Second Cup's first quarter same-store sales disappoint

May 13, 2011 11:49 AM ETSCUPF

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Second Cup (TSE:SCU) shares were down on Friday after the coffee chain reported lower adjusted first quarter earnings and a 2.2% decline in same-store sales, citing accounting changes, severe weather and increased competition.

In the first three months of 2011, the Mississauga-based company, which converted to a public corporation in January, reported net income of $7.8 million, or 78 cents per share, compared to $2 million, or 21 cents per share, in the year ago period.

However, excluding a deferred income tax recovery of $6.8 million, adjusted net earnings were $996,000, or 10 cents per share, compared to $2 million, or 21 cents per share, a year before.

The company said first quarter earnings were not "directly comparable" to the corresponding period in 2010 due to its recent conversion from an income trust to a public corporation, subjecting it to corporate income taxes in 2011.

In addition, the decline in the most recent quarter's earnings was due to lower gross profit and higher operating expenses.

Total revenue, from royalties, sales of goods and services, declined 8.5% for the quarter to $5.4 million. Comparable cafe sales were down 2.2%, compared to a 1.1% increase a year earlier.

"Same café sales were largely impacted by the long harsh winter which adversely affected street front locations, as well as, increased competitive activity,” said Stacey Mowbray, President and CEO of Second Cup.

In response, the chain introduced various promotional advertisements and increased prices to offset higher commodity prices and competition.

The company opened five new cafes in the first quarter for a total of 352 cafes, an increase of 10 from the same period in 2010. It expects to open an additional 25 to 30 cafes this year, while closing between five and 10 due to poor sales.

Shares were down on the day by 1%, trading at $7.65 as of 11 a.m. EST on the Toronto Stock Exchange.

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