Retail IPO: Otis Spunkmeyer Holdings Files S-1 (OTIS)

Abbi Adest submits: Otis Spunkmeyer Holdings filed an S-1 last Tuesday. The 19 year old California-based company focuses on branded frozen sweet baked goods. The proposed ticker is (NYSE: OTIS) Key details from the SEC filing.

Previous Seeking Alpha posting: Master Cookie Baker Otis Spunkmeyer Files for IPO.

Company Description:

We are a leading North American manufacturer, marketer and distributor of branded frozen sweet baked goods, including cookie dough, muffins, danish, brownies and other hand-held sweet baked goods. Founded in 1977, we sell our high-quality products primarily under the Otis Spunkmeyer brand to approximately 62,000 customers in the foodservice and retail channels. According to the Best Report, we have held the #1 market share in terms of pounds of frozen cookie dough (all forms) sold in the foodservice channel since 1996. In addition, we have a leading market share in branded muffins in the foodservice and retail channels.

Our principal focus is the sale of frozen cookie dough products to the foodservice channel, which represented 63% of our net sales in fiscal 2005. Our frozen cookie dough products are available in a variety of flavors, sizes and indulgence levels ranging from value to super premium. In total, we produce approximately 10 million cookies per day. In addition, our muffin sales represented 26% of our net sales in fiscal 2005, of which 55% are made in the foodservice channel with the remainder in the retail channel. We manufacture, market and distribute a full line of regular and low-fat thaw-and-serve muffins in assorted flavors and sizes. In total, we produce more than 1 million muffins per day. We also offer a broad range of other thaw-and-serve products, including cookies, danish and brownies which represented 6% of our net sales in fiscal 2005.

Otis Spunkmeyer is a highly recognized brand. The power of this brand, combined with our reputation for high quality products and customer commitment, has served as the foundation of our marketing strategy. Based on our market research, our brand enjoys strong recognition within the foodservice channel and elicits positive image characteristics for end-consumers. To enhance awareness of the Otis Spunkmeyer brand, we offer all of our foodservice customers the ability to participate in our branded fresh baked cookie program. In this program, we provide Otis Spunkmeyer convection ovens, display cases and point-of-sale materials. We believe that our brand name together with the aroma of fresh baked cookies increases our customers' traffic and average transaction size. The Otis Spunkmeyer brand is also well recognized in the retail channel. According to 2005 IRI data, Otis Spunkmeyer has the highest loyalty ratings in the branded thaw-and-serve retail muffin category.

Key Finanacial Details:

Net Sales: From 2000 to 2005, the company's net sales grew from $211.9 million to $336.3 million, representing a compounded annual growth rate ("CAGR") of 9.7%. Net sales for the first quarter of fiscal 2006 increased 25.4% from the comparable period in 2005, driven in part by an acquisition in September of 2005.

Gross Profit and EBITDA: Gross profit for the year ending 2005 was $88 million. Gross profit for the first quarter of fiscal 2006 increased $6.5 million, or 32.3% to $26.5 million, from $20.0 million in the comparable period last fiscal year. Our gross margin improved by 1.4 percentage points to 27.3% in the 2006 period compared to 25.9% in the same period last fiscal year.

EBITDA for 2005 was $45 million; Q1 2005 was $10 million while Q1 2006 was $13 million.

Notable Issues to Watch For:

Concerns about obesity epidemic: Consumers, public health officials and government officials are becoming increasingly aware of and concerned about the public health consequences associated with obesity. These concerns may negatively influence consumer perception and acceptance of our products and marketing programs and may cause consumers to reduce their consumption of certain of our products which could reduce our net sales. Childhood obesity has become a focus of interest groups, policy makers and parents. Our sales to the kindergarten through twelfth grade foodservice segment were $50 million in fiscal 2005 and represent 14.9% of our net sales. Although concerns about childhood obesity address portion control and physical activity, foods with high fat and sugar content, including some cookie products, are likely to be a focus of attention. To the extent that there is increased legislation or other activity aimed at decreasing the availability of such food products in schools, our sales may be adversely impacted.

Underwriters: Merrill Lynch & Co., JPMorgan

Select Competitors: Rich Products, General Mills (NYSE: GIS), Sara Lee Corporation (NYSE: SLE), Hostess and Entenmann’s