Caribou Coffee Reports Second Quarter 2008 Results

Minneapolis, Aug. 5 - Caribou Coffee Company, Inc., the second largest U.S.-based company-owned gourmet coffeehouse operator based on the number of coffeehouses, today reported financial results for second quarter 2008 (thirteen weeks ended June 29, 2008).

• “Other Sales” increased 68% compared to the second quarter of 2007
• Comparable Coffeehouse Net Sales decreased 1.7%
• Opened 12 franchise units

Speaking on behalf of the Company, Rosalyn (Roz) Mallet commented, "The actions that we have taken over the past year are beginning to show positive results and we are making progress to improve the overall health of the company.” Added Ms. Mallet, “Our commercial and franchise business are both delivering healthy growth, indicative of the strength of the Caribou Coffee brand.”

SECOND QUARTER 2008 RESULTS

Total net sales increased $0.4 million, or 0.5%, to $63.2 million for the quarter ended June 29, 2008, from $62.8 million for the quarter ended July 1, 2007. This increase was attributable to a 68% increase in Other Sales.

Coffeehouse sales were $57.3 million in fiscal second quarter 2008, a decrease of 3.5% from the same period in the prior year. The decrease primarily reflects a 1.7% decline in comparable coffeehouse sales and 318 fewer operating coffeehouse weeks in the second thirteen weeks of fiscal 2008 as compared to the same period in fiscal 2007. Other net sales were $5.9 million in fiscal second quarter 2008, an increase of 68% over fiscal second quarter 2007. The increase was due to higher sales from new and existing commercial customers, royalties and product sales from 36 franchise coffeehouses opened during last 12 months.

General and administrative expenses decreased $0.6 million, or 7.5%, to $6.6 million during the thirteen weeks ended June 29, 2008, from $7.2 million during the thirteen weeks ended July 1, 2007. The decrease in general and administrative expenses was largely due to lower labor costs.

Store closing expense and disposal of assets increased $1.2 million to $1.3 million during second quarter 2008, from $0.1 million during second quarter 2007. The increase in closing expense and disposal of assets is primarily attributable to asset write-off and lease termination costs associated with the closing of 6 underperforming company-owned coffeehouses during the thirteen weeks ended June 29, 2008.

Reported EBITDA was $2.9 million during the thirteen weeks ended June 29, 2008, compared to EBITDA of $2.4 million during the thirteen weeks ended July 1, 2007. The year over year EBITDA increase was impacted by a $1.2 million increase in closing expense and disposal of assets. (EBITDA is a non-GAAP measure. See EBITDA reconciliation at the end of this release).

Depreciation and amortization decreased $1.4 million, or 22.4%, to $4.6 million during the thirteen weeks ended June 29, 2008, from $6.0 million during the same period in the prior year. This decrease was due to fewer coffeehouse operating weeks in the second quarter of 2008 and the impairment of 38 company-operated coffeehouses during the last three quarters of fiscal 2007.

Coffeehouse depreciation and amortization includes $0.2 million in accelerated depreciation associated with coffeehouse asset impairments during the second quarter of fiscal 2008 as compared to $0.5 million during the same period in the prior year.

The Company’s net loss for the second quarter of 2008, was $2.5 million or ($0.13) per share compared to a net loss of $3.9 million or ($0.20) per share for the same period in 2007.

ABOUT THE COMPANY

Caribou Coffee Company, Inc., founded in 1992 and headquartered in Minneapolis, Minnesota, is the second largest company-owned gourmet coffeehouse operator in the United States based on the number of coffeehouses. As of June 29, 2008, Caribou Coffee had 490 coffeehouses, which includes 75 franchised locations. Caribou Coffee offers its customers high-quality gourmet coffee and espresso-based beverages, as well as specialty teas, baked goods, whole bean coffee, branded merchandise and related products. In addition, Caribou Coffee sells products to club stores, grocery stores, mass merchandisers, office coffee providers, airlines, hotels, sports and entertainment venues, college campuses and other commercial customers. In addition, Caribou Coffee licenses third parties to use the Caribou Coffee brand on quality food and merchandise items. Caribou Coffee focuses on creating a unique experience for customers through a combination of high-quality products, a comfortable and welcoming coffeehouse environment and a unique style of customer service.

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES (A Majority Owned Subsidiary of Caribou Holding Company Limited) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		June 29, 2008				July 1, 2007				June 29, 2008				July 1, 2007
		(Unaudited)
Coffeehouse sales		$	57,267,099			$	59,331,262			$	113,887,162			$	117,407,226
Other sales			5,916,290				3,516,123				11,052,948				7,292,789
Total net sales			63,183,389				62,847,385				124,940,110				124,700,015
Cost of sales and related occupancy costs			27,004,012				26,519,499				53,216,720				52,033,765
Operating expenses			25,815,112				27,021,720				51,209,974				53,009,181
Opening expenses			50,425				66,018				135,452				175,809
Depreciation and amortization			4,645,264				5,985,216				10,566,323				12,002,800
General and administrative expenses			6,617,706				7,153,341				14,067,245				13,757,563
Closing expense and disposal of assets			1,332,414				133,886				3,878,743				860,864
Operating loss			(2,281,544	)			(4,032,295	)			(8,134,347	)			(7,139,967	)
Other income (expense):
Interest income			2,752				45,899				20,291				79,136
Interest expense			(121,863	)			(165,579	)			(633,459	)			(295,298	)
Loss before provision (benefit) for income taxes and minority interest			(2,400,655	)			(4,151,975	)			(8,747,515	)			(7,356,129	)
Provision (benefit) for income taxes			43,861				(315,932	)			49,846				(296,097	)
Loss before minority interest			(2,444,516	)			(3,836,043	)			(8,797,361	)			(7,060,032	)
Minority interest			(12,956	)			54,473				40,182				81,534
Net loss		$	(2,431,560	)		$	(3,890,516	)		$	(8,837,543	)		$	(7,141,566	)
Basic and diluted net loss per share		$	(0.13	)		$	(0.20	)		$	(0.46	)		$	(0.37	)
Basic and diluted weighted average number of shares outstanding			19,370,590				19,320,055				19,370,590				19,304,035

CARIBOU COFFEE COMPANY, INC. AND AFFILIATES (A Majority Owned Subsidiary of Caribou Holding Company Limited) CONDENSED CONSOLIDATED BALANCE SHEETS
		June 29, 2008				December 30, 2007
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	6,749,930			$	9,886,427
Accounts receivable (net of allowance for doubtful accounts of $50,669 and $7,989 at June 29, 2008 and December 30, 2007, respectively)			3,090,036				3,116,864
Other receivables (net of allowance for doubtful accounts of $60,828 and $9,399 at June 29, 2008 and December 30, 2007, respectively)			1,280,274				1,544,281
Income tax receivable			92,645				149,304
Inventories			10,260,257				10,228,527
Prepaid expenses and other current assets			841,412				1,690,668
Total current assets			22,314,554				26,616,071
Property and equipment, net of accumulated depreciation and amortization			74,403,518				83,798,120
Notes receivable			24,237				32,296
Restricted cash			12,229				410,831
Other assets			532,300				982,334
Total assets		$	97,286,838			$	111,839,652
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	7,764,996			$	9,650,326
Accrued compensation			7,464,583				7,863,445
Accrued expenses			7,032,004				9,318,442
Deferred revenue			6,530,320				9,987,724
Total current liabilities			28,791,903				36,819,937
Revolving credit facility			3,000,000				—
Asset retirement liability			1,009,709				989,490
Deferred rent liability			10,307,717				11,271,186
Deferred revenue			2,742,000				2,853,500
Income tax liability			477,710				473,064
Minority interests in affiliates			73,575				144,176
Total long term liabilities			17,610,711				15,731,416
Shareholders’ equity:
Preferred stock, par value $.01, 20,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, par value $.01, 200,000,000 shares authorized; 19,370,590 shares issued and outstanding at June 29, 2008 and December 30, 2007			193,706				193,706
Additional paid-in capital			124,665,330				124,231,862
Accumulated deficit			(73,974,812	)			(65,137,269	)
Total shareholders’ equity			50,884,224				59,288,299
Total liabilities and shareholders’ equity		$	97,286,838			$	111,839,652

Coffeehouse Openings and Closings
		13 Weeks Ended				26 Weeks Ended
		June 29, 2008		July 1, 2007		June 29, 2008		July 1, 2007
Comparable Coffeehouse Sales (Company-Owned)		(1.7%)		1%		(2.0%)		0%
COFFEEHOUSE COUNT
Company-Owned:
Coffeehouses open at beginning of period		421		442		432		440
Coffeehouses opened during the period		0		5		5		9
Coffeehouses closed during the period		6		6		22		8
Total Company-Owned at period end		415		441		415		441
Franchised:
Coffeehouses open at beginning of period		63		33		52		24
Coffeehouses opened during the period		12		6		23		15
Coffeehouses closed during the period		0		0		0		0
Total Franchised at period end		75		39		75		39
TOTAL COFFEEHOUSES AT PERIOD END		490		480		490		480

(1) Percentage change in comparable coffeehouse net sales compares the net sales of coffeehouses during a fiscal period to the net sales from the same coffeehouses for the equivalent period in the prior year. A coffeehouse is included in this calculation beginning in its thirteenth full fiscal month of operations. A closed coffeehouse is included in the calculation for each full month that the coffeehouse was open in both fiscal periods. Franchised coffeehouses are not included in the comparable coffeehouse net sales calculations.

EBITDA RECONCILIATION
The following is a reconciliation of the Company’s net loss to EBITDA.
		Thirteen Weeks Ended								Twenty-Six Weeks Ended
		June 29, 2008				July 1, 2007				June 29, 2008				July 1, 2007
		(In thousands)
Net loss		$	(2,432	)		$	(3,890	)		$	(8,838	)		$	(7,142	)
Interest expense			122				166				634				295
Interest income			(3	)			(46	)			(20	)			(79	)
Depreciation and amortization(1)			5,207				6,526				11,627				13,110
Provision (benefit) for income taxes			44				(316	)			50				(296	)
EBITDA		$	2,938			$	2,440			$	3,453			$	5,888

(1) Includes depreciation and amortization associated with the headquarters and roasting facility that are categorized as general and administrative expenses and cost of sales and related occupancy costs on the statement of operations.

EBITDA is equal to net income (loss) excluding: (a) interest expense; (b) interest income; (c) depreciation and amortization; and (d) income taxes.

Management believes EBITDA is useful to investors in evaluating the Company’s operating performance for the following reason:

• Coffeehouse leases are generally short-term (5-10 years) and Caribou must depreciate all of the cost associated with those leases on a straight-line basis over the initial lease term excluding renewal options (unless such renewal periods are reasonably assured at the inception of the lease). The Company opened a net 212 company-operated coffeehouses from the beginning of fiscal 2003 through the end of the second thirteen weeks of fiscal 2008. As a result, management believes depreciation expense is disproportionately large when compared to the sales from a significant percentage of the coffeehouses that are in their initial years of operations. Also, many of the assets being depreciated have actual useful lives that exceed the initial lease term excluding renewal options. Consequently, management believes that adjusting for depreciation and amortization is useful for evaluating the operating performance of the coffeehouses.

Management uses EBITDA:

• As a measurement of operating performance because it assists management in comparing its operating performance on a consistent basis as it removes the impact of items not directly resulting from coffeehouse operations;
• For planning purposes, including the preparation of our internal annual operating budget;
• To establish targets for certain management compensation matters; and
• To evaluate the Company’s capacity to incur and service debt, fund capital expenditures and expand the business.

EBITDA as calculated by Caribou Coffee is not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA: (a) does not represent net income or cash flows from operating activities as defined by GAAP; (b) is not necessarily indicative of cash available to fund cash flow needs; and (c) should not be considered an alternative to net income, operating income, cash flows from operating activities or Caribou Coffee’s other financial information as determined under GAAP.