on the inputs used to calculate their fair values as follows:
Level 1
- Quoted prices in
active markets for identical assets or liabilities.
Level 2 -
Inputs other than
quoted prices included within Level 1 that are either directly or indirectly
observable.
Level 3
- Unobservable inputs
that are supported by little or no market activity, therefore requiring an
entity to develop its own assumptions about the assumptions that market
participants would use in pricing.
The
Company uses the market approach, as defined as Level 1 in the fair value
hierarchy, to measure fair value for its financial assets and
liabilities. The market approach uses prices and other relevant
information generated by market transactions involving identical or comparable
assets or liabilities. Assets measured at fair value on a recurring
basis are summarized below (in thousands):
|
|
June
28,
|
|
|
|
2009
|
|
Short-term
available-for-sale securities
|
|
$
|
5,548
|
|
Restricted
cash (included in other assets, net)
|
|
|
2,462
|
|
|
|
$
|
8,010
|
|
Short-term
available-for-sale securities include equity securities and interest-bearing,
U.S. government, agency, and municipal securities. Unrealized gains or losses on
marketable securities are recorded in accumulated other comprehensive income at
each measurement date.
The
Company’s inventories consist of the following (in thousands):
|
|
June
28,
|
|
|
December
28,
|
|
|
|
2009
|
|
|
2008
|
|
Green
coffee
|
|
$
|
20,618
|
|
|
$
|
17,732
|
|
Other
inventory
|
|
|
8,855
|
|
|
|
8,392
|
|
Total
|
|
$
|
29,473
|
|
|
$
|
26,124
|
|
4.
|
Stock
Purchase Program
|
On
September 6, 2006, the Company's Board of Directors authorized the Company to
purchase up to one million shares of Peet’s common stock, with no expiration,
and the Company announced its plan on September 12, 2006 on Form
8-K. No share purchases were made during the thirteen weeks ended
June 28, 2009. During the twenty-six weeks ended June 28, 2009, the Company
purchased and retired 58,759 shares of common stock, at an average price of
$20.38, in accordance with this stock purchase program. No shares
remain available for purchase under this stock purchase program.
On
October 27, 2008, the Board of Directors approved another stock purchase program
providing for the additional purchase of up to one million shares of the
Company’s common stock, with no deadline for completion and the Company
announced its plan on October 28, 2008 on Form 8-K. No share
purchases were made during the thirteen weeks ended June 28, 2009. During the
twenty-six weeks ended June 28, 2009, the Company purchased and retired 264,112
shares of common stock, at an average price of $20.32, in accordance with the
stock purchase program. Purchases under this stock purchase program
would be made from time to time on the open market at prevailing market prices
or in negotiated transactions off the market.
5.
|
Stock-Based
Compensation
|
Stock
Option Plans
The
Company maintains several equity incentive plans under which it may currently
grant non-qualified stock options to employees and non-employee
directors.
Changes
in stock options were as follows:
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
Contractual
|
|
|
Value
|
|
|
|
Outstanding
|
|
|
Per Share
|
|
|
Life (Years)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 28, 2008
|
|
|
2,696,019
|
|
|
$
|
21.68
|
|
|
|
5.82
|
|
|
$
|
8,753
|
|
Granted
|
|
|
377,074
|
|
|
|
26.27
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(67,765
|
)
|
|
|
26.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(67,928
|
)
|
|
|
17.04
|
|
|
|
|
|
|
|
|
|
Oustanding
at June 28, 2009
|
|
|
2,937,400
|
|
|
$
|
22.27
|
|
|
|
6.00
|
|
|
$
|
13,015
|
|
Vested
or expected to vest, June 28, 2009
|
|
|
2,759,400
|
|
|
$
|
22.01
|
|
|
|
5.82
|
|
|
$
|
12,915
|
|
Exercisable
at June 28, 2009
|
|
|
1,914,642
|
|
|
$
|
19.99
|
|
|
|
4.63
|
|
|
$
|
12,379
|
|
Stock-Based
Compensation
Stock-based
compensation expense consists of and was recognized in the consolidated
statements of income as follows (in thousands):
|
|
Thirteen
weeks ended
|
|
|
Twenty-six
weeks ended
|
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
$
|
802
|
|
|
$
|
571
|
|
|
$
|
1,394
|
|
|
$
|
1,190
|
|
Employee
stock purchase plan expense
|
|
|
63
|
|
|
|
58
|
|
|
|
114
|
|
|
|
107
|
|
Total
|
|
$
|
865
|
|
|
$
|
629
|
|
|
$
|
1,508
|
|
|
$
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
benefit
|
|
$
|
352
|
|
|
$
|
256
|
|
|
$
|
615
|
|
|
$
|
529
|
|
The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
|
|
Stock Options
|
|
|
|
June 28,
2009
|
|
|
June 29,
2008
|
|
Expected
term (in years)
|
|
|
5.7
|
|
|
|
5.2
|
|
Expected
stock price volatility
|
|
|
37.6
|
%
|
|
|
34.3
|
%
|
Risk-free
interest rate
|
|
|
2.9
|
%
|
|
|
3.7
|
%
|
Expected
dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
Estimated
fair value per option granted
|
|
$
|
10.56
|
|
|
$
|
8.81
|
|
On
November 26, 2008, the Company entered into a credit agreement with Wells Fargo
Bank, National Association (the “Bank”). The credit agreement
provides for a $25 million revolving line of credit, the proceeds of which may
be used in the general course of business, including to fund working capital,
capital expenditures, share repurchases and other needs of the
Company.
Through
June 28, 2009, there were no borrowings under this agreement. Total unused
borrowing capacity under the credit agreement was $25.0 million as of June 28,
2009.
On July
14, 2008, a complaint was filed against Peet’s Coffee & Tea, Inc. in
California Superior Court, Alameda County, by three former employees on behalf
of themselves and all other California store managers. The complaint
alleges that store managers based in California were not paid overtime wages,
were not provided meal or rest periods, were not provided accurate wage
statements and were not reimbursed for business expenses. The
plaintiffs seek injunctive relief, monetary damages, penalties, costs and
attorneys’ fees, and prejudgment interest. On October 8, 2008, the
Company filed an answer denying the allegations set forth in the complaint and
asserting a number of affirmative defenses thereto. On November
12, 2008, the plaintiffs filed an amended complaint asserting an additional
claim for penalties. On November 26, 2008, the Company filed an
answer thereto denying the allegations in the first amended complaint and
asserting a number of affirmative defenses thereto. At this time, it
is not feasible to predict the outcome of or a range of loss, should a loss
occur, from this proceeding. The Company intends to vigorously defend
against the litigation.
We may
from time to time become involved in certain legal proceedings in the ordinary
course of business. The Company is not a party to any other legal
proceedings that management believes may have a material adverse effect on the
financial position or results of operations of the Company.
The
Company operates in two reportable segments: retail and specialty
sales. Retail store operations consist of sales of whole bean coffee,
beverages, tea and related products through Company-operated retail
stores. Specialty sales consist of whole bean coffee sales through
three operating segments: grocery, home delivery, foodservice and
office.
Management
evaluates segment performance primarily based on revenue and segment operating
income. The following table presents certain financial information
for each segment. Segment income before taxes excludes unallocated
marketing expenses and general and administrative
expenses. Unallocated assets include cash, coffee inventory in the
warehouse, corporate headquarter assets and intangible and other assets (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 June 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
48,840
|
|
|
|
100.0
|
%
|
|
$
|
24,725
|
|
|
|
100.0
|
%
|
|
|
|
|
$
|
73,565
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
21,226
|
|
|
|
43.5
|
%
|
|
|
11,727
|
|
|
|
47.4
|
%
|
|
|
|
|
|
32,953
|
|
|
|
44.8
|
%
|
Operating
expenses
|
|
|
20,173
|
|
|
|
41.3
|
%
|
|
|
5,407
|
|
|
|
21.9
|
%
|
|
|
|
|
|
25,580
|
|
|
|
34.8
|
%
|
Depreciation
and amortization
|
|
|
2,780
|
|
|
|
5.7
|
%
|
|
|
435
|
|
|
|
1.8
|
%
|
|
$
|
416
|
|
|
|
3,631
|
|
|
|
4.9
|
%
|
Segment
operating income
|
|
|
4,661
|
|
|
|
9.5
|
%
|
|
|
7,156
|
|
|
|
28.9
|
%
|
|
|
(6,490
|
)
|
|
|
5,327
|
|
|
|
7.2
|
%
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
48
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,375
|
|
|
|
|
|
Total
assets
|
|
|
59,578
|
|
|
|
|
|
|
|
15,822
|
|
|
|
|
|
|
|
107,187
|
|
|
|
182,587
|
|
|
|
|
|
Capital
expenditures
|
|
|
2,040
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
3,003
|
|
|
|
5,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the thirteen weeks ended June 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
46,309
|
|
|
|
100.0
|
%
|
|
$
|
23,746
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
70,055
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
20,706
|
|
|
|
44.7
|
%
|
|
|
11,534
|
|
|
|
48.6
|
%
|
|
|
|
|
|
|
32,240
|
|
|
|
46.0
|
%
|
Operating
expenses
|
|
|
19,825
|
|
|
|
42.8
|
%
|
|
|
4,864
|
|
|
|
20.5
|
%
|
|
|
|
|
|
|
24,689
|
|
|
|
35.2
|
%
|
Depreciation
and amortization
|
|
|
2,509
|
|
|
|
5.4
|
%
|
|
|
317
|
|
|
|
1.3
|
%
|
|
$
|
350
|
|
|
|
3,176
|
|
|
|
4.5
|
%
|
Segment
operating income
|
|
|
3,269
|
|
|
|
7.1
|
%
|
|
|
7,031
|
|
|
|
29.6
|
%
|
|
|
(5,784
|
)
|
|
|
4,516
|
|
|
|
6.4
|
%
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202
|
|
|
|
202
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,718
|
|
|
|
|
|
Total
assets
|
|
|
57,276
|
|
|
|
|
|
|
|
14,014
|
|
|
|
|
|
|
|
107,444
|
|
|
|
178,734
|
|
|
|
|
|
Capital
expenditures
|
|
|
3,866
|
|
|
|
|
|
|
|
543
|
|
|
|
|
|
|
|
1,706
|
|
|
|
6,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the twenty-six weeks ended June 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
96,823
|
|
|
|
100.0
|
%
|
|
$
|
48,847
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
145,670
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
41,751
|
|
|
|
43.1
|
%
|
|
|
23,770
|
|
|
|
48.7
|
%
|
|
|
|
|
|
|
65,521
|
|
|
|
45.0
|
%
|
Operating
expenses
|
|
|
39,929
|
|
|
|
41.2
|
%
|
|
|
10,823
|
|
|
|
22.2
|
%
|
|
|
|
|
|
|
50,752
|
|
|
|
34.8
|
%
|
Depreciation
and amortization
|
|
|
5,542
|
|
|
|
5.7
|
%
|
|
|
862
|
|
|
|
1.8
|
%
|
|
$
|
834
|
|
|
|
7,238
|
|
|
|
5.0
|
%
|
Segment
operating income
|
|
|
9,601
|
|
|
|
9.9
|
%
|
|
|
13,392
|
|
|
|
27.4
|
%
|
|
|
(12,846
|
)
|
|
|
10,147
|
|
|
|
7.0
|
%
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
126
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,273
|
|
|
|
|
|
Total
assets
|
|
|
59,578
|
|
|
|
|
|
|
|
15,822
|
|
|
|
|
|
|
|
107,187
|
|
|
|
182,587
|
|
|
|
|
|
Capital
expenditures
|
|
|
3,771
|
|
|
|
|
|
|
|
730
|
|
|
|
|
|
|
|
4,352
|
|
|
|
8,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the twenty-six weeks ended June 29, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
$
|
90,918
|
|
|
|
100.0
|
%
|
|
$
|
46,272
|
|
|
|
100.0
|
%
|
|
|
|
|
|
$
|
137,190
|
|
|
|
100.0
|
%
|
Cost
of sales and occupancy
|
|
|
41,062
|
|
|
|
45.2
|
%
|
|
|
23,167
|
|
|
|
50.1
|
%
|
|
|
|
|
|
|
64,229
|
|
|
|
46.8
|
%
|
Operating
expenses
|
|
|
38,851
|
|
|
|
42.7
|
%
|
|
|
9,367
|
|
|
|
20.2
|
%
|
|
|
|
|
|
|
48,218
|
|
|
|
35.1
|
%
|
Depreciation
and amortization
|
|
|
4,887
|
|
|
|
5.4
|
%
|
|
|
657
|
|
|
|
1.4
|
%
|
|
$
|
702
|
|
|
|
6,246
|
|
|
|
4.6
|
%
|
Segment
operating income
|
|
|
6,118
|
|
|
|
6.7
|
%
|
|
|
13,081
|
|
|
|
28.3
|
%
|
|
|
(11,698
|
)
|
|
|
7,501
|
|
|
|
5.5
|
%
|
Interest
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
506
|
|
|
|
506
|
|
|
|
|
|
Income
before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,007
|
|
|
|
|
|
Total
assets
|
|
|
57,276
|
|
|
|
|
|
|
|
14,014
|
|
|
|
|
|
|
|
107,444
|
|
|
|
178,734
|
|
|
|
|
|
Capital
expenditures
|
|
|
7,853
|
|
|
|
|
|
|
|
984
|
|
|
|
|
|
|
|
6,106
|
|
|
|
14,943
|
|
|
|
|
|
Item 2.
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
You
should read the following discussion and analysis in conjunction with our
financial statements and related notes included elsewhere in this report. Except
for historical information, the discussion in this report contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In some cases, you can identify forward-looking
statements by terminology, such as “may,” “should,” “could,” “predict,”
“potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,”
“believe,” “estimate,” “forecast” and similar expressions (or the negative of
such expressions). The forward-looking statements in this Form 10-Q
include, but are not limited to, statements regarding our expectations for the
growth of the specialty coffee industry; our planned geographic expansion of our
retail presence; our plans to open new retail stores; our plans to expand into
new grocery markets; and our expectations for future revenue, margins, expenses,
operating results, inventory levels and capital expenditures; and our
anticipated working capital needs and the adequacy of our capital resources.
These statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Forward-looking
statements reflect our current views with respect to future events, are based on
assumptions, and are subject to risks, uncertainties and other important
factors. Given these risks, uncertainties and other important factors, you
should not place undue reliance on these forward-looking statements. Also,
forward-looking statements represent our estimates and assumptions only as of
the date of this report. Except as required by law, we assume no obligation to
update any forward-looking statements publicly, or to update the reasons actual
results could differ materially from those anticipated in any forward-looking
statements, even if new information becomes available in the
future. Important factors that could cause actual results to differ
materially include, but are not limited to, the following:
|
·
|
The current recession or a
worsening of the United States and global economy could materially
adversely affect our business.
Our
revenues and performance depend significantly on consumer confidence and
spending, which have recently deteriorated due to the recession and may
remain depressed for the foreseeable future. Some of the factors that
could influence the levels of consumer confidence and spending include,
without limitation, continuing conditions in the residential real estate
and mortgage markets, access to credit, labor and healthcare costs,
increases in fuel and other energy costs, consumer confidence and other
macroeconomic factors affecting consumer spending behavior. These and
other economic factors could have a material adverse effect on demand for
our products and on our financial condition and operating
results.
|
|
·
|
Increases in the cost and
decreases in availability of high quality
Arabica
coffee beans could impact our
profitability and growth of our business.
Although we do not
purchase coffee on the commodity markets, price movements in the commodity
trading of coffee impact the prices we pay. Coffee is a trade commodity
and, in general, its price can fluctuate depending on: weather patterns in
coffee-producing countries; economic and political conditions affecting
coffee-producing countries; foreign currency fluctuations; the ability of
coffee-producing countries to agree to export quotas; and general economic
conditions that make commodities more or less attractive investment
options. If costs increase and we are unable to pass along increased
coffee costs, our margin will decrease and our profitability will decrease
accordingly. In addition, if we are not able to purchase sufficient
quantities of high quality
Arabica
beans due to
any of the above factors, we may not be able to fulfill the demand for our
coffee, our revenue may decrease and our ability to expand our business
may be negatively impacted.
|
|
·
|
Because we have only one
roasting facility, a significant interruption in the operation of our
roasting and distribution facility could potentially disrupt our
operations.
A significant interruption in the operation
of our roasting and distribution facility, whether as a result of a
natural disaster, pandemic or other causes, could significantly impair our
ability to operate our business. Since we only roast our coffee to order,
we do not carry inventory of roasted coffee in our roasting
plant. Therefore, a disruption in service in our roasting
facility would impact our sales in our retail and specialty channels
almost immediately. Moreover, our roasting and distribution
facility and most of our stores are located near several major earthquake
faults. The impact of a major earthquake on our facilities,
infrastructure and overall operations is difficult to predict and an
earthquake could seriously disrupt our entire
business.
|
|
·
|
Complaints or claims by
current, former or prospective employees or governmental agencies could
adversely affect us.
We are subject to a variety of laws and
regulations which govern such matters as minimum wages, overtime and other
working conditions, various family leave mandates and a variety of other
laws enacted, or rules and regulations promulgated, by federal, state and
local governmental authorities that govern these and other employment
matters. We have been, and in the future may be, the subject of complaints
or litigation from current, former or prospective employees or
governmental agencies. In addition, successful complaints against
our competitors may spur similar lawsuits against us. For instance,
in 2003, two lawsuits (which have since been settled) were filed against
the Company alleging misclassification of employment position and sought
damages, restitution, reclassification and attorneys’ fees and
costs. In addition, on July 14, 2008, a complaint was filed alleging
that store managers based in California were not paid overtime wages, were
not provided meal or rest periods, were not provided accurate wage
statements and were not reimbursed for business
expenses. These types of claims and litigation
involving current, former or prospective employees could divert our
management’s time and attention from our business operations and might
potentially result in substantial costs of defense, settlement or other
disposition, which could have a material adverse effect on our results of
operations in one or more fiscal
periods.
|
For a
discussion of additional material risks and uncertainties that the Company
faces, see the discussion in the 2008 Form 10-K titled “Risk
Factors.”
Company
Overview and Industry Outlook
Peet’s is
a specialty coffee roaster and marketer of fresh,
deep-roasted whole bean coffee and tea sold through multiple channels
of distribution for home and away-from-home enjoyment. Founded in
Berkeley, California in 1966, Peet's has established a loyal customer base with
strong brand awareness in California. Our growth strategy is based on
the sale of whole bean coffee, tea and high-quality beverages in multiple
channels of distribution including our own retail stores, grocery, home
delivery, and office and restaurant accounts throughout the United
States.
As we
grow, we expect our operations to continue to be vertically integrated, allowing
us to control the quality of our product at all stages. We purchase high
quality Arabica coffee beans from countries around the world, and we use our
artisan-roasting technique to bring out the distinctive flavor of our
coffees. Because roasted coffee is perishable, we are committed to
delivering our coffee under the strictest freshness standards. As a result, we
do not stock or inventory roasted coffee. We roast to order and ship
fresh coffee daily to our stores and customers. Control of purchasing,
roasting, packaging and distribution of our coffee allows us to maintain our
commitment to freshness, is cost effective, and enhances our margins and profit
potential.
We expect
the specialty coffee industry to continue to grow. We believe that this
growth will be fueled by continued consumer interest in high quality coffee and
related products. We believe that by offering high-quality products to
consumers throughout the country, we will attract the same loyal customer base
that we have attracted in California.
We
believe growth opportunities exist in all of our distribution
channels. We believe that our specialty sales can expand to
geographies where we do not have a retail presence. Our first priority has been
to develop primarily in the western U.S. markets where we already have a
presence and have higher customer awareness. We expect to continue to
open new retail stores in strategic west coast locations that meet our
demographic profile and partner with distributors and companies who share our
passion for quality and freshness and are willing and able to execute
accordingly in the foodservice and office environment. In grocery, we expect to
continue to expand into new markets although the full extent of our penetration
will depend upon the development of specialty coffee as a category in many
markets. In addition to the Peet’s brand, we recently entered into a
licensing agreement with privately held Godiva
®
Chocolatier, Inc. to sell and
distribute a premium line of Godiva brand coffees in the grocery
channel. We expect to begin to sell Godiva coffee in the fourth
quarter of 2009.
Coffee
commodity costs began to decline in July 2008 after over four years of increases
above the prior three to four year range. We expect the commodity
market to continue to be volatile as worldwide demand, the strength of the
dollar, and weather will continue to cause uncertainty in the
market.
Our net
revenues depend significantly on consumer confidence and spending, which have
recently deteriorated due to the recession and may remain depressed for the
foreseeable future. The current recession or a worsening of the
United States and global economy could materially adversely affect our business
as our revenues depend significantly on consumer confidence and
spending. We believe that the current recession negatively impacted
our rate of growth in 2008 and the first half of 2009. Despite the recession, we
have been able to grow our revenues by opening new retail stores, adding new
foodservice accounts, and growing our business in our current grocery customer
base. In addition, despite achieving revenue growth that was less than our plan,
we were able to increase our net earnings per share by 24% and 36% for the
thirteen and twenty-six week periods ended June 28, 2009, respectively, over the
same periods last year primarily by leveraging our infrastructure investments
and diligently managing our costs. We plan to open five new
stores for the remainder of 2009, in addition to the four new stores we opened
in the first and second quarters.
Results
of Operations
The
following discussion on results of operations should be read in conjunction with
the consolidated financial statements and accompanying notes and the other
financial data included elsewhere in this report.
|
|
Thirteen
weeks ended
|
|
|
Twenty-six
weeks ended
|
|
|
|
June
28,
|
|
|
June
29,
|
|
|
June
28,
|
|
|
June
29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement
of income as a percent of net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost
of sales and related occupancy expenses
|
|
|
44.8
|
|
|
|
46.0
|
|
|
|
45.0
|
|
|
|
46.8
|
|
Operating
expenses
|
|
|
34.8
|
|
|
|
35.2
|
|
|
|
34.8
|
|
|
|
35.1
|
|
General
and administrative expenses
|
|
|
8.3
|
|
|
|
7.8
|
|
|
|
8.2
|
|
|
|
8.0
|
|
Depreciation
and amortization expenses
|
|
|
4.9
|
|
|
|
4.5
|
|
|
|
5.0
|
|
|
|
4.6
|
|
Income
from operations
|
|
|
7.2
|
|
|
|
6.5
|
|
|
|
7.0
|
|
|
|
5.5
|
|
Interest
income
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.4
|
|
Income
before income taxes
|
|
|
7.3
|
|
|
|
6.8
|
|
|
|
7.1
|
|
|
|
5.9
|
|
Income
tax provision
|
|
|
2.7
|
|
|
|
2.4
|
|
|
|
2.6
|
|
|
|
2.1
|
|
Net
income
|
|
|
4.6
|
%
|
|
|
4.4
|
%
|
|
|
4.5
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
of net revenue by business segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
|
66.4
|
%
|
|
|
66.1
|
%
|
|
|
66.5
|
%
|
|
|
66.3
|
%
|
Specialty
sales
|
|
|
33.6
|
|
|
|
33.9
|
|
|
|
33.5
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
of net revenue by business category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whole
bean coffee and related products
|
|
|
50.4
|
%
|
|
|
52.3
|
%
|
|
|
51.0
|
%
|
|
|
52.8
|
%
|
Beverages
and pastries
|
|
|
49.6
|
|
|
|
47.7
|
|
|
|
49.0
|
|
|
|
47.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales and related occupancy expenses as a percent of segment
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
|
43.5
|
%
|
|
|
44.7
|
%
|
|
|
43.1
|
%
|
|
|
45.2
|
%
|
Specialty
sales
|
|
|
47.4
|
|
|
|
48.6
|
|
|
|
48.7
|
|
|
|
50.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses as a percent of segment revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
stores
|
|
|
41.3
|
%
|
|
|
42.8
|
%
|
|
|
41.2
|
%
|
|
|
42.7
|
%
|
Specialty
sales
|
|
|
21.9
|
|
|
|
20.5
|
|
|
|
22.2
|
|
|
|
20.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
increase (decrease) from prior year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Revenue
|
|
|
5.0
|
%
|
|
|
16.6
|
%
|
|
|
6.2
|
%
|
|
|
16.6
|
%
|
Retail
stores
|
|
|
5.5
|
|
|
|
13.1
|
|
|
|
6.5
|
|
|
|
13.7
|
|
Specialty
sales
|
|
|
4.1
|
|
|
|
24.1
|
|
|
|
5.6
|
|
|
|
23.0
|
|
Cost
of sales and related occupancy expenses
|
|
|
2.2
|
|
|
|
13.6
|
|
|
|
2.0
|
|
|
|
15.6
|
|
Operating
expenses
|
|
|
3.6
|
|
|
|
15.6
|
|
|
|
5.3
|
|
|
|
17.1
|
|
General
and administrative expenses
|
|
|
11.8
|
|
|
|
1.4
|
|
|
|
9.2
|
|
|
|
(2.7
|
)
|
Depreciation
and amortization expenses
|
|
|
14.3
|
|
|
|
22.8
|
|
|
|
15.9
|
|
|
|
17.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected
operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of retail stores in operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of the period
|
|
|
190
|
|
|
|
175
|
|
|
|
188
|
|
|
|
166
|
|
Store
openings
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
|
|
13
|
|
Store
closures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
End
of the period
|
|
|
192
|
|
|
|
179
|
|
|
|
192
|
|
|
|
179
|
|
Thirteen
Weeks Ended June 28, 2009 Compared to Thirteen Weeks Ended June 29,
2008
Net
revenue
Net
revenue for the thirteen weeks ended June 28, 2009 increased $3.5 million, or
5.0%, versus the same period in 2008 as a result of the continued expansion of
our retail and specialty sales segments. Sales of whole bean and related
products increased 1.1% to $37.1 million. Net revenue from beverages and
pastries increased 9.3% to $36.5 million.
In the
retail segment, net revenue increased $2.5 million, or 5.5%, compared to the
same period in 2008 primarily as a result of increased sales from the 14 new
stores we opened in the last 12 months. During the second quarter of 2009, we
opened 2 new stores compared to 4 during the same period in 2008. Sales of whole
bean coffee and related products in the retail segment increased by 4.9% to
$13.5 million, while sales of beverages and pastries increased by 5.7% to $35.3
million.
In the
specialty sales segment, net revenue increased $1.0 million, or 4.1%, compared
to the second quarter of 2008. The increase in grocery was due to new business
we added in both the Western and Eastern U.S. in the last two years and the
price increase in the West in August 2008. We added approximately
1,200 new grocery store accounts over the past 12 months, bringing the number of
grocery stores selling Peet’s coffee to approximately 8,400. Net revenue in
foodservice and office coffee sales was flat compared to the same prior year
period attributable to lower volumes in existing accounts offset by new accounts
added over the last 12 months. Home delivery is down from last year as we are
converting some loyal mail order customers in the Eastern U.S. to grocery as we
increase availability in grocery stores.
Specialty
Sales
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen
weeks ended
|
|
|
|
|
|
|
|
|
|
June
28,
|
|
|
June
29,
|
|
|
|
|
(dollars
in thousands)
|
|
2009
|
|
|
2008
|
|
|
Increase/(Decrease)
|
|
Grocery
|
|
$
|
13,835
|
|
|
$
|
12,659
|
|
|
$
|
1,176
|
|
|
|
9.3
|
%
|
Foodservice
and office
|
|
|
6,855
|
|
|
|
6,842
|
|
|
|
13
|
|
|
|
0.2
|
%
|
Home
delivery
|
|
|
4,035
|
|
|
|
4,245
|
|
|
|
(210
|
)
|
|
|
-5.0
|
%
|
Total
specialty
|
|
$
|
24,725
|
|
|
$
|
23,746
|
|
|
$
|
979
|
|
|
|
4.1
|
%
|
Cost
of sales and related occupancy expenses
Cost of
sales and related occupancy expenses consist of product costs, including
manufacturing costs, rent and other occupancy costs. As a percent of net
revenue, cost of sales decreased from 46.0% in the second quarter of 2008 to
44.8% in the second quarter of 2009. The decrease from last
year was due to lower milk and shipping costs, cost control measures and
leverage of the roasting facility, and higher prices in retail and grocery, and,
partially offset by higher green coffee costs. For the remainder of
the year, we expect continued savings from cost control measures and leverage of
the roasting facility and neutral commodity costs in aggregate.
Operating
expenses
Operating
expenses consist of both retail and specialty operating costs, such as employee
labor and benefits, repairs and maintenance, supplies, training, travel and
banking and card processing fees. Operating expenses increased to
$25.6 million, compared to $24.7 million for the second quarter of 2008, but
decreased slightly as a percentage of net revenue to 34.8%, compared to 35.2%
for the second quarter of 2008.
In the
retail segment, operating expenses as a percent of net revenue decreased from
42.8% for the second quarter of 2008 to 41.3% for the second quarter of 2009
primarily due to lower training expenses, lower workers compensation expense,
and leveraging of retail overhead costs.
As a
percent of net revenue, specialty operating expenses increased from 20.5% for
the second quarter of 2008 to 21.9% for the second quarter of 2009. The increase
was primarily due to higher selling and distribution costs in grocery to support
the expansion of the direct store delivery selling system in the Eastern
U.S.
General
and administrative expenses
General
and administrative expenses increased to $6.1 million compared to $5.4 million
for the same period last year driven by higher payroll related costs and a shift
in timing of marketing expenses compared to the same prior year period,
partially offset by lower recruiting costs.
Depreciation and amortization
expenses
Depreciation
and amortization expenses increased to $3.6 million, compared to $3.2 million
for the corresponding period last year. The increase was primarily due to the
opening of 14 new retail stores in the last 12 months.
Interest
income
We invest
in U.S. government, agency, municipal and equity securities. Interest income
includes interest income and gains or losses from the sale of these instruments.
We earned $0.05 million in interest income in the second quarter of 2009,
compared to $0.2 million for the same period last year. The
difference was due primarily to lower yields as well as lower average cash
balances during the second quarter of 2009 compared to the same period in
2008.
Income
tax provision
The
effective income tax rate for the second quarter of 2009 is 36.6% compared to
35.7% during the second quarter of 2008 due to normal quarter to quarter rate
fluctuations.
The
Company does not expect unrecognized tax benefits to change
significantly within the next 12 months.
Twenty-six
Weeks Ended June 28, 2009 Compared to Twenty-six Weeks Ended June 29,
2008
Net
revenue
Net
revenue for the twenty-six weeks ended June 28, 2009 increased $8.5 million, or
6.2%, versus the same period in 2008 as a result of continued expansion of our
retail and specialty sales segments. Sales of whole bean and related products
increased 2.6% to $74.4 million. Net revenue from beverages and pastries
increased 10.2% to $71.3 million.
In the
retail segment, net revenue increased $5.9 million, or 6.5%, compared to the
same period in 2008 primarily as a result of increased sales from the 14 new
stores we opened in the last 12 months. During the first half of 2009, we opened
4 new stores compared to 13 during the same period in 2008. Sales of whole bean
coffee and related products in the retail segment increased by 5.9% to $27.8
million, while sales of beverages and pastries increased by 6.7% to $69.0
million.
In the
specialty sales segment, net revenue increased $2.6 million, or 5.6%, compared
to the first half of 2008. The increase in grocery was primarily due to new
business we added in both the Western and Eastern U.S. in the last two years and
the price increase in the West in August 2008. We added
approximately 1,200 new grocery store accounts over the past 12 months, bringing
the number of grocery stores selling Peet’s coffee to approximately
8,400. Net revenue in foodservice and office increased 4.8%,
primarily due to new foodservice accounts. Home delivery is down from last year
as we are converting some loyal mail order customers in the Eastern U.S. to
grocery as we increase availability in grocery stores.
Specialty
Sales
|
|
Twenty-six
weeks ended
|
|
|
|
|
|
|
|
(dollars
in thousands)
|
|
June 28,
2009
|
|
|
June 29,
2008
|
|
|
Increase/(Decrease)
|
|
Grocery
|
|
$
|
27,222
|
|
|
$
|
24,720
|
|
|
$
|
2,502
|
|
|
|
10.1
|
%
|
Foodservice
and office
|
|
|
13,561
|
|
|
|
12,934
|
|
|
|
627
|
|
|
|
4.8
|
%
|
Home
delivery
|
|
|
8,064
|
|
|
|
8,618
|
|
|
|
(554
|
)
|
|
|
-6.4
|
%
|
Total
specialty
|
|
$
|
48,847
|
|
|
$
|
46,272
|
|
|
$
|
2,575
|
|
|
|
5.6
|
%
|
Cost
of sales and related occupancy expenses
Cost of
sales and related occupancy expenses consist of product costs, including
manufacturing costs, rent and other occupancy costs. As a percent of net
revenue, cost of sales decreased from 46.8% in the first half of 2008 to 45.0%
in the first half of 2009. The decrease from last year was due
to lower milk and shipping costs, cost control measures and leverage of the
roasting facility, and higher prices in retail and grocery, partially offset by
higher green coffee costs.
For the
remainder of the year, we expect continued savings from cost control measures
and leverage of the roasting facility and neutral commodity costs in
aggregate.
Operating
expenses
Operating
expenses consist of both retail and specialty operating costs, such as employee
labor and benefits, repairs and maintenance, supplies, training, travel and
banking and card processing fees. Operating expenses increased to
$50.8 million compared to $48.2 million for the first half of 2008, but
decreased slightly as a percentage of net revenue to 34.8% compared to 35.1% for
the first half of 2008.
In the
retail segment, operating expenses as a percent of net revenue decreased from
42.7% for the first half of 2008 to 41.2% for the first half of 2009, primarily
due to lower training expenses and leveraging of retail overhead
costs.
As a
percent of net revenue, specialty operating expenses increased from 20.2% for
the first half of 2008 to 22.2% for the first half of 2009. The increase was
primarily due to higher selling and distribution costs in grocery to support the
expansion of the direct store delivery selling system in the Eastern
U.S.
General
and administrative expenses
General
and administrative expenses increased to $12.0 million compared to $11.0 million
for the same period last year driven by higher payroll related costs and a shift
in timing of marketing expenses compared to the same prior year period,
partially offset by lower recruiting costs.
Depreciation
and amortization expenses
Depreciation
and amortization expenses increased to $7.2 million, compared to $6.2 million
for the corresponding period last year. The increase was primarily due to the
opening of 14 new retail stores in the last 12 months.
Interest
income
We invest
in U.S. government, agency, municipal and equity securities. Interest income
includes interest income and gains or losses from the sale of these instruments.
We earned $0.1 million in interest income in the first half of 2009 compared to
$0.5 million for the same period last year. The difference was due to
lower average cash balances and lower yields during the second quarter of 2009
compared to the same period in 2008.
Income
tax provision
The
effective income tax rate for the first half of 2009 is 37.1% compared to 36.0%
during the first half of 2008 due to normal quarter to quarter rate
fluctuations.
The
Company does not expect unrecognized tax benefits to change
significantly within the next 12 months.
Liquidity
and Capital Resources
At June
28, 2009 we had $15.2 million in cash and cash equivalents and $5.5 million in
short-term marketable securities for a total of $20.7 million. Working capital
was $44.3 million as of June 28, 2009.
Net cash
provided by operations was $15.9 million for the twenty-six weeks ended June 28,
2009 compared to $9.6 million for the same prior year period. Operating cash
flows were positively impacted by higher net income, net of depreciation
expense, the timing of federal income tax payments, improved accounts receivable
collections, as well as other changes in working capital.
Net cash
used by investing activities was $0.8 million for the twenty-six weeks ended
June 28, 2009 compared to a net cash use of $10.3 million in the prior year.
Investing activities primarily relate to purchases of property, plant and
equipment and maturities and purchases of marketable securities. During the
twenty-six week period ended June 28, 2009, we purchased property, plant and
equipment totaling $8.9 million primarily related to improvements to existing
stores, new stores and information technology support systems and hardware to
support our growing infrastructure and we purchased $0.4 million of marketable
securities. Cash used for purchases of property, plant and equipment
decreased by $6.1 million compared to the same period last year due primarily to
fewer new retail store openings. Proceeds from maturities net of
purchases of marketable securities and from a release of restricted investments
totaled $8.5 million.
Net cash
used by financing activities for the twenty-six weeks ended June 28, 2009 was
$4.7 million compared to $7.5 million for the twenty-six weeks ended June 29,
2008, and primarily relates to the repurchase of our common stock,
offset by proceeds from stock option exercises.
For the
next twelve months, we expect our cash flows from operations and cash and
marketable securities to be sufficient for our operating and capital
requirements, our existing share purchase program and our contractual
obligations as they come due. The Company also has $25 million
available through a credit agreement entered into on November 26, 2008 with
Wells Fargo Bank, National Association, the proceeds of which may be used in the
general course of business, including to fund working capital, capital
expenditures, share repurchases and other needs of the Company. The line of
credit has a maturity date of December 1, 2009, with an option by the Company to
extend the maturity date to December 1, 2010.
The
credit agreement contains customary affirmative and negative covenants,
including a requirement to maintain the Company’s financial condition in
accordance with certain ratios, such as Current Ratio, Leverage Ratio, EBITDAR
Coverage Ratio, and minimum net income as defined in the
agreement. In addition, events of default that permit the Bank to
accelerate the Company’s outstanding obligations, include nonpayment of
principal, interest, fees or other amounts, violation of covenants, inaccuracy
of representations and warranties and upon the occurrence of bankruptcy and
other adverse material change in the Company’s financial condition. Through June
28, 2009, there were no borrowings outstanding under this agreement and unused
borrowing capacity under the credit agreement was $25.0 million as of June 28,
2009.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
We invest
excess cash in equity securities and interest-bearing, U.S. government, agency,
and municipal securities. These financial instruments are subject to stock
market volatility and fluctuations of daily interest rates. Therefore our
investment portfolio is exposed to market risk from these changes.
The
supply and price of coffee are subject to significant volatility and can be
affected by multiple factors in the producing countries, including weather,
political and economic conditions. In addition, green coffee bean prices have
been affected in the past, and may be affected in the future, by the actions of
certain organizations and associations that have historically attempted to
influence commodity prices of green coffee beans through agreements establishing
export quotas or restricting coffee supplies worldwide.
We
currently use fixed-price purchase commitments, but in the past have used and
may potentially in the future use coffee futures and coffee futures options to
manage coffee supply and price risk.
Fixed-Price
and Not-Yet-Priced Purchase Commitments
We enter
into fixed-price purchase commitments in order to secure an adequate supply of
quality green coffee beans and fix our cost of green coffee beans. These
commitments are made with established coffee brokers and are denominated in U.S.
dollars. We also enter into “not-yet-priced” commitments based on a fixed
premium over the New York “C” market with the option to fix the price at any
time. As of June 28, 2009, we had approximately $27.1 million in open
fixed-priced purchase commitments and approximately $1.9 million in
not-yet-priced commitments for a total of approximately $29.0 million with
delivery dates ranging from July 2009 through July 2011. We believe, based on
relationships established with our suppliers, that the risk of non-delivery on
such purchase commitments is low.
Item
4. Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Securities Exchange Act of 1934, as
amended, reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
As of
June 28, 2009, the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the foregoing, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of the quarter covered by this report at the reasonable-assurance
level.
There
have been no changes in our internal controls over financial reporting during
the fiscal quarter ended June 28, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
On July
14, 2008, a complaint was filed against Peet’s Coffee & Tea, Inc. in
California Superior Court, Alameda County, by three former employees on behalf
of themselves and all other California store managers. The complaint
alleges that store managers based in California were not paid overtime wages,
were not provided meal or rest periods, were not provided accurate wage
statements and were not reimbursed for business expenses. The
plaintiffs seek injunctive relief, monetary damages, penalties, costs and
attorneys’ fees, and prejudgment interest. On October 8, 2008, the
Company filed an answer denying the allegations set forth in the complaint and
asserting a number of affirmative defenses thereto. On November
12, 2008, the plaintiffs filed an amended complaint asserting an additional
claim for penalties. On November 26, 2008, the Company filed an
answer thereto denying the allegations in the first amended complaint and
asserting a number of affirmative defenses thereto. At this time, it
is not feasible to predict the outcome of or a range of loss, should a loss
occur, from this proceeding. The Company intends to vigorously defend
against the litigation.
We may
from time to time become involved in certain legal proceedings in the ordinary
course of business. The Company is not a party to any other legal
proceedings that management believes may have a material adverse effect on the
financial position or results of operations of the Company.
Item
4. Submission of Matters to a Vote of Security Holders
The 2009
Annual Meeting of Stockholders of the Company was held on May 20,
2009. Gerald Baldwin, Hilary Billings, and Elizabeth Sartain were
elected as proposed in the proxy statement pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, to serve as directors until the
Company's Annual Meeting in 2012 or until his or her successor is elected and
qualified. There were 12,192,328 votes cast in the election of
directors. The voting regarding each nominee was as
follows:
|
|
For
|
|
|
Withheld
|
|
|
Non-votes
|
|
|
|
|
|
|
|
|
|
|
|
Gerald
Baldwin
|
|
|
8,882,219
|
|
|
|
3,310,109
|
|
|
|
687,968
|
|
Hilary
Billings
|
|
|
12,001,270
|
|
|
|
191,058
|
|
|
|
687,968
|
|
Elizabeth
Sartain
|
|
|
12,013,788
|
|
|
|
178,540
|
|
|
|
687,968
|
|
The
following directors' term of office as a director continued after the meeting:
David Deno, Michael Linton, Jean-Michel Valette, Patrick J. O’Dea, and Ted W.
Hall.
Further,
the selection of Deloitte & Touche LLP as independent registered public
accountants for the fiscal year was ratified. The matter was approved
with 12,022,138 votes for, 162,038 votes withheld, and 8,152 votes
abstained. Of the total shares outstanding on the date of record,
687,968 shares were not voted.
Item
6. Exhibits
|
Exhibit
|
|
Description
|
|
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation.*
|
|
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws.*
|
|
|
|
|
|
4.1
|
|
Form
of common stock certificate.*
|
|
|
|
|
|
31.1
|
|
Certification
of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
|
|
|
|
|
|
31.2
|
|
Certification
of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended.
|
|
|
|
|
|
32.1
|
|
Certification
of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to
Section 906 of Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.2
|
|
Certification
of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to
Section 906 of Sarbanes-Oxley Act of
2002.
|
*
Incorporated by reference to the Registrant’s Information Statement of Form S-1
(File No. 333-47957) filed on October 13, 2000, as subsequently
amended.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
PEET’S
COFFEE & TEA, INC.
|
|
|
|
Date:
August 6, 2009
|
By:
|
/s/ Thomas P.
Cawley
|
|
Thomas
P. Cawley
|
|
Vice
President, Chief Financial Officer and
Secretary
|
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