PEET Peets Coffee & Tea, Inc. (MM)

Peet’s Coffee & Tea, Inc. (NASDAQ:PEET) today announced its third quarter 2010 results for the period ended October 3, 2010, which included 13 weeks.

In this release, the company:

• Reports third quarter diluted earnings per share of $0.28, an increase of 47% versus the corresponding period last year
• Reports third quarter net revenue of $80.2 million, an increase of 9% versus the corresponding period last year
• Raises guidance for full-year diluted earnings per share by $0.03
• Gives guidance for 2011 diluted earnings per share of $1.53 to $1.60.

For the 13 weeks ended October 3, 2010, net revenue increased 9% to $80.2 million from $73.9 million for the corresponding period last year.

Net income for the quarter increased 52% to $3.8 million, or $0.28 per diluted share, compared to $2.5 million, or $0.19 per diluted share, for the corresponding period last year.

“We made excellent progress this quarter,” said Patrick O’Dea, CEO and president of Peet’s Coffee & Tea. “We drove strong growth in our grocery business and achieved major operating improvement in our stores. It’s a real testament to the strength of our people and to the loyalty of our customers. We’re excited as we enter the holiday season and feel good about our growth plans for 2011.”

Financial and Operating Summary

Retail net revenue increased 4% to $49.8 million for the 13 weeks ended October 3, 2010, from $47.9 million for the corresponding period last year. The increase was solely due to growth in existing stores.

Specialty net revenue increased 17% to $30.4 million compared to $26.0 million for the corresponding period last year. Within the specialty business, grocery sales grew 24%, the foodservice and office business was up 11%, and home delivery sales were flat compared to the same period last year.

Cost of sales and related occupancy costs increased as a percentage of net revenue to 47.5%, compared to 46.4% for the corresponding period last year. The increase from last year was due to higher commodity costs, specifically coffee and milk, and a shift in mix towards grocery, with both Peet’s and Godiva brands, which have lower gross margins than our retail business.

Operating expenses decreased as a percentage of net revenue to 33.1%, compared to 35.2% for the corresponding period last year. The decrease was due primarily to a favorable mix shift to the specialty channel, where operating expenses are lower, and to effective cost management in the retail business.

General and administrative expenses were consistent with last year at $5.7 million, as increases in payroll-related costs were offset by lower marketing expenses.

Depreciation and amortization expense was consistent with last year at $3.9 million as new capital expenditures were offset by newly fully depreciated assets.

Fiscal 2010 Full Year Outlook

Looking ahead, Peet’s raised its earnings guidance for the year based on current results:

• Diluted earnings per share are now expected to be in the $1.25 to $1.28 range for the 52 weeks ending January 2, 2011. This is a $0.03 increase from prior guidance of $1.22 to $1.25. This estimate includes approximately $1.0 million ($0.05 per diluted share) of expenses related to the subpoena the company 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. Excluding the expenses related to the FTC subpoena, Peet’s raised its non-GAAP diluted earnings per share guidance $0.03 per share to $1.30 to $1.33 for fiscal 2010.

Fiscal 2011 Outlook

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

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

Peet’s Coffee & Tea, Inc. Q3 2010 Conference Call

The company will host a conference call beginning at 2:00 p.m. PT/5:00 p.m. ET on November 2, 2010, which 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 2, 2010, through 8:59 p.m. PT/11:59 p.m. ET on November 9, 2010, at 1-800-642-1687 or 1-706-645-9291, using access code 16459848. It will also be archived at http://investor.peets.com/medialist.cfm through November 2, 2011, at 8:59 p.m. PT/11:59 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, 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 2010 earnings per diluted share and 2011 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, commodity price expectations, and current competitive conditions. As a result, these statements are subject to various risks and uncertainties. The company’s actual results could differ materially from those set forth in forward-looking statements depending on a variety of factors including, but not limited to, general economic conditions, including the recent recession and its ongoing negative impact on consumer spending; volatility of commodity costs; the outcome of the current wage and hour litigation involving the company and potential future claims and litigation involving the company, and the company’s ability to manage its expenses related to such claims and litigation; the company’s ability to implement its business strategy, attract and retain customers, and obtain and expand its market presence in new geographic regions; the availability and cost of high-quality Arabica coffee beans; consumers’ tastes and preferences; and competition in its market as well as other risk factors as described more fully in the company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended January 3, 2010. These factors may not be exhaustive. The company operates in a continually changing business environment, and new risks emerge from time to time. Any forward-looking statements speak only as of the date of this press release.

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

2010

2010

  ASSETS   Current assets Cash and cash equivalents $ 28,551 $ 47,934 Accounts receivable, net 13,668 15,209 Inventories 40,360 25,936 Deferred income taxes - current 3,550 3,592 Prepaid expenses and other   8,195   5,863 Total current assets 94,324 98,534   Property, plant and equipment, net 98,819 103,494 Other assets, net   2,164   2,775   Total assets $ 195,307 $ 204,803   LIABILITIES AND SHAREHOLDERS' EQUITY   Current liabilities Accounts payable and other accrued liabilities $ 12,184 $ 13,669 Accrued compensation and benefits 7,964 10,832 Deferred revenue   5,434   6,845 Total current liabilities 25,582 31,346   Deferred income taxes - non current 279 321 Deferred lease credits 7,097 7,059 Other long-term liabilities   1,372   1,021 Total liabilities 34,330 39,747   Shareholders' equity Common stock, no par value; authorized 50,000,000 shares; issued and outstanding:12,773,000 and 13,104,000 shares 76,906 92,054 Retained earnings   84,071   73,002   Total shareholders' equity   160,977   165,056   Total liabilities and shareholders' equity $ 195,307 $ 204,803   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 3, September 27, October 3, September 27,

2010

2009

2010

2009

  Retail stores $ 49,791 $ 47,863 $ 150,422 $ 144,686 Specialty sales   30,417   26,042     91,758   74,889 Net revenue 80,208 73,905 242,180 219,575   Cost of sales and related occupancy expenses 38,138 34,291 113,054 99,812 Operating expenses 26,526 26,003 81,301 76,676 Transaction related expenses

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49 970 128 General and administrative expenses 5,745 5,770 17,669 17,782 Depreciation and amortization expenses   3,947   3,962     11,844   11,200 Total costs and expenses from operations   74,356   70,075     224,838   205,598   Income from operations 5,852 3,830 17,342 13,977   Interest income, net   2   (15 )   6   111   Income before income taxes 5,854 3,815 17,348 14,088   Income tax provision   2,091   1,346     6,279   5,158   Net income $ 3,763 $ 2,469   $ 11,069 $ 8,930   Net income per share: Basic $ 0.29 $ 0.19 $ 0.85 $ 0.69 Diluted $ 0.28 $ 0.19 $ 0.81 $ 0.67   Shares used in calculation of net income per share: Basic 12,847 12,976 13,094 12,977 Diluted 13,425 13,343 13,706 13,267   PEET’S COFFEE & TEA, INC.     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)   Thirty-nine weeks ended October 3, September 27,

2010

2009

  Cash flows from operating activities: Net income $ 11,069 $ 8,930 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,456 12,790 Amortization of interest purchased - 36 Stock-based compensation 2,457 2,277 Excess tax benefit from exercise of stock options (1,579 ) (275 ) Tax benefit from exercise of stock options 1,311 119 Loss on disposition of assets and asset impairment 110 184 Deferred income taxes - (72 ) Changes in other assets and liabilities: Accounts receivable, net 1,541 1,242 Inventories (14,424 ) (4,440 ) Prepaid expenses and other current assets (2,332 ) (836 ) Other assets 26 185 Accounts payable, accrued liabilities and deferred revenue (6,249 ) (1,904 ) Deferred lease credits and other long-term liabilities   389     829   Net cash provided by operating activities   5,775     19,065     Cash flows from investing activities: Purchases of property, plant and equipment (8,396 ) (11,908 ) Proceeds from sales of property, plant and equipment 17 - Changes in restricted investments 558 878 Proceeds from sales and maturities of marketable securities - 8,507 Purchases of marketable securities   -     (371 ) Net cash used in investing activities   (7,821 )   (2,894 )   Cash flows from financing activities: Net proceeds from issuance of common stock 9,315 2,365 Purchase of common stock (28,231 ) (6,564 ) Excess tax benefit from exercise of stock options   1,579     275   Net cash used in financing activities   (17,337 )   (3,924 )   (Decrease) increase in cash and cash equivalents (19,383 ) 12,247 Cash and cash equivalents, beginning of period   47,934     4,719     Cash and cash equivalents, end of period $ 28,551   $ 16,966     Non-cash investing activities: Capital expenditures incurred, but not yet paid $ 641 $ 716 Other cash flow information: Cash paid for income taxes 5,402 5,023               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 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 % Depreciation and amortization 2,825 5.7 % 426 1.4 % $ 696 3,947 4.9 % Segment operating income 4,427 8.9 % 7,866 25.9 % (6,441 ) 5,852 7.3 %   For the thirteen weeks ended September 27, 2009 Net revenue $ 47,863 100.0 % $ 26,042 100.0 % $ 73,905 100.0 % Cost of sales and occupancy 21,179 44.2 % 13,112 50.3 % 34,291 46.4 % Operating expenses 20,488 42.8 % 5,515 21.2 % 26,003 35.2 % Depreciation and amortization 2,907 6.1 % 463 1.8 % $ 592 3,962 5.4 % Segment operating income 3,289 6.9 % 6,952 26.7 % (6,411 ) 3,830 5.2 %   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 % Depreciation and amortization 8,441 5.6 % 1,315 1.4 % $ 2,088 11,844 4.9 % Segment operating income 14,343 9.5 % 23,726 25.9 % (20,727 ) 17,342 7.2 %   For the thirty-nine weeks ended September 27, 2009 Net revenue $ 144,686 100.0 % $ 74,889 100.0 % $ 219,575 100.0 % Cost of sales and occupancy 62,930 43.5 % 36,882 49.2 % 99,812 45.5 % Operating expenses 60,417 41.8 % 16,259 21.7 % 76,676 34.9 % Depreciation and amortization 8,449 5.8 % 1,325 1.8 % $ 1,426 11,200 5.1 % Segment operating income 12,890 8.9 % 20,423 27.3 % (19,336 ) 13,977 6.4 %