Peet''s Coffee & Tea, Inc. (PEET)
Q4 2009 Earnings Call Transcript
February 17, 2010 2:00 p.m. PT

Executives

Patrick J. O’Dea – President and Chief Executive Officer
Thomas P. Cawley - Chief Financial Officer

Analysts

Matthew Leedon for Steve West - Stifel Nicolaus & Company.
David Tarantino - Robert W. Baird
Jake Bartlett for Matthew DiFrisco - Oppenheimer & Co.
Gregory McKinley – Dougherty Investment Research.
Colin Guheen - Cowen and Company
H. Panero – Individual Investor

Presentation

Operator

Good day everyone and welcome to the Peet''s Coffee & Tea 2009 fourth quarter and year end results conference call. As a reminder this call is being recorded and we will be conducting a question and answer session after the presentation. With us today from the company is President and Chief Executive Officer, Mr. Pat O’Dea and Chief Financial Officer, Mr. Tom Cawley. For opening remarks I’ll turn the call over to Mr. Tom Cawley. Please go ahead sir.

Thomas P. Cawley – Chief Financial Officer

Thank you, Operator. First off I apologize for our release going out late. We had a problem with P. R. Newswire and some of the tables aren’t formatted very readably especially the last one but you have got our website and actually pull off the table in a clean version. We will be publishing an update to it later with a clean version of the tables. As I begin I need to inform you that the information being discussed in this conference call will include forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those projected in these forward-looking statements and Peet’s can give no assurance to the effect of these statements and we assume no obligation to update them.

For additional information concerning factors that could cause actual results to differ materially from those in our forward-looking statements, please refer to the section entitled The Risk Factors in the most recent annual report on Form 10-K for the year ending December 28, 2008, filed with the SEC on March 13 of last year. It’s also available on Peet''s website.

As you saw in our earnings release today in the fourth quarter we had some unusual items and this fiscal year has 53 weeks for us versus 52 a year ago. So, before turning over to Pat, I’d like to take this opportunity upfront to reconcile our results down to comparable 52 week numbers. So, we could spend the rest of the call talking apples-to-apples and you can understand our 2010 guidance from the proper base. For the fiscal fourth quarter and full year we reported $0.76 EPS and a $1.44 EPS respectively. Both of these numbers include $0.35 in unusual items which are explained in our press release and we’ll speak to later.

Excluding this unusual gain our EPS for the quarter and full year would have been $0.41 and $1.09. This compares to our previous guidance for the year of $1.04 to $1.06 that we gave on our last earnings call.

Now for appropriate comparisons as we trend our results across the years and into 2010, please note that the 53rd week this year was worth $0.05 of EPS. So, on apples-to-apples 52 week basis this year would be about a $1.04. This is the base we are referring to when we say we expect to grow EPS in 2010 in $1.24 to $1.30 range or about 20% to 25% growth. Hopefully that brief reconciliation helps. From here on now the financials that we will speak to will be on a comparable 52 week basis excluding the $0.35 of unusual items to give you the best and most representative view of our operating results and you can also see this in our press release.

If you go to our website, on the page referenced in our press release right below the tab you click to hear this call you’ll see a non-GAAP P&L that compares 52 weeks of 2009 without unusuals compared to 2008. You might find this view helpful as we comment more broadly on the financial results.

Now I’d like to turn it over to Pat.

Patrick J. O’Dea – Chief Executive Officer

Thanks, Tom. I’d like to highlight a few overall takeaways from our fourth quarter and full year performance. First, our performance in the quarter and for the full year reflects our ability to grow earnings well in excess of sales which we believe will remain through for at least the next several years. On a comparable 52 week basis we ended the year with just over 7% sales growth while operating income and earnings per share both grew 30%. This performance was driven by continued strong direct store delivery grocery growth, significant margin expansion in our retail stores and more effective and efficient people, systems and processes steering our entire business. In summary we built the capacity to grow and the capability to produce strong earnings growth as we do so and we are getting better and better at the things we already do best.

Second, the growth rate in our consumer package grocery business strengthened considerably as the year progressed and I see this trend continuing into 2010. Most notably, this has been driven by accelerating growth rates on the Peet’s brand in existing grocery customers. Much of what we expect from the launch of the Godiva brand through our existing DSD system and later directly shipped to mass merchandisers, club and drug customers is yet to come. I’ll speak more to this in a moment.

Third, our retail stores are performing at a much higher level today than at any time in the past and looking forward I’m almost optimistic about our performance. Over the last 18 months or so as the economy entered the recession, the top line performance of our stores remained remarkably stable. At the same time our management team has strengthened our operation which contributed significantly to the margin expansion we experienced in our retail stores during 2009. Looking forward, I’m encouraged as we have several top line initiatives planned to impact this business in the second half of the year.