Stock Name: SCU
Amount: CAD 0.15
Announcement Date: 03/05/2012
Record Date: 15/05/2012
Dividend Detail:
MISSISSAUGA, ON, May 3, 2012 /CNW/ - The Second Cup Ltd. ("Second Cup"
or the "Company") reported financial results today for the 13 weeks
ended March 31, 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 3.3% to $47,101 in the Quarter.
Same caf�� sales increased 0.4% in the Quarter.
EBITDA of $1,814 for the Quarter, up 8.5% from $1,672 in the comparable
quarter a year ago.
Adjusted basic and diluted net earnings per share of $0.10 for the
Quarter, compared to $0.10 in the comparable quarter a year ago.
Declared dividend of $0.15 per share.
Stacey Mowbray, President and CEO of Second Cup commented, "We continue
to feel the competitive pressure in our same caf�� sales and are
disappointed in the 0.4% growth for the Quarter.��We are seeing growth
in system sales as a result of the net new growth in caf��s from last
year. We opened two caf��s during the Quarter and are targeting to open
30 new caf��s in 2012.
We are delighted to announce Second Cup's official entry into the single
serve market through a new partnership with Kraft Canada Inc for one of
the fastest growing single serve coffee brands in the world -
TASSIMO.��The partnership enables us to offer our signature coffees and
lattes across Canada using the TASSIMO T Disc beverage system.��Starting
this fall, Second Cup branded T Discs will be available in our caf��s
and in grocery stores - a new channel for the Second Cup brand.��All of
the products will be Rainforest Alliance certified.��
We have also just partnered with Free the Children to connect, engage
and provide a space for Canadians to create positive change,
domestically and internationally.��Free the Children has one of the
highest Facebook followings of any global charity, and presence in
school boards across the country, giving Second Cup a connection to
youth and our local communities, through this genuine and caring
Canadian based charity co-founded by brothers Marc and Craig
Kielburger.�� We are excited about these partnership announcements,
which demonstrate the strength of the Second Cup brand��and together
with the passion and commitment to quality of our franchise partners,
will deliver 'a little love in every cup' to our valued guests."
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
financial statements of the Company for the 13 weeks ended March 31,
2012, which are expected to be released on or before May�� 7, 2012.
�� | �� | �� | |
�� | �� | �� | |
(in thousands of dollars, except numbers of caf��s and per share amounts) | Thirteen weeks ended March 31, 2012 | Thirteen weeks ended April 2, 2011 | |
�� | �� | �� | |
System sales of caf��s 1 | $47,101 | $45,593 | |
�� | �� | �� | |
Number of caf��s - end of period | 355 | 352 | |
�� | �� | �� | |
Same caf�� sales growth1 | 0.4% | (2.3%) | |
�� | �� | �� | |
Total revenue | $6,008 | $5,428 | |
�� | �� | �� | |
Gross profit | $5,332 | $5,004 | |
�� | �� | �� | |
Operating expenses | $3,790 | $3,480 | |
�� | �� | �� | |
Operating income | $1,542 | $1,524 | |
Amortization of property, equipment and intangible assets | 266 | 141 | |
(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 | $1,814 | $1,672 | |
�� | �� | �� | |
Income before income taxes | $1,426 | $1,393 | |
�� | Current income tax charge | 351 | - |
�� | Deferred income tax charge (recovery) | 43 | (6,359) |
Net income | $1,032 | $7,752 | |
Deferred income tax (recovery) due to Conversion2 | - | (6,756) | |
Adjusted net income1 | $1,032 | $996 | |
�� | �� | �� | |
Basic and diluted earnings per share, as reported | $0.10 | $0.78 | |
�� | �� | �� | |
Adjusted basic and diluted earnings per share1 | $0.10 | $0.10 | |
�� | �� | �� | |
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. |
First Quarter Analysis
Analysis of System Sales and Same Caf�� Sales Growth
System sales for the thirteen weeks ended March 31, 2012 were $47,101,
compared to $45,593 for the thirteen weeks ended April 2, 2011,
representing an increase of $1,508 or 3.3%. The total number of caf��s
at the end of the Quarter was 355 compared to 352 caf��s at the end of
the first quarter of 2011.
Same caf�� sales growth represents growth, on average, in retail sales at
caf��s (franchised and Company-operated) operating system wide that have
been open for 15 or more months. It is one of the key metrics the
Company uses to assess its performance and provides a useful comparison
between quarters. The two principal factors that affect same caf�� sales
growth are changes in customer traffic and changes in average check.
These factors are dependent upon existing caf��s maintaining operational
excellence within each Second Cup caf��, general market conditions,
pricing and marketing programs undertaken by Second Cup. Same caf��
sales increased 0.4% in the first Quarter of 2012 compared to a decline
of 2.3% in 2011.
Analysis of Revenues
Total revenues for the Quarter were $6,008 (2011 - $5,428) and consisted
of royalties, revenue from sale of goods and services revenue.
Royalties for the Quarter were $3,678 (2011 - $3,720). The reduction in
royalty revenue of $42 was mainly due to a reduction in the effective
royalty rate (excluding sales from Company-operated caf��s) from 8.3% in
2011 to 8.0% in the Quarter 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 $900 (2011 - $586) for the Quarter. The increase
in revenue from the sale of goods was mainly due to operating seven
Company-operated caf��s in 2012, compared to five in 2011.
Services revenue for the Quarter was $1,430 (2011 - $1,122). 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 $308 increase in services revenue is mainly due to
an increase in purchasing coordination fees and other ancillary fees
offset by reductions in initial franchise fees, renewal fees and
transfer fees due to timing of caf�� openings, renewals and transfers.
Cost of Goods Sold
Cost of goods sold represents the product cost of goods sold in
corporate caf��s and through retail and wholesale channels plus the cost
of direct labour to prepare and deliver the goods to the customers in
the caf��s. Cost of goods sold as a percentage of revenue from the sale
of goods was 75% compared to 72% for the quarter ended April 2, 2011.
The increase is due to a higher food sales mix as well as higher food
costs.
Operating Expenses
Operating expenses include the head office expenses of Second Cup and
the overhead expenses of Company-operated caf��s. Total operating
expenses were $3,790 (2011 - $3,480).
Head Office Operating Expenses
Head office expenses of Second Cup increased by $173 (5.2%) from $3,300
in 2011 to $3,473. Salaries, wages and benefits increased by $32. Head
office overhead expenses increased $46 due to increases in IT costs
related to new point of sale systems ("POS") implemented in 2011.
Travel and franchise partner meetings decreased by $170 due to the
timing of the annual franchise partner convention in the second quarter
of 2012 (2011 - Q1). Professional fees increased $59 due to the use of
external consultants. Amortization of property, equipment and
intangible assets increased $120 primarily due to the purchase of POS
hardware and software. Advertising and franchise development expenses
increased by $40.
Corporate Caf�� Operating Expenses
The overhead expenses in Company-operated caf��s increased by $137 from
$180 in 2011 to $317. Lease costs increased $96 primarily due to an
increase in the number of Company-operated caf��s and a reduction in the
amortization of lease liabilities arising from the 2009 acquisition of
the Company by the Fund. Other operating costs, advertising and local
marketing costs and amortization increased by $27, $10 and $5,
respectively, also due to an increase in the number of Company-operated
caf��s. The Company recorded a loss of $7 on the impairment of a
Company-operated caf�� which was sold in the second quarter of 2012.
Other Income and Expenses
The Company incurred interest expense of $179 (2011 - $181) and�� $18
(2011 - $18) in amortization of financing charges relating to the term
loan. The Company also recorded a non-cash credit of $65 (2011 - $58)
due to the movement in the fair value of the derivative interest rate
swap that fixes the interest rate on the Company's term loan. The
Company earned other interest income of $22 (2011 - $16) primarily due
to interest earned from short-term highly liquid bank investments with
original maturities of three months or less and from notes and leases
receivable.
Income Taxes
Current income taxes of $351 (2011 - $nil) and deferred income taxes of
$43 (2011 - recovery $6,359) were recorded in the Quarter.
The deferred income tax recovery of $6,359 in 2011 consists of:
recovery of $6,756 due to the Conversion; and
deferred tax expense of $397 excluding the impact of the Conversion.
Prior to its Conversion in 2011, the Fund was an unincorporated
open-ended trust and was not subject to income tax to the extent that
its taxable income was distributed to unitholders. As a result of new
tax legislation substantively enacted on June 12, 2007, the Fund would
have paid tax on distributions declared subsequent to January 1, 2011.
As a result of this legislation, the Fund had provided for the future
tax effect of existing temporary differences between the accounting and
tax bases of assets and liabilities that were expected to reverse
subsequent to January 1, 2011 at the specified investment flow through
("SIFT") entity tax rates under Canadian generally accepted accounting
principles ("GAAP"). Under IFRS, the taxation rate to apply to
temporary differences of the Fund that were expected to reverse after
2010 was the highest marginal tax rate of 46.41% rather than the lower
SIFT tax rate used previously of 28.25%. On the IFRS transition date,
this IFRS adjustment resulted in an increase of $7,495 to the deferred
income tax liability and a corresponding decrease to equity. As a
corporation, the deferred income tax liability is measured using the
corporate tax rate of 28.25% and resulted in a reduction in the
deferred income tax liability of $6,756 and a corresponding non-cash
credit to income in the first quarter of 2011.
EBITDA
EBITDA for the Quarter was $1,814 (2011 - $1,672). The increase in
EBITDA was due to an increase in gross profit of $328 offset by an
increase in operating expenses excluding amortization and depreciation
of $185.
Net Income
The Company's net income for the Quarter was $1,032 or $0.10 per share,
compared to $7,752 or $0.78 per share in 2011. Adjusted net income for
the first quarter of 2011 was $996, excluding the deferred income tax
recovery of $6,756 as a result of the Conversion referred to above, and
therefore the net income for the Quarter reflects an increase of $36 or
3.6% over the adjusted net income for 2011.
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%.
�� | Thirteen weeks ended March 31, 2012 | Thirteen weeks ended April 2, 2011 |
�� | �� | �� |
Number of caf��s - beginning of period�� | 359 | 349 |
Caf��s opened�� | 2 | 5 |
Caf��s closed�� | (6) | (2) |
�� �� | �� | �� |
Number of caf��s - end of period | 355 | 352 |
�� | �� | �� |
Number of caf��s renovated | 4 | 4 |
Dividend
On May 3, 2012 the board of directors of Second Cup approved a quarterly
dividend of $0.15 per common share, payable on May 31, 2012 to
shareholders of record at the close of business on May 17, 2012. The
dividend will be considered an eligible dividend for income tax
purposes.
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 has targeted to open 30
new caf��s and to renovate approximately 20 of its caf��s. In addition,
Second Cup expects to 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.sedar.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.
��
��
For further information:
Robert Masson, Chief Financial Officer, (905) 362-1824 or��investor@secondcup.com.
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