Stock Name: SCU
Amount: CAD 0.15
Announcement Date: 03/08/2012
Record Date: 15/08/2012
Dividend Detail:
MISSISSAUGA, ON, Aug. 3, 2012 /CNW/ - The Second Cup Ltd. ("Second Cup"
or the "Company") reported financial results today for second quarter
ended June 30, 2012 (the "Quarter"). The Company's shares are traded on
the Toronto Stock Exchange under the symbol "SCU".�� All amounts in this
news release are presented in thousands of Canadian dollars, unless
otherwise indicated.
Highlights
System sales increased by 0.2% to $47,382 in the Quarter and by 1.7%
year to date.
Basic and diluted earnings per share of $0.09 for the Quarter includes a
deferred taxation charge of $0.05 per share arising from the 2012
Ontario budget. Earnings in the comparable quarter a year ago were
$0.16.
Same caf�� sales decline of 1.5% in the Quarter.
Declared dividend of $0.15 per share.
Stacey Mowbray, President & CEO of Second Cup commented, "We continue to
feel the increasing competitive pressure on our same caf�� sales through
Q2. This has affected our profitability. During the Quarter we invested
in research and development on test concepts and new initiatives. We
opened five caf��s in the Quarter, bringing the total to seven year to
date and will open approximately 25 caf��s in 2012, giving us three
consecutive years of net new growth. As per our plan, we closed four
caf��s during the Quarter (10 caf��s year to date), the majority of which
were underperforming caf��s at the end of their lease term. This fall,
we will enter the growing single serve market through a partnership
with Kraft Canada Inc. Starting in late September, we will be selling a
variety of Second Cup branded TASSIMO T Discs in caf�� and in grocery.
This fall will also mark the activation of our partnership with Free
the Children, starting with We Day and following with in store
activity. With these exciting new partnerships, an investment in
innovation, a calendar of promotions, product news and local caf��
marketing and with the enthusiasm of our franchise partners, we are
confident in moving our brand back to positive same caf�� sales."
FINANCIAL HIGHLIGHTS
The following table sets out selected International Financial Reporting
Standards ("IFRS") financial information and other data of the Company
and should be read in conjunction with the unaudited condensed interim
financial statements of the Company for the 13 and 26 weeks ended June
30, 2012.
�� | 13 weeks ended | �� | 26 weeks ended | ||
(in thousands of Canadian dollars, except number of caf��s and per share amounts) | June 30, 2012 | July 2, 2011 | �� | June 30, 2012 | July 2, 2011 |
�� | �� | �� | �� | �� | �� |
System sales of caf��s1 | $47,382 | $47,294 | �� | $94,483 | $92,887 |
�� | �� | �� | �� | �� | �� |
Number of caf��s - end of period | 356 | 350 | �� | 356 | 350 |
�� | �� | �� | �� | �� | �� |
Same caf�� sales growth1 | (1.5%) | 0.3% | �� | (0.5%) | (0.9%) |
�� | �� | �� | �� | �� | �� |
Total revenue | $6,175 | $6,072 | �� | $12,183 | $11,500 |
�� | �� | �� | �� | �� | �� |
Gross profit | $5,446 | $5,607 | �� | $10,778 | $10,611 |
�� | �� | �� | �� | �� | �� |
Operating expenses | $3,383 | $3,101 | �� | $7,173 | $6,581 |
�� | �� | �� | �� | �� | �� |
Operating income | $2,063 | $2,506 | �� | $3,605 | $4,030 |
Amortization of property and equipment and intangible assets | 271 | 185 | �� | 537 | 326 |
(Gain) loss on disposal of property and equipment | - | - | �� | (1) | 7 |
Impairment of property and equipment | - | - | �� | 7 | - |
Income before interest, tax, depreciation and amortization ("EBITDA")1 | $2,334 | $2,691 | �� | $4,148 | $4,363 |
�� | �� | �� | �� | �� | �� |
Income before income taxes | $1,920 | $2,283 | �� | $3,346 | $3,676 |
��Current income tax charge | 422 | 122 | �� | 773 | 122 |
��Deferred income tax charge (recovery) | 656 | 616 | �� | 699 | (5,743) |
Net income | $842 | $1,545 | �� | $1,874 | $9,297 |
Deferred income tax recovery due to Conversion2 | - | - | �� | - | (6,756) |
Adjusted net income1 | $842 | $1,545 | �� | $1,874 | $2,541 |
�� | �� | �� | �� | �� | �� |
Basic and diluted earnings per share as reported | $0.09 | $0.16 | �� | $0.19 | $0.94 |
�� | �� | �� | �� | �� | �� |
Adjusted basic and diluted earnings per share1 | $0.09 | $0.16 | �� | $0.19 | $0.26 |
�� | �� | �� | �� | �� | �� |
1 | "System sales of caf��s", "Same caf�� sales growth", "EBITDA",�� "Adjusted net income" and "Adjusted basic and diluted earnings per share" are not recognized performance measures under IFRS and, accordingly, may not be comparable to similar computations as reported by other issuers. |
2 | At the annual and special meeting of unitholders held on June 10, 2010, the unitholders approved the proposed conversion from an income trust structure to a public corporation ("Conversion"). The Conversion was completed on January 1, 2011. |
Analysis of System Sales and Same Caf�� Sales Growth
System sales for the 13 weeks ended June 30, 2012 were $47,382, compared
to $47,294 for the 13 weeks ended July 2, 2011, representing an
increase of $88 or 0.2%. The total number of caf��s at the end of the
Quarter was 356 compared to 350 caf��s at the end of the second quarter
of 2011.
Year to date system sales for the 26 weeks ended June 30, 2012 were
$94,483, compared to $92,887 for the 26 weeks ended July 2, 2011,
representing an increase of $1,596 or 1.7%.
Same caf�� sales decreased 1.5% in the Quarter, compared to an increase
of 0.3% in the comparable quarter of 2011. The year to date same caf��
sales decline was 0.5% (2011 - 0.9% decline).
Second Quarter Analysis
Analysis of Revenues
Total revenues for the Quarter were $6,175 (2011 - $6,072) and consisted
of royalty revenue, revenue from sale of goods and services revenue.
Royalty revenue for the Quarter was $3,700 (2011 - $3,824). The
reduction in royalty revenue of $124 was mainly due to a reduction in
the effective royalty rate (excluding sales from Company-operated
caf��s) from 8.2% in 2011 to 8.0% in the current quarter as a result of
the revised royalty structure for new caf��s, as well as, caf�� specific
arrangements in place during the Quarter.
Revenue from the sale of goods, which includes revenue from
Company-operated caf��s and the sale of coffee through wholesale and
retail channels, was $966 (2011 - $628) for the Quarter. The increase
in revenue from the sale of goods was mainly due to an increase in the
number of Company-operated caf��s from six in 2011 to seven at the end
of the current quarter.
Services revenue for the Quarter was $1,509 (2011 - $1,620). Services
revenue includes initial franchise fees, renewal fees, transfer fees
earned on the sale of caf��s from one franchise partner to another,
purchasing coordination fees and other ancillary fees (IT support and
training fees). The $111 decrease in services revenue is mainly due to
a decrease in purchasing coordination fees, transfer fees and
construction administration fees offset by increases in initial
franchise fees and renewal fees.
Operating Expenses
Operating expenses include the head office expenses of Second Cup and
the overhead expenses of Company-operated caf��s. Total operating
expenses amounted to $3,383 (2011 - $3,101). Included in operating
expenses for the Quarter were research and innovation costs totaling
$221 (2011 - $nil) related to test concepts and new initiatives.
Net Income
The Company's net income for the Quarter was $842 or $0.09 per share,
compared to $1,545 or $0.16 per share in 2011. The reduction in net
income of $703 was mainly due to the $357 decline in EBITDA and a
deferred income tax expense of $458 as a result of an increase in the
future tax rates. The Ontario 2012 budget was substantively enacted on
June 20, 2012 freezing corporate tax cuts with the effect that the
income tax rate would remain at 11.5% until the province can achieve a
balanced budget. Previously, the corporate income tax rate was slated
to decrease to 10.0% by 2014. The impact of the income tax rate change
is estimated to be a future income tax increase of $458.
Year to Date
Analysis of Revenues
Revenues were $12,183 compared to $11,500 in 2011 and consisted of
royalty revenue, revenue from sale of goods and services revenue.
Royalty revenue was $7,378 (2011 - $7,544). The reduction in royalty
revenue of $166 was mainly due to a reduction in the effective royalty
rate (excluding sales from Company-operated caf��s) from 8.2% in 2011 to
8.0% as a result of the revised royalty structure for new caf��s, as
well as, caf�� specific arrangements in place during the period.
Revenue from the sale of goods, which includes revenue from
Company-operated caf��s and the sale of coffee through wholesale and
retail channels, was $1,866 (2011 - $1,214). The increase in revenue
from the sale of goods was mainly due to an increase in the number of
Company-operated caf��s from six in 2011 to seven at the end of the
Quarter.
Services revenue was $2,939 (2011 - $2,742). Services revenue includes
initial franchise fees, renewal fees, transfer fees earned on the sale
of caf��s from one franchise partner to another, construction project
management fees, purchasing coordination fees and other ancillary fees
(IT support, tuition and construction black line drawings). The $197
increase in services revenue is due to an increase in purchasing
coordination fees, increases in other ancillary fees and increases in
initial franchise fees offset by a decrease in construction project
management fees and a decrease in transfer fees.
Operating Expenses
Operating expenses include the head office expenses of Second Cup and
the overhead expenses of Company-operated caf��s. Operating expenses
amounted to $7,173 (2011 - $6,581), an increase of $592 including
research and innovation costs of $221 as discussed above.
Net Income
The Company's net income was $1,874 or $0.19 per share, compared to
$9,297 or $0.94 per share in 2011. Excluding the deferred income tax
recovery of $6,756 in 2011 as a result of the Conversion referred to
above, adjusted net income for 2011 was $2,541. Adjusted net income for
2012 is the same as reported net income and was $1,874. The reduction
in adjusted net income of $667 was mainly due to an increase in
operating expenses of $592, an increase in deferred income tax expense
of $458 due to the income tax rate change discussed above, offset by an
increase in gross profit of $167 and a decrease in interest expense of
$95.
CAF�� NETWORK
To accelerate the growth of new caf��s, Second Cup introduced a revised
royalty structure for new caf��s that opened in 2011. New caf��s that
open in 2011 and 2012 are permitted to pay a royalty rate of 3% in the
first year, a rate of 6% in the second year and, thereafter, an ongoing
rate of 9%.
�� | 13 weeks ended | �� | 26 weeks ended | ||
�� | June 30, 2012 | July 2, 2011 | �� | June 30, 2012 | July 2, 2011 |
�� | �� | �� | �� | �� | �� |
Number of caf��s - beginning of period�� | 355 | 352 | �� | 359 | 349 |
Caf��s opened�� | 5 | - | �� | 7 | 5 |
Caf��s closed�� | (4) | (2) | �� | (10) | (4) |
�� �� | �� | �� | �� | �� | �� |
Number of caf��s - end of period�� | 356 | 350 | �� | 356 | 350 |
�� | �� | �� | �� | �� | �� |
Number of caf��s renovated�� | 3 | 9 | �� | 7 | 13 |
During the quarter, according to the plan, four caf��s were closed (2011
- two), the majority of which were underperforming caf��s at the end of
their lease term. On a year to date basis, 10 caf��s were closed (2011 -
four).
Dividend
On August 2, 2012, the Board of Directors of Second Cup approved a
quarterly dividend of $0.15 per common share, payable on August 31,
2012 to shareholders of record at the close of business on August 17,
2012. The dividend will be considered an eligible dividend for income
tax purposes.
Term Loan, Operating Credit Facility and Interest Rate Swap
On June 12, 2012, the Company renegotiated its term loan and operating
credit facilities, including an extension of the maturity of the credit
facilities to May 31, 2015 and a decrease in interest rates. The credit
facilities bear interest at the bankers' acceptance rate plus 2.75%
(December 31, 2011 - 3.50%). The Company has an interest rate swap
agreement maturing on April 1, 2013, which fixes the interest rate on
the Company's non-revolving term credit facility at 3.04% per annum
plus the margin noted above, which results in a fixed effective
interest rate of 5.79% (December 31, 2011 - 6.54%).
OUTLOOK
The information contained in this "Outlook" is forward-looking
information. Please see "Forward-looking Information" below for a
discussion of the risks and uncertainties in connection with
forward-looking information.
The Second Cup business continues to operate in a highly competitive
marketplace and a challenging consumer environment. For 2012,
management is targeting to regain growth with positive same caf�� sales,
and the addition of net new caf��s. The focus will be on driving traffic
into caf��s through external messaging, sampling and product news. In
caf��, the focus will be on operational excellence, training and
promotion of the brand's quality credentials to ensure the consistent
delivery of "a little love in every cup".
In terms of 2012 network expansion, Second Cup will open approximately
25 new caf��s and will renovate approximately 20 of its caf��s. In
addition, Second Cup will close approximately 15 caf��s, the majority of
which have sales below the average performance of its caf��s.
FORWARD LOOKING INFORMATION
Certain statements in this news release may constitute forward-looking
statements. Forward-looking statements include words such as "may",
"will", "should", "expect", "anticipate", "believe", "plan", "intend"
and other similar words. These statements reflect current expectations
regarding future events and operating performance and speak only as of
the date of this release. These forward-looking statements should not
be read as guarantees of future performance or results and will not
necessarily be accurate indications of whether or not those results
will be achieved. Forward-looking statements are subject to known and
unknown risks, uncertainties and other factors that may cause Second
Cup's actual results, performance or achievements, or those of
Second��Cup caf��s, or industry results to be materially different from
any future results, performance or achievements expressed or implied by
those forward-looking statements.
NON-IFRS TERMS
In addition to using financial measures prescribed by IFRS, non-IFRS
financial measures and other terms are used in this press release.
These terms include "system sales of caf��s", "same caf�� sales growth",
"EBITDA", "adjusted net income" and "adjusted basic and diluted
earnings per share". These terms are not financial measures recognized
by IFRS and do not have any standardized meaning prescribed by IFRS
and, therefore, may not be comparable to similar terms and measures
presented by other similar issuers. These non-IFRS measures and terms
are intended to provide additional information on the Company's
performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
IFRS.
System sales of caf��s and same caf�� sales growth are presented in
reference to the sales performance of all caf��s in Canada. The Company
believes they are useful measures as they provide an indication of the
top-line sales on which the royalty that is Second Cup's direct source
of income is based.
Additional information relating to the Company, including the Company's
Annual Information Form, is on SEDAR at www.secondcup.com.
About Second Cup��
Founded in 1975, Second Cup�� is Canada's largest specialty coffee
franchisor, operating more than 350 caf��s across the country. As a
proudly Canadian company, Second Cup celebrates its franchisees' local
ownership, and prioritizes the support of local businesses through
daily deliveries from neighbourhood partners. Committed to caring for
every guest, all 5,000 associates of Second Cup are Trusted Coffee
Experts��� who sell 1,000,000 coffee and tea beverages every week. For
more information, please visit www.secondcup.com.
SOURCE: The Second Cup Ltd.
For further information:
please contact Robert Masson, Chief Financial Officer, (905) 362-1818 ext. 1824 or��investor@secondcup.com.
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