Greener Pastures Ahead for Caribou Coffee

After reporting a bitter first quarter, Caribou Coffee (Nasdaq: CBOU  ) is heading for greener marketing pastures in hopes of sweetening the fiscal 2006 pot for investors.

Even with first-quarter revenue hitting $56 million, up 24% from the previous year, the Minnesota-based gourmet coffeehouse chain choked down a net loss of $1.6 million, or $0.08 per share. That's up from a net loss of $400,000, or $0.03, the previous year.

Comparable-store sales were up only 1%. But other sales, which include grocery and club-store sales, soared 158%. See the hidden treasure there? So does CEO Michael Coles.

"Non-coffeehouse business represents tremendous opportunities," Coles said in Thursday's earnings conference call.

And he plans to take advantage of those opportunities. Other sales, which currently compose only 5% of total sales, appear to be Caribou's main focus as it plans more marketing and licensing agreements.

The most promising licensing agreement is with General Mills (NYSE: GIS  ) for a co-branded snack bar. Watch for the six-packs of vanilla-latte and chocolate-mocha bars to go on sale in grocery stores this summer. Caribou then plans to sell individual bars in its coffeehouses this fall.

The company also has a licensing agreement with Kemps to sell co-branded ice cream in grocery stores throughout the Midwest. Members of management indicated on Thursday that they are hoping to expand availability into other parts of the country yet this year.

The company has opened 86 new company stores in the past six months and has signed leases for 35 more before the end of the year. The real estate strategy consists of setting up shop in high-population density areas with plenty of room for drive-throughs. Smells a lot like competitor Starbucks' (Nasdaq: SBUX  ) successful strategy.

Still, no matter how much sugar you pour on the $1.6 million net loss, it just doesn't taste sweet. But let's chalk it up to growing pains. Management blamed higher costs for the loss, including marketing and depreciation expenses, plus increased staffing costs for field operations. General and administrative expenses did jump to $6.1 million from $4.6 million, and operating expenses were up to $23.1 million from $18.3 million.

Caribou is on track to step out from behind Starbucks' shadow. Let's face it: A gourmet coffeehouse is a gourmet coffeehouse. But Caribou is realizing its strengths, and it's beginning to differentiate itself in non-coffeehouse outlets with potent co-branding initiatives. Bolstered by a summer of ice-cream and snack-bar sales and, most importantly growing name recognition, this stock should really perk up by the third quarter.

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FoolcontributorAmanda Tylerdoes not own shares of any company named above.


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