Peet's Coffee & Tea, Inc. Reports Second Quarter 2011 Results

EMERYVILLE, Calif.--(BUSINESS WIRE)-- Peet's Coffee & Tea, Inc. (NASDAQ:PEET) today announced its second quarter results for the fiscal period ended July 3, 2011, which included 13 weeks.

In this release, the company:

• Reports net revenue growth of 12% for the quarter
• Reports diluted earnings per share of $0.38, up 23% versus 2010 diluted earnings per share of $0.31
• Raises guidance for 2011 full-year net revenue growth to the 10% to 12% range, up from 8% to 10%
• Expects 2011 full-year diluted earnings per share to be toward the higher end of the previous guidance range of $1.43 to $1.50

Financial Highlights

		Second Quarter						%			Year to Date						%
		2011			2010			Change			2011			2010			Change
Net revenue, as reported		$	90,616		$	80,776		12	%		$	179,088		$	161,972		11	%
Net income per diluted share, as reported		$	0.38		$	0.31		23	%		$	0.79		$	0.53		49	%
Non-GAAP net income per diluted share,
excluding unusual items		$	0.38		$	0.31		23	%		$	0.79		$	0.57		39	%

For the 13 weeks ended July 3, 2011, net revenue increased 12% to $90.6 million from $80.8 million for the corresponding period of fiscal 2010.

Net income for the 13 weeks ended July 3, 2011, was $5.1 million compared to $4.3 million for the corresponding 13-week period of fiscal 2010. Diluted earnings per share was $0.38 for the 13-week period of fiscal 2011 compared to $0.31 per share for the corresponding period of fiscal 2010, an increase of 23%.

"Our business performance continued to be very strong in the second quarter," said Patrick O'Dea, president and CEO of Peet's Coffee & Tea. "Sales were healthy across all of our channels, particularly in our grocery business, which grew 30%. Looking ahead to the balance of the year, we expect our sales momentum to continue, especially as we enter the sizeable medium-roast coffee segment. With our raised sales outlook, we now expect to be at the higher end of our 2011 full-year diluted earnings per share guidance of $1.43 to $1.50."

Consolidated Financial and Operating Summary

Retail net revenue increased 6% to $53.4 million for the 13 weeks ended July 3, 2011, from $50.6 million for the corresponding period of fiscal 2010.

Specialty net revenue increased 23% to $37.3 million for the 13 weeks ended July 3, 2011, from $30.2 million for the corresponding period of fiscal 2010. Within specialty, grocery net revenue grew 30% over last year; foodservice and office grew 19%; and home delivery grew 2%.

Cost of sales and related occupancy expenses were 49.2% of total net revenue, compared to 46.3% for the corresponding period last year. The increase resulted primarily from higher coffee costs and to a lesser extent higher milk costs and a mix shift towards the specialty business, which has a higher cost of sales. Price increases across the channels and lower shipping expenses partially offset the impact of these higher costs.

Operating expenses as a percentage of net revenue decreased to 31.1% from 33.3% for the corresponding period last year due to a favorable mix shift to the specialty business, the impact of price increases across all channels, leveraging of overhead costs, and lower payroll expenses in retail stores.

General and administrative expenses as a percentage of net revenue were 6.7%, compared to 7.0% for the corresponding period last year. General and administrative expenses increased to $6.0 million from $5.6 million for the corresponding period last year, primarily due to higher payroll-related costs and marketing expenses.

Depreciation and amortization expenses as a percentage of net revenue decreased to 4.3%, compared to 5.0% for the corresponding period last year. Depreciation and amortization expenses were $3.9 million, compared to $4.0 million in the corresponding period last year.

The company ended the second quarter of 2011 with cash and cash equivalents plus investments of $29 million, compared to $49 million at year end 2010.

Fiscal 2011 Full-Year Outlook

The company has updated its full-year guidance as follows:

• Raises guidance for 2011 full-year net revenue growth to the 10% to 12% range, up from 8% to 10%
• Expects 2011 full-year diluted earnings per share to be toward the higher end of the previous guidance range of $1.43 to $1.50

Peet's Coffee & Tea, Inc. Q2 2011 Conference Call

Peet's will discuss its second quarter 2011 earnings via conference call today, August 2, 2011. The teleconference call will begin at 2:00 p.m. PT/5:00 p.m. ET and can be accessed by calling 1-866-748-8653. The call will be simultaneously webcast on Peet's website at www.peets.com.

A replay of the teleconference will be available from 5:00 p.m. PT/8:00 p.m. ET on August 2, 2011, through 8:59 p.m. PT/11:59 p.m. ET on August 9, 2011, at 1-800-642-1687 or 1-706-645-9291, using access code 82103413. It will also be archived at http://investor.peets.com/events.cfm through August 2, 2012, at 8:59 p.m. PT/11:59 p.m. ET.

About Peet's Coffee & Tea, Inc.

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

This press release contains statements that are not based on historical fact and are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to 2011 net revenue growth and 2011 forecasted 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 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; complaints or claims by current, former or prospective employees or government agencies or other litigation; and competition in its market as well as other risk factors as described more fully in the company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended January 2, 2011. These factors may not be exhaustive. The company operates in a continually changing business environment, and new risks emerge from time to time. Any forward-looking statements speak only as of the date of this press release.

PEET'S COFFEE & TEA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share amounts)
	July 3, 2011			January 2, 2011
ASSETS
Current assets
Cash and cash equivalents	$	19,435		$	44,629
Short-term marketable securities		9,149			4,183
Accounts receivable, net		15,049			14,852
Inventories		47,480			33,534
Deferred income taxes - current		4,379			4,420
Prepaid expenses and other		8,945			7,798
Total current assets		104,437			109,416
Long-term marketable securities		211			-
Property, plant and equipment, net		92,894			97,279
Other assets, net		1,333			2,137
Total assets	$	198,875		$	208,832
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and other accrued liabilities	$	9,772		$	9,138
Accrued compensation and benefits		9,055			11,555
Deferred revenue		5,984			7,102
Total current liabilities		24,811			27,795
Deferred income taxes - non current		72			46
Deferred lease credits		6,873			7,023
Other long-term liabilities		1,239			1,468
Total liabilities		32,995			36,332
Shareholders' equity
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding: 12,913,000 and 13,063,000 shares		64,748			81,995
Accumulated other comprehensive income		5			2
Retained earnings		101,127			90,503
Total shareholders' equity		165,880			172,500
Total liabilities and shareholders' equity	$	198,875		$	208,832

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 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010
Retail stores		$	53,351		$	50,560		$	105,440		$	100,631
Specialty sales			37,265			30,216			73,648			61,341
Net revenue			90,616			80,776			179,088			161,972
Cost of sales and related occupancy expenses			44,558			37,377			85,778			74,916
Operating expenses			28,146			26,937			56,030			54,774
Transaction related expenses			-			146			-			970
General and administrative expenses			6,049			5,622			12,858			11,924
Depreciation and amortization expenses			3,881			4,020			7,800			7,897
Total costs and expenses from operations			82,634			74,102			162,466			150,481
Income from operations			7,982			6,674			16,622			11,491
Interest income, net			7			5			18			4
Income before income taxes			7,989			6,679			16,640			11,495
Income tax provision			2,878			2,424			6,016			4,189
Net income		$	5,111		$	4,255		$	10,624		$	7,306
Net income per share:
Basic		$	0.40		$	0.32		$	0.82		$	0.55
Diluted		$	0.38		$	0.31		$	0.79		$	0.53
Shares used in calculation of net income per share:
Basic			12,892			13,248			13,000			13,218
Diluted			13,309			13,885			13,414			13,847

PEET'S COFFEE & TEA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
		Twenty-six weeks ended
		July 3, 2011				July 4, 2010
Cash flows from operating activities:
Net income		$	10,624			$	7,306
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization			8,956				8,981
Amortization of interest purchased			197				-
Stock-based compensation			2,035				1,623
Excess tax benefit from exercise of stock options			(5,763	)			(1,481	)
Tax benefit from exercise of stock options			5,224				1,228
Loss on disposition of assets and asset impairment			325				63
Deferred income taxes			67				(6	)
Changes in other assets and liabilities:
Accounts receivable, net			(197	)			2,993
Inventories			(13,946	)			(11,456	)
Prepaid expenses and other current assets			(1,147	)			278
Other assets			(2	)			31
Accounts payable, accrued liabilities and deferred revenue			(3,021	)			(4,893	)
Deferred lease credits and other long-term liabilities			(379	)			260
Net cash provided by operating activities			2,973				4,927
Cash flows from investing activities:
Purchases of property, plant and equipment			(4,851	)			(5,455	)
Proceeds from sales of property, plant and equipment			-				17
Changes in restricted investments			798				559
Proceeds from sales and maturities of marketable securities			3,013				-
Purchases of marketable securities			(8,384	)			-
Net cash used in investing activities			(9,424	)			(4,879	)
Cash flows from financing activities:
Net proceeds from issuance of common stock			15,023				8,122
Purchase of common stock			(39,529	)			(14,730	)
Excess tax benefit from exercise of stock options			5,763				1,481
Net cash used in financing activities			(18,743	)			(5,127	)
Decrease in cash and cash equivalents			(25,194	)			(5,079	)
Cash and cash equivalents, beginning of period			44,629				47,934
Cash and cash equivalents, end of period		$	19,435			$	42,855
Non-cash investing activities:
Capital expenditures incurred, but not yet paid		$	449			$	330
Other cash flow information:
Cash paid for income taxes			2,896				2,721

PEET'S COFFEE & TEA, INC. SEGMENT REPORTING (Unaudited, in thousands)
		Retail						Specialty						Unallocated				Total
		Amount			Percent of Net Revenue			Amount			Percent of Net Revenue							Amount			Percent of Net Revenue
For the thirteen weeks ended July 3, 2011
Net revenue		$	53,351		100.0	%		$	37,265		100.0	%						$	90,616		100.0	%
Cost of sales and occupancy			23,692		44.4	%			20,866		56.0	%							44,558		49.2	%
Operating expenses			20,387		38.2	%			7,759		20.8	%							28,146		31.1	%
Depreciation and amortization			2,731		5.1	%			433		1.2	%		$	717				3,881		4.3	%
Segment operating income			6,541		12.3	%			8,207		22.0	%			(6,766	)			7,982		8.8	%
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 twenty-six weeks ended July 3, 2011
Net revenue		$	105,440		100.0	%		$	73,648		100.0	%						$	179,088		100.0	%
Cost of sales and occupancy			45,936		43.6	%			39,842		54.1	%							85,778		47.9	%
Operating expenses			40,866		38.8	%			15,164		20.6	%							56,030		31.3	%
Depreciation and amortization			5,468		5.2	%			877		1.2	%		$	1,455				7,800		4.4	%
Segment operating income			13,170		12.5	%			17,765		24.1	%			(14,313	)			16,622		9.3	%
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	%

NON-GAAP FINANCIAL INFORMATION

The following reconciliation and non-GAAP financial information are provided to assist the reader with understanding the financial impact of a prior-year unusual item. Management believes this information is relevant because the nature and magnitude of the charges do not reflect our on-going operating performance.

PEET'S COFFEE & TEA, INC. Reconciliation of Non-GAAP Financial Information to Net Income (Unaudited, in thousands, except per share data)
		Thirteen weeks ended July 3, 2011			Thirteen weeks ended July 4, 2010			Twenty-Six weeks ended July 3, 2011			Twenty-Six weeks ended July 4, 2010
Net Income
Net income, as reported		$	5,111		$	4,255		$	10,624		$	7,306
Transaction expense, net of tax			-			93			-			617
Non-GAAP net income		$	5,111		$	4,348		$	10,624		$	7,923
Net Income Per Diluted Share *
Net income per diluted share, as reported		$	0.38		$	0.31		$	0.79		$	0.53
Transaction expense, net of tax			-			0.01			-			0.04
Non-GAAP net income per diluted share		$	0.38		$	0.31		$	0.79		$	0.57
* per share data may not sum due to rounding

Double Forte
Nicole Arena, 415-848-8103 (Media)
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or
Peet's Coffee & Tea, Inc.
Seanna Allen, 510-594-2196 (Investors)
investorrelations@peets.com

Source: Peet's Coffee & Tea, Inc.

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