PEET Peets Coffee & Tea, Inc. (MM)

Peet’s Coffee & Tea, Inc. (NASDAQ:PEET) today announced its second quarter results for the fiscal quarter ended July 4, 2010, which included 13 weeks.

In this release, the company:

• Reports net revenue growth for the quarter of 10%
• Reports net income of $4.3 million, up 25% from last year
• Reports diluted earnings per share of $0.31

Financial Highlights

              Second Quarter % Year to Date %

2010

2009

Change

2010

2009

Change

  Net revenue, as reported $ 80,776 $ 73,565 10 % $ 161,972 $ 145,670 11 %   Net income per diluted share, as reported $ 0.31 $ 0.26 19 % $ 0.53 $ 0.49 8 %  

Non-GAAP diluted net income per share,  excluding transaction related expenses

$ 0.31 $ 0.26 19 % $ 0.57 $ 0.50 14 %  

For the 13 weeks ended July 4, 2010, net revenue increased 10% to $80.8 million from $73.6 million for the corresponding period of fiscal 2009.

Net income for the quarter was $4.3 million, or $0.31 per diluted share, compared to $3.4 million, or $0.26 per diluted share, for the corresponding period last year.

“Overall, we had a good second quarter, consistent with our plan for the year,” said Patrick O’Dea, president and chief executive officer of Peet’s Coffee & Tea. “Strong sales growth of the Peet’s brand in grocery and beverages in our retail stores drove our overall top-line performance. Operating profit grew 25% and operating margin expanded 110 basis points versus a year ago, as we leveraged the last several years of investments to flow more of our sales growth through to the bottom line.”

Consolidated Financial and Operating Summary

Retail net revenue increased 4% to $50.6 million for the 13 weeks ended July 4, 2010 from $48.8 million for the corresponding period of fiscal 2009. The increase was primarily attributable to growth in existing stores. The company ended the quarter with 193 stores compared to 192 stores at the end of the second quarter in 2009.

Specialty net revenue increased 22% to $30.2 million for the 13 weeks ended July 4, 2010 from $24.7 million for the corresponding period of fiscal 2009. Within specialty sales, the grocery business continues to grow the most rapidly, up 29% over last year; the foodservice and office business grew 23%; and home delivery sales were down 2%.

Cost of sales and related occupancy expenses were 46.3% of net revenue, compared to 44.8% for the corresponding period last year. The increase resulted from higher commodity costs, particularly coffee and milk, and a mix shift towards the specialty channels, which have higher cost of sales.

Operating expenses as a percentage of net revenue decreased to 33.3% from 34.7% for the corresponding period last year due to a favorable mix shift to the specialty business and lower operating expenses in retail driven by sales leverage.

General and administrative expenses as a percentage of net revenue decreased to 7.0% of net revenue from 8.3% for the corresponding period last year, due to marketing expense timing and sales leverage.

Depreciation and amortization expenses as a percentage of net revenue increased to 5.0% of net revenue from 4.9% for the corresponding period last year. Depreciation and amortization expenses increased to $4.0 million compared to $3.6 million for the corresponding period last year, primarily due to depreciation from our new Enterprise Resource Planning (ERP) system installed in the third quarter of 2009.

Operating income increased 25% to $6.7 million from $5.3 million for the corresponding period last year. Operating income as a percentage of net revenue increased to 8.3% from 7.2% for the corresponding period last year.

The company ended the second quarter of 2010 with cash and cash equivalents plus investments of $42.9 million, compared to $47.9 million at year end 2009. During the quarter, the company repurchased 367,000 shares of common stock at an aggregate purchase price of $14.2 million.

Fiscal 2010 Full Year Outlook

Looking ahead, the company reaffirms its full-year fiscal 2010 targets:

• The company expects total net revenue growth to be toward the midpoint of its previously communicated 8% to 12% guidance, excluding the impact of the 53rd week in fiscal 2009.
• During the quarter, the company completed 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. Total expenditures were $1.0 million, which will have a $0.05 impact on full-year earnings per share.
• Including the expenses related to the FTC subpoena, the company now expects GAAP diluted earnings per share of $1.22 to $1.25 for fiscal 2010.
• Excluding the expenses related to the FTC subpoena, the company reaffirms its non-GAAP diluted earnings per share target of $1.27 to $1.30 for fiscal 2010.

Peet’s Coffee & Tea, Inc. Q2 2010 Conference Call

Peet’s will report its second quarter 2010 earnings via conference call on Tuesday, August 3, 2010. The teleconference call will begin at 2:00 p.m. PT/5:00 p.m. ET, which can be accessed by calling 1-866-748-8653. The call will be simultaneously webcast on Peet’s Web site at www.peets.com.

A replay of the teleconference will be available from 5:00 p.m. PT/8:00 p.m. ET on August 3, 2010 through 8:59 p.m. PT/11:59 p.m. ET on August 10, 2010, at 1-800-642-1687 or 1-706-645-9291, using access code 85553714. It will also be archived at http://investor.peets.com/medialist.cfm through August 3, 2011, at 8:59 p.m. PT/11:59 p.m. ET.

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, California 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 2010 forecasted net revenue and earnings per diluted share. 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, 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; 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)  

   July 4,   

January 3,

2010

2010

  ASSETS   Current assets Cash and cash equivalents $ 42,855 $ 47,934 Accounts receivable, net 12,216 15,209 Inventories 37,392 25,936 Deferred income taxes - current 3,592 3,592 Prepaid expenses and other   5,585   5,863 Total current assets 101,640 98,534   Property, plant and equipment, net 100,081 103,494 Other assets, net   2,166   2,775   Total assets $ 203,887 $ 204,803   LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities Accounts payable and other accrued liabilities $ 12,209 $ 13,669 Accrued compensation and benefits 8,950 10,832 Deferred revenue   5,468   6,845 Total current liabilities 26,627 31,346   Deferred income taxes - non current 315 321 Deferred lease credits 7,033 7,059 Other long-term liabilities   1,307   1,021 Total liabilities 35,282 39,747   Shareholders' equity Common stock, no par value; authorized 50,000,000 shares;

issued and outstanding:13,075,000 and 13,104,000 shares

88,297 92,054 Retained earnings   80,308   73,002   Total shareholders' equity   168,605   165,056   Total liabilities and shareholders' equity $ 203,887 $ 204,803   PEET’S COFFEE & TEA, INC.   CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands, except per share amounts)         Thirteen weeks ended Twenty-six weeks ended July 4, June 28, July 4, June 28,

2010

2009

2010

2009

  Retail stores $ 50,560 $ 48,840 $ 100,631 $ 96,823 Specialty sales   30,216   24,725   61,341   48,847 Net revenue 80,776 73,565 161,972 145,670   Cost of sales and related occupancy expenses 37,377 32,953 74,916 65,521 Operating expenses 26,937 25,522 54,774 50,673 Transaction related expenses 146 58 970 79 General and administrative expenses 5,622 6,074 11,924 12,012 Depreciation and amortization expenses   4,020   3,631   7,897   7,238 Total costs and expenses from operations   74,102   68,238   150,481   135,523   Income from operations 6,674 5,327 11,491 10,147   Interest income, net   5   48   4   126   Income before income taxes 6,679 5,375 11,495 10,273   Income tax provision   2,424   1,967   4,189   3,812   Net income $ 4,255 $ 3,408 $ 7,306 $ 6,461   Net income per share: Basic $ 0.32 $ 0.26 $ 0.55 $ 0.50 Diluted $ 0.31 $ 0.26 $ 0.53 $ 0.49   Shares used in calculation of net income per share: Basic 13,248 12,915 13,218 12,977 Diluted 13,885 13,217 13,847 13,229   PEET’S COFFEE & TEA, INC.     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)   Twenty-six weeks ended July 4, June 28,

2010

2009

  Cash flows from operating activities: Net income $ 7,306 $ 6,461 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,981 8,304 Amortization of interest purchased - 36 Stock-based compensation 1,623 1,508 Excess tax benefit from exercise of stock options (1,481 ) (249 ) Tax benefit from exercise of stock options 1,228 124 Loss on disposition of assets and asset impairment 63 18 Deferred income taxes (6 ) (10 ) Changes in other assets and liabilities: Accounts receivable, net 2,993 2,359 Inventories (11,456 ) (3,349 ) Prepaid expenses and other current assets 278 2,195 Other assets 31 184 Accounts payable, accrued liabilities and deferred revenue (4,893 ) (2,322 ) Deferred lease credits and other long-term liabilities   260     665   Net cash provided by operating activities   4,927     15,924     Cash flows from investing activities: Purchases of property, plant and equipment (5,455 ) (8,853 ) Proceeds from sales of property, plant and equipment 17 - Changes in restricted investments 559 864 Proceeds from sales and maturities of marketable securities - 7,607 Purchases of marketable securities   -     (370 ) Net cash used in investing activities   (4,879 )   (752 )   Cash flows from financing activities: Net proceeds from issuance of common stock 8,122 1,572 Purchase of common stock (14,730 ) (6,564 ) Excess tax benefit from exercise of stock options   1,481     249   Net cash used in financing activities   (5,127 )   (4,743 )   (Decrease) increase in cash and cash equivalents (5,079 ) 10,429 Cash and cash equivalents, beginning of period   47,934     4,719     Cash and cash equivalents, end of period $ 42,855   $ 15,148     Non-cash investing activities: Capital expenditures incurred, but not yet paid $ 330 $ 1,304 Other cash flow information: Cash paid for income taxes 2,721 2,136   SEGMENT REPORTING (Unaudited, 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 July 4, 2010 Net revenue $ 50,560 100.0 % $ 30,216 100.0 % $ 80,776 100.0 % Cost of sales and occupancy 21,964 43.4 % 15,413 51.0 % 37,377 46.3 % Operating expenses 20,350 40.2 % 6,587 21.8 % 26,937 33.3 % Depreciation and amortization 2,867 5.7 % 457 1.5 % $ 696 4,020 5.0 % Segment operating income 5,379 10.6 % 7,759 25.7 % (6,464 ) 6,674 8.3 %   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 % 5,349 21.6 % 25,522 34.7 % Depreciation and amortization 2,780 5.7 % 435 1.8 % $ 416 3,631 4.9 % Segment operating income 4,661 9.5 % 7,214 29.2 % (6,548 ) 5,327 7.2 %   For the twenty-six weeks ended July 4, 2010 Net revenue $ 100,631 100.0 % $ 61,341 100.0 % $ 161,972 100.0 % Cost of sales and occupancy 43,618 43.3 % 31,298 51.0 % 74,916 46.3 % Operating expenses 41,480 41.2 % 13,294 21.7 % 54,774 33.8 % Depreciation and amortization 5,616 5.6 % 889 1.4 % $ 1,392 7,897 4.9 % Segment operating income 9,917 9.9 % 15,860 25.9 % (14,286 ) 11,491 7.1 %   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 % 10,744 22.0 % 50,673 34.8 % Depreciation and amortization 5,542 5.7 % 862 1.8 % $ 834 7,238 5.0 % Segment operating income 9,601 9.9 % 13,471 27.6 % (12,925 ) 10,147 7.0 %  

NON-GAAP FINANCIAL INFORMATION

The following reconciliations and non-GAAP financial information are provided to assist the reader with understanding the financial impact of the transaction costs related to the attempted Diedrich Coffee acquisition and the previously discussed subpoena from the Federal Trade Commission (FTC), as well the impact of the fifty-third week in 2009, which is used as a comparison to the 2010 forecast. Management believes this information is relevant because the nature and magnitude of the charges do not reflect our on-going operating performance.

      Reconciliation of Non-GAAP Financial Information to Net Income (Unaudited, in thousands, except per share data)   Thirteen Thirteen Twenty-six Twenty-six weeks ended weeks ended weeks ended weeks ended July 4, June 28, July 4, June 28,

2010

2009

2010

2009

   

Net Income

Net income, as reported $ 4,255 $ 3,408 $ 7,306 $ 6,461 Transaction related expenses, net of tax   93   37   617   50 Non-GAAP net income $ 4,348 $ 3,445 $ 7,923 $ 6,511  

Diluted Net Income Per Share *

Net income per diluted share, as reported $ 0.31 $ 0.26 $ 0.53 $ 0.49 Transaction related expenses   0.01   -   0.04   - Non-GAAP diluted net income per share $ 0.31 $ 0.26 $ 0.57 $ 0.50   * per share data may not sum due to rounding   Reconciliation of Non-GAAP Financial Information to 2009 Net Revenue (Unaudited)  

2009

Net Revenue

Net revenue, as reported $ 311,270 53rd week sales   (5,592 ) Non-GAAP net revenue, excluding 53rd week $ 305,678