Caribou Coffee Reports Third Quarter 2008 Results

Minneapolis--(BUSINESS WIRE)--Caribou Coffee Company, Inc. (Nasdaq:CBOU), the second largest U.S.-based company-owned gourmet coffeehouse operator based on the number of coffeehouses, today reported financial results for third quarter 2008 (thirteen weeks ended September 28, 2008).

Michael Tattersfield, President and CEO commented, "As we work to improve the overall profitability of Caribou Coffee we will focus on four key strategic initiates; improving the profitability of the coffeehouses, rationalizing the cost structure of the organization with the current revenue stream, aligning the current real estate portfolio and profitably growing the commercial and franchise business channels. We are facing some headwinds, but nothing that we view as insurmountable." Mr. Tattersfield added, "The turnaround is a multi-year process, but we have already made some progress as evidenced by the improving EBITDA. And more importantly the Caribou Coffee brand resonates with our customers, which is reflected in the growth that we are experiencing in our commercial/license business."

Third Quarter 2008 Results

Reported EBITDA was $2.0 million during the third quarter 2008, compared to an EBITDA loss of $0.7 million during the third quarter 2007. The $2.7 million increase in EBITDA is largely from continued growth in the commercial and franchise segments and lower retail segment store closing expenses. (EBITDA is a non-GAAP measure. See EBITDA reconciliation at the end of this release).

Consolidated net sales were $60.9 million, a 1.7% decrease from the same period in the prior year. Within the retail segment, coffeehouse sales were $54.7 million in the third quarter 2008, a decrease of 6.0% from the same period in the prior year. The decrease primarily reflects a 4.7% decline in comparable coffeehouse net sales and operating fewer retail stores. In the commercial and franchise segments, sales were $6.2 million in the third quarter 2008, an increase of 64% over the third quarter 2007. The increase was from higher sales to new and existing commercial customers, royalties and product sales from 39 franchise coffeehouses opened during last 12 months.

General and administrative expenses increased $0.2 million, or 3.8%, to $7.1 million during the third quarter 2008. The increase in general and administrative expenses was largely due to $0.7 million of costs associated with changes in management.

Store closing expense and disposal of assets decreased $2.3 million to $0.6 million during the third quarter 2008, from $2.9 million during the third quarter 2007. Two coffeehouses closed during the third quarter 2008 as compared to eleven in the same period of the prior year.

Depreciation and amortization increased $3.1 million, or 42.9%, to $10.2 million during the third quarter 2008, from $7.1 million during the same period in the prior year. The increase was due to the impairment of 31 company-owned coffeehouses during the third quarter 2008. Depreciation and amortization includes $5.7 million in accelerated deprecation associated with the coffeehouse impairments in the quarter as compared to $1.5 million of accelerated depreciation expense in the third quarter 2007.

The Company's net loss for the third quarter of 2008 was $8.8 million or ($0.45) per share compared to a net loss of $8.5 million or ($0.44) per share for the same period in 2007.

The Company's net loss, excluding the charges in the comparable periods related to impairments, management changes, store closing expense and disposal of assets, was $1.7 million for the third quarter 2008 and a net loss of $4.1 million for the third quarter 2007.

Conference Call

Caribou Coffee will host a conference call on November 6, 2008, at 4:30 p.m. (Eastern Time) to discuss these results. Hosting the call will be Michael Tattersfield, President and CEO and Timothy Hennessy, CFO. The call will be webcast and can be accessed from the Company's website at www.cariboucoffee.com. The webcast link is in the Investor Relations section. The dial in number is 1-888-778-8912 or 1-913-312-1231 for international calls. Confirmation number is 6247119. If you are unable to join the call, a replay will be available beginning at 7:30 p.m. (Eastern Time) on November 6, 2008 through 11:59 p.m. (Eastern) on November 13, 2008 and can be accessed by dialing 1-888-203-1112 or international callers 1-719-457-0820 and enter pin number 6247119. In addition, the webcast will be archived on the Company's website.

About The Company

Caribou Coffee Company, Inc., founded in 1992 and headquartered in Minneapolis, Minnesota, is the third largest company-owned gourmet coffeehouse operator in the United States based on the number of coffeehouses. As of September 28, 2008, Caribou Coffee had 415 company-owned coffeehouses, and 80 franchised locations. Caribou Coffee offers its customers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and related products. In addition, Caribou Coffee sells products to club stores, grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues, college campuses and other commercial customers. In addition, Caribou Coffee licenses third parties to use the Caribou Coffee brand on quality food and merchandise items. Caribou Coffee focuses on creating a unique experience for customers through a combination of high-quality products, a comfortable and welcoming coffeehouse environment and a unique style of customer service. For more information, visit the Caribou Coffee web site at www.cariboucoffee.com .

Forward-Looking Statements

Certain statements in this release, and other written or oral statements made by or on behalf of Caribou Coffee are "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's current expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Caribou Coffee brand and other factors disclosed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.


CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------- -----------------------
September September September September
28, 30, 28, 30,
2008 2007 2008 2007
----------- --------- ------------ ----------
(In thousands, except for per share amounts)
(Unaudited)
Coffeehouse sales $ 54,731 $ 58,212 $ 168,618 $175,619
Commercial and franchise
sales 6,179 3,769 17,232 11,062
----------- --------- ------------ ----------
Consolidated net sales 60,910 61,981 185,850 186,681
Cost of sales and related
occupancy costs 26,992 26,756 80,209 78,790
Operating expenses 24,571 26,627 75,785 79,636
Opening expenses 62 109 198 285
Depreciation and
amortization 10,208 7,143 20,771 19,146
General and
administrative expenses 7,115 6,852 21,183 20,609
Closing expense and
disposal of assets 646 2,872 4,524 3,733
----------- --------- ------------ ----------
Operating loss (8,684) (8,378) (16,820) (15,518)
Other income (expense):
Interest income 2 54 23 133
Interest expense (81) (130) (714) (426)
----------- --------- ------------ ----------
Loss before (benefit)
provision for income
taxes and minority
interest (8,763) (8,454) (17,511) (15,811)
(Benefit) provision for
income taxes (36) (31) 14 (328)
----------- --------- ------------ ----------
Loss before minority
interest (8,727) (8,423) (17,525) (15,483)
Minority interest 39 40 79 122
----------- --------- ------------ ----------
Net loss $ (8,766) $ (8,463) $ (17,604) $(15,605)
=========== ========= ============ ==========
Basic and diluted net
loss per share $ (0.45) $ (0.44) $ (0.91) $ (0.81)
=========== ========= ============ ==========
Basic and diluted
weighted average number
of shares outstanding 19,371 19,354 19,371 19,321
=========== ========= ============ ==========

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES
(A Majority Owned Subsidiary of Caribou Holding Company Limited)

CONDENSED CONSOLIDATED BALANCE SHEETS

September December
28, 30,
2008 2007
----------- ---------
(In thousands except
per share amounts)
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,938 $ 9,886
Accounts receivable (net of allowance for
doubtful accounts of $35 and $8 at September
28, 2008 and December 30, 2007, respectively) 3,683 3,117
Other receivables (net of allowance for doubtful
accounts of $31 and $9 at September 28, 2008
and December 30, 2007, respectively) 1,230 1,544
Income tax receivable 75 149
Inventories 11,362 10,229
Prepaid expenses and other current assets 921 1,691
----------- ---------
Total current assets 24,209 26,616
Property and equipment, net of accumulated
depreciation and amortization 64,802 83,798
Notes receivable 20 32
Restricted cash 12 411
Other assets 488 983
----------- ---------
Total assets $ 89,531 $111,840
=========== =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 12,366 $ 9,650
Accrued compensation 4,529 7,864
Accrued expenses 7,202 9,318
Deferred revenue 6,217 9,988
----------- ---------
Total current liabilities 30,314 36,820

Revolving credit facility 3,000 --
Asset retirement liability 1,017 989
Deferred rent liability 9,603 11,271
Deferred revenue 2,716 2,854
Income tax liability 431 473
Minority interests in affiliates 108 144
----------- ---------
Total long term liabilities 16,875 15,731
Shareholders' equity:
Preferred stock, par value $.01, 20,000 shares
authorized; no shares issued and outstanding -- --
Common stock, par value $.01, 200,000 shares
authorized; 19,371 shares issued and
outstanding at September 28, 2008 and
December 30, 2007 194 194
Additional paid-in capital 124,889 124,232
Accumulated deficit (82,741) (65,137)
----------- ---------
Total shareholders' equity 42,342 59,289
----------- ---------
Total liabilities and shareholders' equity $ 89,531 $111,840
=========== =========

Coffeehouse Openings and Closings

13 Weeks Ended 39 Weeks Ended
September September September September
28, 2008 30, 2007 28, 2008 30, 2007
---------------------------------------

Comparable Coffeehouse Sales
(Company-Owned) (4.7%) 1% (2.9%) 0%

COFFEEHOUSE COUNT
Company-Owned:
Coffeehouses open at beginning
of period 415 441 432 440
Coffeehouses opened during the
period 2 2 7 11
Coffeehouses closed during the
period (2) (11) (24) (19)
--------- --------- --------- ---------
Total Company-Owned at
period end 415 432 415 432

Franchised:
Coffeehouses open at beginning
of period 75 39 52 24
Coffeehouses opened during the
period 5 2 28 17
Coffeehouses closed during the
period 0 0 0 0
Total Franchised at period
end 80 41 80 41
TOTAL COFFEEHOUSES AT PERIOD
END 495 473 495 473

Percentage change in comparable coffeehouse net sales compares the net
sales of coffeehouses during a fiscal period to the net sales from
the same coffeehouses for the equivalent period in the prior year. A
coffeehouse is included in this calculation beginning in its
thirteenth full fiscal month of operations. A closed coffeehouse is
included in the calculation for each full month that the coffeehouse
was open in both fiscal periods. Franchised coffeehouses are not
included in the comparable coffeehouse net sales calculations.

EBITDA RECONCILIATION

The following is a
reconciliation of the
Company's net loss to EBITDA.

Thirteen Weeks Thirty-nine Weeks
Ended Ended
September September September September
28, 2008 30, 2007 28, 2008 30, 2007
--------- --------- --------- ---------
(In thousands)
---------------------------------------
Net loss $(8,766) $(8,463) $(17,604) $(15,605)
Interest expense 81 130 714 426
Interest income (2) (54) (23) (133)
Depreciation and
amortization(1) 10,760 7,703 22,387 20,813
(Benefit) provision for income
taxes (36) (31) 14 (328)
--------- --------- --------- ---------
EBITDA $ 2,037 $ (715) $ 5,488 $ 5,173
========= ========= ========= =========

(1) Includes depreciation and amortization associated with the headquarters and roasting facility that are categorized as general and administrative expenses and cost of sales and related occupancy costs on the statement of operations.

EBITDA is equal to net income (loss) excluding: (a) interest expense; (b) interest income; (c) depreciation and amortization; and (d) income taxes.

Management believes EBITDA is useful to investors in evaluating the Company's operating performance for the following reason:

  • Coffeehouse leases are generally short-term (5-10 years) and Caribou must depreciate all of the cost associated with those leases on a straight-line basis over the initial lease term excluding renewal options (unless such renewal periods are reasonably assured at the inception of the lease). The Company opened a net 212 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the third quarter of fiscal 2008. As a result, management believes depreciation expense is disproportionately large when compared to the sales from a significant percentage of the coffeehouses that are in their initial years of operations. Also, many of the assets being depreciated have actual useful lives that exceed the initial lease term excluding renewal options. Consequently, management believes that adjusting for depreciation and amortization is useful for evaluating the operating performance of the coffeehouses.

Management uses EBITDA:

  • As a measurement of operating performance because it assists management in comparing its operating performance on a consistent basis as it removes the impact of items not directly resulting from coffeehouse operations;
  • For planning purposes, including the preparation of our internal annual operating budget;
  • To establish targets for certain management compensation matters; and
  • To evaluate the Company's capacity to incur and service debt, fund capital expenditures and expand the business.

EBITDA as calculated by Caribou Coffee is not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA: (a) does not represent net income or cash flows from operating activities as defined by GAAP; (b) is not necessarily indicative of cash available to fund cash flow needs; and (c) should not be considered an alternative to net income, operating income, cash flows from operating activities or Caribou Coffee's other financial information as determined under GAAP.

CONTACT: Investor Relations: ICR Kathleen Heaney, 203-803-3585 ir@cariboucoffee.com

SOURCE: Caribou Coffee Company, Inc.

###

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