Over the past three years CBOU has been the second best performing restaurant stock behind GMCR, up 270%.  The stock powered ahead 30% in 2010, but has languished 6.5% do far this year.  The underperformance can be attributed to the significant increase in coffee costs and the challenges it presents.  Absent a significant increase in same-store sales the company will be hard-pressed to report any meaningful upside to EPS given the 27% surge in coffee prices year-to-date.


CURRENT GUIDENCE: During the 4Q call management maintained guidance for 2011, despite the fact that commodity prices have gone up.  Those aspects are: consolidated sales growth of approximately 7% to 9%, driven by 3% to 5% comparable coffeehouse sales, approximately 10 new store openings coming in the latter half of the year, commercial sales growth in the mid-teens to 20%, capital expenditures of $13 million to $15 million, skewed more towards the back half of the year. EPS guidance is (untaxed and fully diluted) $0.58 to $0.62, or approximately 26% to 35% growth over 2010.  On a fully taxed basis, our EPS guidance translates to $0.35 to $0.37.



SALES TRENDS QUESTION: The Q4 comp of 3.5%, could you give some detail on how much of that was related to check versus traffic, and perhaps could you comment on whether you think the snowstorms in the Minneapolis area in December might have hurt that figure and by how much?


ANSWER:  Yeah, so for the year, clearly traffic and ticket have been driving our comp store sales. We've talked in the past that the launch of oatmeal has added 1%. We were expecting our sandwich platform to add 2% on an annualized basis. Specific to the fourth quarter, we launched it across half of the systems, so that certainly helped us. And a lot of the other activity that we've done around ticket has helped us drive – and yet the snowstorm had some impacts. 


And so as we look forward, we continue to expect our food platform roll-out will – in the first quarter, we launched another tranche of stores on our morning breakfast sandwiches. We're working on lunch. We have other initiatives being teed up, all of which we see as both ticket and traffic-driving initiatives.



COFFEE COSTS: coffee commodity costs are expected to increase approximately 25% on a full year basis with a higher proportion of the increase being realized from deliveries in the back half of the year.  (Coffee prices increased another 10.4% in 1Q11). 


PRICING: We anticipate covering this commodity cost to increase through a variety of pricing actions across our lines of business and markets in line with our industry peers, as well as other cost reduction efforts.



QUESTION: Could you give us a sense for how much pricing you need to take across the business to cover the type of inflation that you might see, and maybe talk a little bit about how you plan to approach that in the various segments?


ANSWER:  Well, the way we look at it is for every 10%, sorry, increases in the C market, we can offset that by roughly a 1% change in overall pricing across the system. So as we look at our different lines of business, obviously specific to commodity costs on the commercial side of the businesses, coffee is a bigger percentage of the overall COGS mix. So we're looking at pricing increases in line with some of the peers that have announced.  And on the retail, the coffeehouse side, coffee is not as big a part of the mix in the overall COGS.  So we did take some price in the end of last year. On the retail side, we're phasing in some pricing across some of the other lines of business within commercial, and we're taking a phased approach, effectively really following what the industry is doing.



Howard Penney

Managing Director

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