Peet Misses Overall - Analyst Blog

Peet's Coffee & Tea (PEET) posted second quarter 2012 earnings of 30 cents per share, which missed both the Zacks Consensus Estimate and the prior-year earnings of 33 cents and 38 cents per share, respectively. Second quarter results plunged owing to a 16% hike in costs of green coffee.

Quarter in Detail

Net revenue climbed 5% in second quarter 2012 to $95.4 million, driven by growth in both the segments of the company, Retail and Specialty. Revenue, however, lagged the Zacks Consensus Estimate of $97.0 million.

The Retail segment consists of the company-owned retail stores. Retail net sales moved up 4% to $55.4 million in the second quarter of 2012. The growth was attributable to increase in average transaction and refund of sales tax of $874,000.

The Specialty segment consists of Peet’s and Godiva brands, where both the brands are sold through a network of grocery stores. Segment net sales climbed 7% to $40.0 million in the quarter. The grocery business grew 5% over last year; the foodservice and office business grew 15%; while home delivery net revenue grew 3% from prior-year quarter levels. The grocery business faced the pressure of competitive pricing during the quarter.   

The company had 197 stores at the end of second quarter 2012 and did not open any new stores in the quarter.

Cost of sales and related occupancy expenses increased to 50.4% of total net revenue in the reported quarter, up 120 basis points from the prior-year quarter, driven by increased cost of green coffee, partially offset by higher pricing and lower shipping costs.  

Operating expenses, based on net revenue, remained flat at 31.2% in the quarter, owing to a favorable mix shift in the Specialty business and lower legal expenses, offset by overhead expenses, increased health care costs and increased payment card processing fees.

Other Financial Details

As of July 1, 2012, cash and cash equivalents were $32.4 million, compared with $45.0 million as of April 1, 2012.

On July 23, 2012, Peet announced its deal with Joh. A. Benckiser (JAB) under which the privately-held group, Joh. A. Benckiser will take over the coffee company for $73.5 per share or a total of $1 billion in cash.  The deal is expected to close in three months time.

Currently, we have a Neutral recommendation on Peet's Coffee & Tea. The company carries a Zacks #4 Rank in the near term (Sell rating).

We are encouraged by Peet’s premium quality coffee along with its superior price position in the market and its ability to manage operating expenses. Though Peet’s results were disappointing owing to higher costs, we believe that the takeover will be beneficial for the company.

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