Peet’s Coffee & Tea, Inc. Reports Second Quarter 2010 Results

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

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.

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.