Peet’s Coffee & Tea, Inc. Reports Second Quarter 2012 Results

Share Name	Share Symbol	Market	Type
Peets Coffee & Tea, Inc. (MM)	NASDAQ:PEET	NASDAQ	Common Stock

Peets Coffee & Tea, Inc. (MM) (NASDAQ:PEET)
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Peet’s Coffee & Tea, Inc. (NASDAQ: PEET) today announced its second quarter results for the fiscal period ended July 1, 2012, which included 13 weeks.

In this release, the Company:

• Reports diluted earnings per share of $0.30

• Reports net revenue growth of 5%

Consolidated Financial and Operating Summary

For the 13 weeks ended July 1, 2012, net revenue increased 5% to $95.4 million from $90.6 million for the corresponding period of fiscal 2011. Diluted earnings per share was $0.30, compared to $0.38 for the corresponding period of fiscal 2011.

Retail net revenue increased 4% to $55.4 million for the 13 weeks ended July 1, 2012, from $53.4 million for the corresponding period last year. The increase was driven by a higher average transaction and an $874,000 sales tax refund related to resolution of a sales tax computation interpretation with the taxing authorities. The Company did not open any stores in the quarter and ended the quarter with 197 stores.

Specialty net revenue increased 7% to $40.0 million for the 13 weeks ended July 1, 2012, compared to $37.3 million for the corresponding period last year. Within specialty, grocery sales were up 5% compared to the corresponding period last year, foodservice and office sales grew 15%, and home delivery sales grew 3%. Grocery revenue growth was impacted by an increase in competitive pricing pressure during the period.

Cost of sales and related occupancy expenses increased as a percent of total net revenue to 50.4% for the quarter, compared to 49.2% for the corresponding period last year. The increase was caused by higher green coffee costs, which were 16% higher per pound than the same quarter last year. This increase was partially offset by price increases across all channels and lower shipping expenses.

Operating expenses were 31.2% of net revenue, compared to 31.1% for the corresponding period last year. A favorable mix shift towards the specialty business and lower legal fees were substantially offset by higher healthcare costs, payment card processing fees, and investments in overhead expenses.

General and administrative expenses increased as a percent of net revenue to 7.8%, compared to 6.6% for the corresponding period last year. General and administrative expenses increased to $7.4 million from $6.0 million for the corresponding period last year, primarily due to higher payroll and marketing costs.

Depreciation and amortization expenses decreased as a percent of net revenue to 4.1%, compared to 4.3% for the corresponding period last year. Depreciation and amortization expenses were $3.9 million for the quarter, consistent with the corresponding period last year.

Cash and cash equivalents plus short-term and long-term marketable securities were $38.9 million at the end of the quarter, compared to $35.4 million at the end of fiscal 2011.

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.

PEET’S COFFEE & TEA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands, except share amounts) July 1, January 1,

2012

ASSETS Current assets Cash and cash equivalents $ 32,428 $ 30,755 Short-term marketable securities 5,791 3,800 Accounts receivable, net 19,595 20,522 Inventories 68,417 54,265 Deferred income taxes - current 5,041 5,041 Prepaid expenses and other 10,240 9,368 Total current assets 141,512 123,751 Long-term marketable securities 634 888 Property, plant and equipment, net 85,458 89,304 Other assets, net 2,261 1,328 Total assets $ 229,865 $ 215,271 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable and other accrued liabilities $ 13,348 $ 11,547 Accrued compensation and benefits 9,132 10,283 Deferred revenue 7,524 7,382 Total current liabilities 30,004 29,212 Deferred income taxes - non current 372 367 Deferred lease credits 6,463 6,668 Other long-term liabilities 2,396 1,068 Total liabilities 39,235 37,315 Shareholders' equity

Common stock, no par value; authorized 50,000,000 shares; issued and outstanding: 13,245,000 and 13,136,000 shares

74,940 69,664 Accumulated other comprehensive income 3 2 Retained earnings 115,687 108,290 Total shareholders' equity 190,630 177,956 Total liabilities and shareholders' equity $ 229,865 $ 215,271 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 1, July 3, July 1, July 3,

2012

2011

2012

2011

Retail stores $ 55,424 $ 53,351 $ 109,539 $ 105,440 Specialty sales 39,968 37,265 80,627 73,648 Net revenue 95,392 90,616 190,166 179,088 Cost of sales and related occupancy expenses 48,064 44,558 96,420 85,778 Operating expenses 29,734 28,146 59,560 56,030 Litigation related expenses - 38 - 79 General and administrative expenses 7,428 6,011 14,810 12,779 Depreciation and amortization expenses 3,930 3,881 7,872 7,800 Total costs and expenses from operations 89,156 82,634 178,662 162,466 Income from operations 6,236 7,982 11,504 16,622 Interest income, net 16 7 22 18 Income before income taxes 6,252 7,989 11,526 16,640 Income tax provision 2,239 2,878 4,129 6,016 Net income $ 4,013 $ 5,111 $ 7,397 $ 10,624 Net income per share: Basic $ 0.30 $ 0.40 $ 0.56 $ 0.82 Diluted $ 0.30 $ 0.38 $ 0.55 $ 0.79 Shares used in calculation of net income per share: Basic 13,260 12,892 13,215 13,000 Diluted 13,547 13,309 13,515 13,414 PEET’S COFFEE & TEA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Twenty-six weeks ended July 1, July 3,

2012

2011

Cash flows from operating activities: Net income $ 7,397 $ 10,624

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 8,932 8,956 Amortization of interest purchased 150 197 Stock-based compensation 2,303 2,035 Excess tax benefit from exercise of stock options (1,696 ) (5,763 ) Tax benefit from exercise of stock options 1,612 5,224 Loss on disposition of assets and asset impairment 140 325 Deferred income taxes 5 67 Changes in other assets and liabilities: Accounts receivable, net 927 (197 ) Inventories (14,152 ) (13,946 ) Prepaid expenses and other current assets (872 ) (1,147 ) Other assets (1,238 ) (2 ) Accounts payable, accrued liabilities and deferred revenue 593 (3,021 ) Deferred lease credits and other long-term liabilities 1,123 (379 ) Net cash provided by operating activities 5,224 2,973 Cash flows from investing activities: Purchases of property, plant and equipment (5,021 ) (4,851 ) Proceeds from sales of property, plant and equipment Changes in restricted investments 299 798 Proceeds from sales and maturities of marketable securities 4,056 3,013 Purchases of marketable securities (5,942 ) (8,384 ) Net cash used in investing activities (6,608 ) (9,424 ) Cash flows from financing activities: Net proceeds from issuance of common stock 4,060 15,023 Purchase of common stock (2,699 ) (39,529 ) Excess tax benefit from exercise of stock options 1,696 5,763 Net cash provided by/(used in) financing activities 3,057 (18,743 ) Increase/(decrease) in cash and cash equivalents 1,673 (25,194 ) Cash and cash equivalents, beginning of period 30,755 44,629 Cash and cash equivalents, end of period $ 32,428 $ 19,435 Non-cash investing activities: Capital expenditures incurred, but not yet paid $ 444 $ 449 Other cash flow information: Cash paid for income taxes 2,807 2,896 PEET’S COFFEE & TEA, INC. SEGMENT REPORTING (Unaudited, 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 July 1, 2012 Net revenue $ 55,424 100.0 % $ 39,968 100.0 % $ 95,392 100.0 % Cost of sales and occupancy 24,807 44.8 % 23,257 58.2 % 48,064 50.4 % Operating expenses 21,663 39.1 % 8,071 20.2 % 29,734 31.2 % Depreciation and amortization 2,782 5.0 % 354 0.9 % $ 794 3,930 4.1 % Segment operating income 6,172 11.1 % 8,286 20.7 % (8,222 ) 6,236 6.5 % 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 % Litigation related expenses 38 0.1 % - 38 0.0 % Depreciation and amortization 2,731 5.1 % 433 1.2 % $ 717 3,881 4.3 % Segment operating income 6,503 12.2 % 8,207 22.0 % (6,728 ) 7,982 8.8 % For the twenty-six weeks ended July 1, 2012 Net revenue $ 109,539 100.0 % $ 80,627 100.0 % $ 190,166 100.0 % Cost of sales and occupancy 49,323 45.0 % 47,097 58.4 % 96,420 50.7 % Operating expenses 42,728 39.0 % 16,832 20.9 % 59,560 31.3 % Depreciation and amortization 5,571 5.1 % 721 0.9 % $ 1,580 7,872 4.1 % Segment operating income 11,917 10.9 % 15,977 19.8 % (16,390 ) 11,504 6.0 % 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 % Litigation related expenses 79 0.1 % - 0.0 % 79 0.0 % Depreciation and amortization 5,468 5.2 % 877 1.2 % $ 1,455 7,800 4.4 % Segment operating income 13,091 12.4 % 17,765 24.1 % (14,234 ) 16,622 9.3 %

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PEET Peets Coffee & Tea, Inc. (MM)