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Caribou Coffee Company, Inc. (NASDAQ:CBOU)

Q2 2012 Results Earnings Call

August 6, 2012 4:30 PM ET

Executives

Mike Jensen – Senior Director, Financial Planning and Analysis

Mike Tattersfield – President and CEO

Tim Hennessy – Chief Financial Officer

Analysts

David Tarantino – Robert W. Baird

Will Slabaugh – Stephens

Sharon Zackfia – William Blair

Rick Fearon – Accretive Capital Partners

Matt Bendixen – Craig-Hallum Capital

Josh Long – Piper Jaffray

Howard Penney – Hedgeye Risk Management

Operator

Please standby. We are about to begin. Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Caribou Coffee Company Incorporated Second Quarter 2012 Results Conference Call.

As a reminder, today’s call is being recorded. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Mr. Mike Jensen. Please go ahead, sir.

Mike Jensen

Thank you, and good afternoon, everyone. Caribou Coffee’s second quarter 2012 earnings press release was distributed this afternoon after the market closed. If you do not have a copy one maybe found on our website at cariboucoffee.com in the Investor section.

Joining us today are Mike Tattersfield, President and Chief Executive Officer; and Tim Hennessy, Chief Financial Officer.

Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.

The company undertakes no obligation to update any forward-looking statements in order to reflect the events or circumstances that may arise after the date of this conference call. Actual results may differ materially from those indicated in our forward-looking statements and reported results should not be considered indicative of future performance.

We refer you to Caribou Coffee's recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition. Specifically, these risks and uncertainties are described in our most recent annual report on Form 10-K which is on filed with the SEC.

On today’s call we will also discuss some non-GAAP financial measures as we talk about the company’s performance. These will include financial terms such as EBITDA and pro forma net income. While these are non-GAAP measures, management believe they are useful tools in evaluating the company’s performance.

Reconciliations of these non-GAAP measures to the GAAP measures we consider most comparable can be found in today’s press release, which is also available on our website in the Investor section.

With that, I would now like to turn the call over to Mike Tattersfield, our CEO.

Mike Tattersfield

Thank you, Mike, and good afternoon, everyone joining us on today’s call. Tim and I will walk through some highlights of our second quarter’s performance, as well as update you on our outlook for the reminder of 2012. We’ll then open up the call for any questions you may have.

We are confident in our multi-channel branded coffee company’s strategy and believe that we are still on the early innings of that growth strategy. On our last call we communicated the shift in our topline growth trajectory, due to one component of our growth strategy, specifically our licensing business with Green Mountain Coffee Roasters. In light of those revised estimates, our second quarter results were very much in line with our expectation, and in someway slightly better.

Consolidated net sales of $81.1 million, were up approximately 1% compared to the same quarter last year. This was a result of 3.3% in our retail coffeehouses channel, including 2.8% comparable coffeehouses sales growth, 6% growth in our franchise segment and an 8% decline in our commercial business.

In terms of profitability, we were pleased to have held net income steady compared to the pro forma net income of the prior year period in the face of coffee commodity cost pressure and a lower contribution from the Keurig single-serve platform.

With that, I’d now like to walk you through the key quarterly highlights and then we’ll turn our attention to the financial details, as well as updated guidance for the remainder of the year.

Comparable coffeehouse sales of 2.8% were solemnly in line with our projection and in fact, the second quarter marked the 11th consecutive period of positive comparable coffeehouse sales for Keurig.

Once again, our ability to innovate and prove, and expand our product offering, help sustain our comp sales momentum and the introduction of our new sparkling juices and cheese with especially timely in view of the unusually hot weather.

In particular, these distinct and refreshing products provide a nice comp lift to our historically lower volume afternoon daypart, and provide yet another example of our building block approach to growing comparable coffeehouse sales and improving average unit volumes. And while we appreciate that we have often given more air time to hire food initiative drive comparable coffeehouse sales, it is clear that beverage innovation has and will be vital to increasing AUV’s as well.

Turning to food, our primary 2012 initiative is to reenergize and expand our bakery taste, given the operational complexity of our breakfast and lunch sandwich roll out over the past 24 months, we have not previously have the opportunity to readdress what is our largest food category.

From a forward-looking standpoint, our innovation pipeline will continue to provide benefits to the second half of the year, as we launch some interesting line extensions to our breakfast sandwich platform, with item such as baked and [grilled] sandwiches, as well as all natural sauces egg and cheese biscuit.

We’re also very excited about the upcoming holiday season, as we will have our natural chocolate and spicy chocolate seasonal drinks with the real caramel platform. As always, these innovative products will help further differentiate ourselves from the competition as we have hold the incredibly high standard set by our award winning coffee.

We are extremely pleased to be welcome, I mean, our new SVP of Retail Coffeehouse Operations to the team. Within the last month, we have brought on Leigh Anne Snider to lead this position of the business for us.

Leigh Anne comes to us from Yum! Brands and she is a proven industry leader that shares our passion for providing an exceptional product and service experience to our guest. She extremely excited to join Caribou and I believe this demonstrates our ability to track world-class talent to continue to help us execute against our growth model.

From a system development standpoint, we remained on track to expand our total coffeehouse locations by 10% to 12% on an annual basis, which equates to between 60 and 70 net new locations this year.

Going to the level of deeper since our last call, we have opened three new company-owned coffeehouses, one in the second quarter and two in these early weeks of the third quarter. These new openings consist of locations in Minneapolis, Washington, D.C., suburban Vienna and Cincinnati, Ohio.

We are now providing an updated estimate of 15 new company-owned coffeehouse openings for 2012, this changes due to the state of development in few of our target areas, especially Washington, D.C., where we may not open as many coffeehouses as we originally stated for this year, giving some delays beside being turned over in the construction timeline we are now facing.

It is not unusual, given that we are completely rebuilding our development process and we expect our forward development targets to be more predictable as we are building a larger development pipeline with longer lead times to offset some near-term viability.

Our franchising and licensing segment remains on track to deliver new unit growth in more than 60 new unit locations. Our internation pipeline remains very strong and our franchise partner in the Middle East is on track to exceed expectations for the year.

In the second quarter, we opened our 100th international location and as of this call we now have a [109] international locations up and running, and I extremely excited about the way the brand is resonating internationally.

I’d now like to transition to our commercial segment, as expected as part of our business experience the meaningful change in its trajectory during the second quarter, a way of background over the previous nine quarters from Q1 of 2009 to Q1 of 2012, we experienced an average quarterly growth rate of 60% in our commercial segment.

In this most recent quarter, the commercial segment topline decreased by 8%. On the positive side, we continue to see strong growth in our CPG and foodservice business. For the quarter, our combined traditional CPG and foodservice business was up 28% as we continue to expand both customers and velocity…

However, growth in these segments, we’re not able to offset the impacts of significantly reduced shipments of green coffee to Green Mountain Coffee Roasters. Given the rapidly changing dynamics of the single-serve category, allow me to speak in greater details to what we are seeing.

First, we remain confident that the Caribou brand will remain a significant player in the single-serve to our licensing agreement with the Green Mountain Coffee Roasters. As Green Mountain indicated on their call last week, the fundamentals of the Keurig system remained very strong. Consumer penetrating of the system continues to grow. Keurig Brewers continue to be the best selling brews in the category and consumers continue to be highly engaged with the Keurig platform.

Keurig is now and we believe will continue to be the leading single-serve platform on the market between Mountain Coffee Roasters, expect to see steady growth for the foreseeable future.

On our last call, we laid out revised growth expectations for our commercial business, including our partnership with Green Mountain. At that time, we communicated that using the most up-to-date forecasts and information from Green Mountain, as well as our own business judgment that we would experience a more moderate growth rate in the K-Cup Portion Pack business.

Over the past quarter, we have worked with Green Mountain to improve our own visibility into the Caribou specific portion pack business and to better understand the dynamics of the single-serve category. This new information has caused us to further revise our outlook for the year.

We're now expecting a decrease of approximately 10% for the year in Caribou branded portion pack. This decrease is driven by a combination of single-serve category dynamics, as well as some short-term factors driving Caribou performance specifically.

At the category level, new brands have entered the single-serve space, particularly at the premium end of the spectrum and are taking share from all leading players, including Caribou.

At the same time, Green Mountain is seeing greater than expected channel shifting across their portfolio, as volume has moved from the specialty retail channel into the more traditional brewery outlets.

This shifting has affected all brands in the category and while we have seen Caribou volume increases in the grocery and away-from-home channels, is not been sufficient to offset decline in the specialty retail and club channel.

Additionally, in the early part of this year, the Caribou brand was repositioned within the Green Mountain portfolio to a more premium pricing. While the premium pricing positioning has been well-supported at the consumer level, there have been challenges with implementation, particularly in the club channel. As a result, we have lost portions of our distribution on Caribou K-Cup with Sam's Club and have recently lost our Costco distribution.

The Caribou brand can command a premium price from consumers, but the retail implementation of the Green Mountain pricing strategy is having a meaningful impact on our Club volume, at least in the near-term. This channel representing the large portion of our total business and is the primary driver where our actual forecasted volume declines.

While we are disappointed with the magnitude of the change in the updated 2012 forecast, we understand that this is an incredible dynamic category right now, in terms of consumer buying patterns, as well as new and potential entrance into the category.

Category fundamentals are strong. We have a plan in place to regain our growth trajectory. Over the coming quarters, we will continue to work with Green Mountain to extend our distribution footprint on Caribou branded portion packs, grow our portfolio of premium and coffee offerings, tap into emerging markets and technology enhancement such as the brew and continue to invest in marketing activity to build the Caribou brand on the single-serve platform.

As we line up these factors, we remain committed to the relationship we have with Green Mountain and still believe this will be a long-term growing part of our commercial business.

I will now turn the call over to Tim to walk through a more detail discussion of our second quarter financial, as well as an update to our 2012 guidance, and then we’ll offer my closing message at the conclusion of our prepared remarks. Tim?

Tim Hennessy

Great. Hello, everyone. Thanks for taking the time to joining us on the call today. I’ll provide some brief highlights on the quarter itself and then update our guidance. In the second quarter, consolidated net sales of $81.1 million were up 1.1% and as Mike said, this included comparable coffeehouse sales of 2.8%, franchise sales growth of 6% and a commercial sales decrease of 8%.

In the second quarter gross margin dollars decreased $1 million to $41.3 million and were 15.9% of sales, a decrease of 190 basis points compared to Q2 of the prior year.

Margin pressure was reflective of the year-over-year coffee commodity increase we experienced in the quarter, which was approximately $4 million or 30% year-over-year. This increase coffee commodity costs impacts our commercial channel more than other segments of our business, where the coffee cast is a smaller portion of our overall costs and pricing leverage are easier to wrap into our overall sales mix.

For the quarter, operating expenses of 32.5% of sales were down 90 basis points compared to the prior year. This improvement was primarily due to labor efficiencies in our retail coffeehouse channel.

General and administrative expenses decreased by $500,000 in the quarter or 80 basis points to 9.4% of sales. We experienced slightly greater leverage in G&A, due to some planned opening position, as well as the impact of lower incentive compensation program dollars.

Net income of $2.8 million was flat with pro forma net income in the comparable quarter of 2011.

Turning our attention to full year guidance, given the recent industry trends and information available to us today, we are revising our annual topline sales projection from approximately 6% to 8% growth to approximately flat revenue compared to 2011. Our updated topline guidance consists of a 2% to 4% increase in comparable coffeehouse sales and it’s communicated previously.

Total coffeehouse development of net 60 to 70 units across the system, of which approximately 15 will be company-owned and a commercial sales decline of approximately 12% to 15%, which is reflective of the latest information we are receiving from Green Mountain.

In our last three forecasts, we anticipated lower growth in K-Cup sales with a corresponding decline in green coffee shipments to Green Mountain. As Mike mentioned, we are now expecting K-Cup sales to be down 10% on a year-over-year basis, with much of that decline hitting in the second half of the year, particularly in light of a loss of the Caribou portion pack volume at Costco and the Club channel.

The recent actual sales performance and new forecast information from Green Mountain clarifies for us that while the grocery and away-from-channels continue to experience significant growth, the growth in those channels are not sufficient to offset the channel shift away from specialty stores, combining with the loss of distribution in the Club business.

While, the Club business creates some lapping issues, going forward for a few quarters we do anticipate that the growth in grocery, as well as expanded distribution opportunities being put in place will result in the Caribou portion pack business regain a positive trajectory in mid 2013.

We still maintain current year topline growth estimates for our traditional CPG and foodservice business, realign with our long-term guidance of 15% to 20%. In light of this additional round of forecasting changes related to the Green Mountain business, we wanted to try to provide some further clarity into the relative contribution of this customer relationship to our overall multi-channel business model.

As we discussed in prior calls and disclosed in our latest 10-K, the contribution of the green bean and coffee sales and royalty from Green Mountain contributed about 13% of our overall revenue in 2011.

Based on the latest information, we are including in our guidance, we now expect the combined Green Mountain revenues to make up between 8% to 9% of our consolidated topline in fiscal 2012.

From an earnings standpoint, there remains sensitivity around providing specific information that would compromise the licensing terms we have with Green Mountain, given that we are one of several licensed brands in their portfolio. However, we believe providing a range is both appropriate including given the shift that has taken place since our original guidance.

We believe analytical methods used by some of our research coverage analyst, provide a good approach to estimating the contribution of this relationship, using the segment reporting in our standard SEC filings in our most recent projections. The contribution of this relationship as a percentage of operating income before unallocated G&A would be in the mid-teens on a full-year basis.

While it stops short of providing this specific breakdown, we believe it provides enough additional information to put this relationship into perspective.

Moving onto our bottom line EPS guidance, in relation to the revisions to our top line estimate, we are bringing down our diluted earnings per share estimates and are now providing a range of $0.43 to $0.46 per share. This shift in our EPS range is a smaller proportionate shift relative to our sales guidance given that the revenue changes impacted most significantly by the further lowered revised estimate of green coffee, we will ship to Green Mountain.

Green Mountain will significantly cut back on buying green coffee from us, especially in Q3 as they seek to reduce weeks of supply on hand. The growth in EPS we anticipate on a full-year basis will mainly be achieved in our fourth quarter as we now expect Q3 EPS to be slightly down in this next quarter due to some lacking issues related to our commercial business especially in the single-serve cup business.

As a reminder, Q4 will benefit from slightly cheaper coffee than we experienced in the prior year allowing other pricing initiatives we executed upon early in the year to have greater leverage. Finally, within that second quarter, we took the opportunity to execute against the previously approved $10 million share buyback authorization approved by our Board of Directors in 2010.

In the quarter, we purchased approximately 750,000 shares, which represented just under $7 million. On a weighted average basis, on a fully diluted EPS calculation, despite that did not impact EPS in the quarter but is expected to benefit EPS by approximately $0.01 on a full-year basis in 2012. This revised diluted share estimate is factored into the EPS outlook, I walk through a moment ago.

I’ll close by thanking our Caribou team for all of their continued hard work and dedication to building our company. And we’ll now hand it back to Mike for his closing thoughts.

Mike Tattersfield

Thanks Tim. In closing, I’d like to take this opportunity to reemphasize our confidence in the long-term multi channel growth strategy, we had in place. Clearly, there has been some shifting taking place in one of these channels.

We understand that this creates a lot of interest. However, we also believe that this is important time to remind all of our stakeholders, including employees, investors and consumers that we have a brand that resonates with our guests. We’re committed to building our brand across all of our business channel.

Comparable coffeehouse sales continue to grow. Our footprint continues to expand in both company-owned and franchised channel. And our CPG and foodservice continues to perform well. The strength of our brand is what will drive our multichannel growth opportunities and the brand continues to evolve and resonates strongly with our guests.

With that, I’d like to thank our team for the tremendous dedication they show to our company, each and every day. And I'd now like to ask the operator to open the phone lines for Q&A.

Question-and-answer Session

Operator

(Operator Instructions) We’ll take our first question from David Tarantino with Robert W. Baird. Please go ahead.

David Tarantino – Robert W. Baird

Hi. Good afternoon. First question is related to the commercial revenue guidance and the change there. I think Mike, you referenced in your remarks that the majority of that had to do with losing distribution in the club channel. And first -- I just wanted to confirm that that was the primary cause of the guidance reduction and then I have a follow-up?

Mike Tattersfield

Yeah. David, this is Mike. How are you doing? That’s correct.

David Tarantino – Robert W. Baird

And I guess, the follow-up on that is could you explain, I guess, a little bit more in detail why Costco and Sams are choosing not to carry the Caribou brand and that’s situated to the pricing structure, which it sounds like it might be. How were the decisions around pricing made and who is driving those decisions? Is it Caribou or Green Mountain?

Mike Tattersfield

Yeah. So in terms of our agreement, pricing is handled by Green Mountain and they make the decisions from that going forward. What's going on with Sams and Cosco in general as you’re getting into other entrants and other positioning pieces.

Right now there is some -- through the consumers, as we've done this in many other – from our categories and channels, they’re seeing that there -- there is pricing power at Caribou but that has been a bit of a challenge as Green Mountain not just with our brand but some of the other brands in terms of sizing and packaging and other things that they're doing and causing a bit of a challenge for them, which we think is still short term and will be managed appropriately over time.

David Tarantino – Robert W. Baird

And I guess, is there any thoughts on changing the pricing structure on Caribou in order to regain some of the distribution bigger you think. What do you think…

Mike Tattersfield

Yeah. David, there is an -- there are a couple of alternatives that we’ve put in place. And keep it in mind that in part, pricing that has taken place was really a result of two components. One is just the overall category of price increases of coffee in general as well as the tier system that Green Mountain is using.

So there are opportunities there. And I would also say that given that a lot of this distribution relates to stores, where we have our own baked coffee, which does very well in the cup channel. We feel good that over time, the K-cup on our portion packs for Caribou will begin to start appearing back in those stores lost.

David Tarantino – Robert W. Baird

Okay. And I guess, maybe a bigger picture question on the relationship of Green Mountain. It seems like some of the issues that are happening currently are at least on the surface on some miss step from a pricing perspective and how they’re managing your brand. And I'm just wondering to get topped at a high level on why you're still committed to that relationship versus perhaps ending that relationship and going on in this line of business?

Mike Tattersfield

Yeah. I still think the opportunity in the channel that Green Mountain provides the Caribou brand. And again I do think some of these challenges we’re facing are short-term. But even as we looked at other alternatives, they by far are the clearest from a potential in the single-serve space that we look at today.

It’s really also about -- what are the opportunities that we’re not fully capturing today, which both teams are committed to put plans in place, whether that's accelerating [ACB], getting more penetration and certain customers, continually look at the Club business and identify what is the right opportunity in package and placing size in that channel as well. And then look at other product lines that we might not even have today that do very well in our coffeehouse business and how that can translate to a growth model as well.

So both teams are working well. There is some shifting that's happening and part of the shifting that's happening is very clear. The shift to specialty to grosser went incredibly fast and so you have different pacing that you have in a specialty door than you do in a grosser door, and so it's also important to figure out how we're going go continue to grow our brand in the grosser business. Because that displacement, even though there's a great growth in grosser and even that at home business is starting to grow as well.

We continue to see that there's still opportunity to even have other product lines that could go in the specialty and continue to do other technologies that could go into specialty with our brand.

So we're still very confident and we have constant dialog with them on a continuous basis and still think it's the best play as we see today and I think Green Mountain alluded to the potential of our having 35 million households using the single-serve space. And yeah, they don't think they're going to capture all of that but clearly the preferred brewer system is going to make the biggest movement in that.

And then when you look at all the channels that they're looking at and some new channels that we're not in, we still think this is something that we'll continue to be -- a growing significant part of our business, we'll just have a short-term, channel and that we're just trying to making particular one customer.

David Tarantino – Robert W. Baird

Yeah. Thank you.

Operator

We'll take the next question from Will Slabaugh with Stephens. Please go ahead.

Will Slabaugh – Stephens

Yeah. Thanks guys. Wanted to ask you about the guidance, I know, and just really your level of confidence in that new range, how we should think about the visibility into that K-Cup business, can you help us get there?

And also wondered if you could speak to the expense lines as well and where you're focusing on reductions? I know last quarter you talked about lower incentive comp. Wonder if you can speak also to particularly lower cost of goods sold. Maybe given the fact that you're going to have fewer green, green coffee sales to Green Mountain as well or anywhere else on the P&L that maybe appropriate?

Tim Hennessy

Sure, Will. I think in, in terms of the guidance we're -- we've incorporated this latest revised forecast from Green Mountain that's flown through in that, that really is the impact that's driving the lower range related to that, and we are and you'll see even in our quarterly results we're managing all expense lines, incentive comp included but other operating expenses to help reduce the impact of those lost K-Cup sales. So we feel good about the new range relative to where Green Mountain is guiding us.

On the cost of sales, yeah, absolutely there will be a reduction in cost of goods, in fact you can even see some of that hitting in our second quarter where we had a $4 million commodity cost impact but not that same level of increase on the cost of goods and a lot of that is related to lower Green Coffee shipments that occurred in the quarter and will continue to occur along the course over the next few quarters.

Will Slabaugh – Stephens

Okay. Makes sense. And then also speaking of 2013, if you start looking out a little bit, I wonder if you're going to give us any sort of idea as to where you are coffee purchasing, any more detail on, just a broad guide of how we should think about the magnitude of what that benefit could look like into next year?

Tim Hennessy

Yeah. So we're locked two Q3 of next year which is pretty much in line with our standard practice of buying forward. As far as quantifying a benefit, it really is a little early since we have not locked in the full year to give any dollar figures around what next year's still, even looks like other than to say that each quarter's sequentially will continue to build a tailwind because as we've been building out our 2013 purchases they've been at lower levels as you roll through the quarters, they've been at lower levels than what we've locked in for 2012.

Will Slabaugh – Stephens

Okay. Makes sense. And then just lastly from me, on the unit guidance, it looks like more or less you're shifting some of your planned company into franchise is what it appears so. I know you don't have the standard footprint for coffeehouses or franchise these domestically. So wondering if you're using more non-traditional units here domestically, or is that going to be more international units for this year?

And then just more broadly thinking about, is that march up toward your longer term guidance of that 8% to 10% unit growth for company stores and sort of where you see yourself now?

Mike Tattersfield

Yeah. Will, this is Mike again. I’m -- so again what drove the volume right now is international. So when you see that growth that we have right now, we anticipate that we'll do 10% to 12% unit growth this year, we see also very similar type of growth 2013, particularly still being driven by our international franchise piece.

On the company side, we'll do approximately 15%, reason that we've used that approximately 20% is we starting to get into somewhere Q4 issues whether actual store open up on time, is it going to slide into Q1, we made just the right decisions, say that's somewhere I cannot tell you a number right now, but we don't think we can actually open up on time and there's the certain timeframe which always called pre-Thanksgiving, that if you don't open up the store, it's not worth the time for us to do it. So we'll wait to open it up in Q1.

And in terms of getting that 8% to 10%, what you'll see is and that’s on the company-owned side. And the company owned side, we're in our second year development, it'll probably be beyond 2013, before we started getting closer to that 8%. So we will still probably have 2013 looking like a 20-unit and the plus type build and then moving into that 8% on a yearly basis.

And that's about building the pipeline, which is what, it's continuous year one we took a pipeline development approach in Chicago, year two it's for key markets, you'll continue to see us build in the markets that we're in.

And then eventually start to get enough development that will start to be getting to that 8% to 10%, but it is really important that we continue to work in growing our U.S. licensing business and our international business as well. So we really like to keep development at a 10% to 12% overall.

Will Slabaugh – Stephens

Great. Thank you.

Operator

(Operator Instructions) And we'll go next to Sharon Zackfia with William Blair.

Sharon Zackfia – William Blair

Hi. Good afternoon.

Mike Tattersfield

How you're doing, Zackfia?

Tim Hennessy

Hi, Sharon.

Sharon Zackfia – William Blair

Good. A couple of more questions on the Green Mountain information that you have now. The, obviously the guidance for this second half of the year implies commercial revenues down, I think 30% plus. So and I think you may have said that that would be weighted more toward the third quarter, just because it is no material, could you give us any kind of cadence between the third and fourth quarter on those declines?

Tim Hennessy

Sure. Sharon, I would say that as we talked on Q3, it will be the greater impact, because that's where we're feeling the biggest shift in lower green coffee sales as Green Mountain has managing down their weeks of supply, so it's clearly more heavily weighted in Q3 than in Q4.

And I would, put the range or the delta on a quarter-over-quarter basis in that 40% recognizing that, a big part of that is the Green Coffee that normally would have shipped, that won't be going through in Q3.

Sharon Zackfia – William Blair

Okay. And then there are so many moving parts right now with you still have the commodity penalty this quarter and then with the lower green coffee, sales as actually a margin benefit as alluded to earlier. Is there any way and I know this is in the Q, but is there any way to get that commercial gross margin now or do you have that at this point?

Mike Tattersfield

Are you referring to our commercial gross margin for the year?

Sharon Zackfia – William Blair

No, no. For the second quarter that you just reported. I know it comes out in the Q. But I was hoping that we can maybe get it now.

Tim Hennessy

Sure. We'll report the commercial gross margin for Q2 of 25.8%.

Sharon Zackfia – William Blair

Okay. Perfect. And then, I don't follow Green Mountain, one of my colleagues does, and obviously the stock reacted well last week, so I guess their new forecasting methodologies, at least that was part of it. Is that part of what you're privy to announce as well, kind of an enhanced forecasting methodology from them that's giving you more comfort and more of your projections?

Mike Tattersfield

Yeah. Everything that Green Mountain talked on -- about on their call last week applies down to then the management been forecasting about brand going forward, so as they talked about being able to incorporate a lot more variable inputs into their modeling, those are playing out in forecast they're providing us.

Sharon Zackfia – William Blair

Okay. And then last question, on the coffee cost, I think math is pretty material what the benefit could be for you next year and some of the other coffee players are talking about reinvesting at least part of that, I mean, can you give us an idea as to what you might use that tailwind for on the Caribou business?

Tim Hennessy

Well, I think there's a lot of initiatives that we talked about in terms of, Mike talked earlier about continuing to build out our development. We also continue to build out our product innovation. We'll -- it have been continuing to support our franchise and licensing growth.

I wouldn't say that we’ve sorted out yet, which of those initiatives will get, say, the lion share of where we reinvested and that will be part of what we will do as we're sorting to our annual operating plan for 2013 over the next couple of months.

Sharon Zackfia – William Blair

Okay. Thank you.

Tim Hennessy

Yeah.

Operator

We'll go next to Rick Fearon with Accretive Capital Partners. Please go ahead.

Rick Fearon – Accretive Capital Partners

Hi, Mike and Tim.

Mike Tattersfield

Hi, Rick.

Rick Fearon – Accretive Capital Partners

You've mentioned that we purchased 750,000 shares this past quarter under the 2010 repurchase plan and I was just curious how much availability remains under that plan at this point, and whether you've given thought to increasing it, given the company has $37 million of cash and no debt?

Tim Hennessy

Yeah. So we have about $1 million left, so there's not a lot left under that original authorization and our Board reviews our authorizations regularly and when they do, approve something we'll make an announcement around that.

Rick Fearon – Accretive Capital Partners

Okay. And you'd also discussed, how, perhaps some of the growth that was anticipated in company-owned stores was really, the accelerated growth was really the 2014 event, what -- do you have some EBITDA targets for the company, I know at one point, you all had discussed a 15% EBITDA range, is a realistic target and if so, do you have a sort of a timeframe around that?

Mike Tattersfield

Yeah. We still look at that as a realistic target and I think, that's something that we've talked about as being a three to five-year goal, as all of our channels continue to build on the growth trajectories that we've laid out. New store growth, licensing and developing, and ongoing growth in our commercial channel which really then drives the interior infrastructure cost towards that 15%.

Rick Fearon – Accretive Capital Partners

Great. And then the last question, you've done a nice job of getting out to investor conferences and various events to tell the story. And I think that that certainly helped the message resonate amongst some institutional investors. And I was wondering if you have kind of similar plans for the next -- the next year, if so if you need to, you're ready to talk about now. And then lastly, the PR effort, announcing new product introductions and -- such has been perfect as well, and just encourage you to continue that as well.

Tim Hennessy

Yeah. So most people you’re aware of the schedule that we did on investor conferences and we're pretty much committed to keeping that similar cadence going for next year. So we're glad that, you appreciate that as well as ongoing investor relations and public relations, our communications that we do and we'll continue to do over the course of the next year as things worthy develop.

Rick Fearon – Accretive Capital Partners

Okay. Thank you.

Operator

(Operator Instructions) We'll take our next question from Matt Bendixen with Craig-Hallum Capital.

Matt Bendixen – Craig-Hallum Capital

Hi, guys. How you're doing?

Mike Tattersfield

Hey, Matt how are you doing?

Matt Bendixen – Craig-Hallum Capital

Just I know, it's early but can you maybe talk a little bit on how some of the newer stores are performing, are they in line with your AV goals?

Mike Tattersfield

Yeah. We've said -- I think about the stores that we've just alluded to that we'd open up three recently this year. And we opened up eight last year. We're still in the early days, but clearly the majority of them are at -- the market goals or the top third of the market goals on their system. And there's two stores that today are probably not going to achieve their objectives, from -- but we're pretty comfortable given the size of where we are. And that's a pretty good start for us. And we'll look at we're really looking forward to seeing actually the development as we start to move into DC and even in the broader Minnesota region as well as the Denver market as well.

Matt Bendixen – Craig-Hallum Capital

Great. And then, are you guys having some success in terms of finding real estate for the right price and the right places, if you give some color around how that play find within there?

Mike Tattersfield

Yeah. I mean, it's really strong learnings that have happened in the development, particularly in 2011. In terms of sub-segmenting each one of the cities into -- from an urban to a suburban to a central business district, each market has their own challenges in each one of those.

And particular neighborhoods or districts that we are looking at, I'd say probably DC is probably the most challenging market in terms of price and availability. But there is also, as markets like Chicago do not have that excess capacity. And you have to question yourself sometimes about the excess capacity of very good real estate because that market is under pressure just in general.

And then Denver, other markets like that that are actually not redeveloping, so you're really taking on some markets of -- you're doing the redevelopment versus a market potentially like Minneapolis or some others are still doing development per se. But it is compressed and it's not -- I've always said a real estate doesn't have a shingle on it.

It's pretty difficult to finding. It's very well competed against and you have to make sure that you have the right economics. And that's why we have to look at every single one of our markets by what is the market average and what's the top third in that market and how do we make sure that we can be most successful in each of those markets.

I think that we're being prudent and starting to talk about just doing 20 to 25 in 2013. And this shows you how we see the real estate cycle. And this is not about just getting 8% to 10% growth because we also look at the size availability. It's got to be something that we are very comfortable with.

Operator

Our next question comes from Nicole Miller Regan with Piper Jaffray.

Josh Long – Piper Jaffray

Hey guys, this is Josh on for Nicole. I wanted to see if you're comfortable if you could disaggregate the comp for the quarter and maybe talk about some of the dynamics around price mix or traffic. I know you had a lot of new products and great margin around say the sparkling teas and juices. Any sort of color you could provide on how things should have been through the quarter and then to the extent that you're be willing to give an update on trends here quarter-to-date?

Mike Tattersfield

Yeah. So, again, we normally don't break it down in terms of a pricing traffic. And so clearly, one of the things I can give you some insight as we launched the really interesting platform, the sparkling juices and teas. When I look at it from a units per hundred as we are approximately getting close to six.

So particularly as you go into the afternoon daypart, it's pretty important for us to start to gravitate towards that if you wanted to break that down into what does that mean on your comp? It's pretty close to almost the point. Say as we did 2.8, it tells you we are getting into a new daypart. We have absolutely a beverage platform that resonates extremely well. We think there is a lot opportunity to grow that platform. And we are in a pretty unique spot to be able to do that.

We are looking forward to other product lines as we’ve said before. Bakery is really important as we really started to get to sandwich platforms. And now we got to revitalize what was core already in our system. And it's been fairly consistent how we approach this. Same approach we did with coffee and we improved the chocolate program and upgraded it. And now we are looking at our bakery program and say how do we start upgrading that as well and then start thinking through the line extensions that can come naturally from that.

In terms of a forward guidance, we are still looking at doing 2% to 4% for the remaining part of the year. So we are comfortable with that. It's a forward projection we gave in the front of the year and that's really our target. Yeah, I understand consumers are under duress or under stress, but we think we are very comfortable within our range.

Josh Long – Piper Jaffray

Great. Thank you.

Operator

Our next question comes from Howard Penney with Hedgeye Risk Management.

Howard Penney – Hedgeye Risk Management

Thanks very much. Can you, I mean, just help me understand the dynamics of Green Mountain relationships? I understand the channel mix and shifts and that saw decline as sales trend, but what you're also saying is the decline in inventory that Green Mountain has with coffee or K-Cups. And to that degree if that's -- if my assessment is correct, do you know what your inventory is at Green Mountain and how many days or to the extent if there is an inventory issue at Green Mountain or Caribou?

Tim Hennessy

Right. So yeah, your analysis or your summary is correct. I wouldn't say that there is an issue with inventory at Green Mountain. It's just that they as an organization are managing their recent supply down. And so just to make sure that you understand we source and blend the Green Coffee for our different blends and to that -- to Green Mountain they hold then our Green Coffee inventory blended for Caribou.

So they have Green inventory that they are using and managing down for ongoing production use. Because of that, it's reducing the amount of green coffee they would in turn order from us and it really is a temporary issue. So that there is a unit sell-through continues and gets back on the growth trajectory so well than the Green Coffee shipment. But they will continue to try to manage a more lower number of inventory that they keep on hand.

Howard Penney – Hedgeye Risk Management

And you know how much inventory they have or how much green coffee they have?

Tim Hennessy

Yeah. We do work with them as part of our supply chain to know what they are carrying on hand and what they will need over the course of the year under these advice or estimate.

Howard Penney – Hedgeye Risk Management

And just lastly -- and thank you for that, thanks very much. And just lastly it seems like and maybe a coincidence but the deceleration in the trends at Green Mountain and that just say a broadly, maybe not necessarily for Caribou but coincided with the Starbucks introduction with K-Cups. Is there a coincidence in there or is that just -- is that a coincidence or do you see any terms where Starbucks is actually starting to take the share of the Starbucks that's taken and the K-Cup impacting the overall market? Thank you.

Tim Hennessy

Yeah. Clearly, when you have a brand like Starbucks enter the single-serve category that is going to have an impact. And yeah, Green Mountain is taking share from our brands. But I think the point that Green Mountain talked about on their last call and Mike talked about as well is that the category continues to grow. So while Starbucks is taking share, we all believe that the category will continue to grow. And we will all have our kind of respective share of that market growth.

Howard Penney – Hedgeye Risk Management

Thank you.

Operator

And we will take a follow-up question from David Tarantino.

David Tarantino – Robert W. Baird

Hi. Just a quick follow-up to question that was asked earlier about 2013, and I know it's early. But I just wanted to ask how you are planning to approach 2013 from an earnings perspective. And if you were planning to reinvest all of the benefits that you are getting from coffee cost deflation or a part of it or how are you thinking about 2013 relative to your long-term EPS growth goals?

Tim Hennessy

Obviously, David, it's a balance in terms of what we'd reinvest. We still feel good about our long-term growth goals both top line and bottom line. And as we continue to build out the rest of the pieces for 2013 that will really kind of help us decide on how much of that tailwind gets reinvested back in the business versus how much of that will lead flow through. Obviously, there are other things come into play for next year aside from just a green coffee. So hopefully that helps give you a picture for how we are looking at that.

David Tarantino – Robert W. Baird

Yeah. It does. Thank you.

Operator

And that does conclude our question-and-answer session. I will turn the call back over to management for any additional or closing remarks.

Mike Tattersfield

Great. Thank you everybody for being on the phone. And I look forward to talking to you in November. Appreciate it.

Tim Hennessy

Thank you.

Operator

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation.

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