Boo Hoo, Caribou

Sorry, Caribou Coffee (Nasdaq: CBOU  ) . You're no Starbucks (Nasdaq: SBUX  ) . Caribou shares shed 22% of their value yesterday after the coffee-sipping haven with a woodsy theme announced that it will post a loss in 2006. The warning seems to betray investors who bought in at the IPO back in September, when the stock was priced at $14 a stub.

Is it caribou hunting season already? The company went public at what seemed to be the right time. Comps had soared 8% in 2004 and were trending that way through the first nine months of the year. However, sales at the nearly 400 company-owned stores took a breather in the final period, rising by a mere 2%. That knocked down the comps to a still-respectable 6% gain for 2005 as a whole, but made for a worrisome sign for trend-watchers.

Because of heady expansion, Caribou managed to grow the top line by 24% last year. It will continue to grow its chain quickly in 2006, with comps expected to climb by 3% to 7%. However, investors are left scratching their heads over the company's projected loss of $0.10 to $0.20 this year. That flies against the outlooks of two of the three analysts following the company, who were looking for a profit in 2006. Even the pessimist of that lot is now on the short end of the gloom stick, originally expecting Caribou to lose just a nickel per share this year.

Back in November, Stephen Simpson explained that Caribou is run by Islamic principles that may limit its flexibility in competing against rivals such as Starbucks and Peet's Coffee (Nasdaq: PEET  ) .

Nor has the market exactly warmed up to Caribou since its Wall Street debut. On its second day of trading, after going public at $14 and opening at $15.50, the stock was knocked down to $11.35. This week's excursion into the single digits is simply spewing salted espresso into open wounds.

It should be noted that the company's loss in 2006 will still be narrower than the company's per-share deficit in 2005. Then again, that's probably not much of a consolation to IPO investors who saw fellow foodstuffs market newbie Kona Grill (Nasdaq: KONA  ) wipe out two weeks ago, after it, too, had to water down its 2006 targets.

As an indicator of the quality of the 2005 IPO class, it's not exactly encouraging. Then again, last year also brought us some captivating gems, such as iRobot (Nasdaq: IRBT  ) , and the 2006 class is likely to include potential valedictorians in Vonage, Chipotle, and MasterCard. So we're still working on a company-by-company basis.

Where does that leave Caribou? Fellow Fool Tim Beyers was telling me about a recent visit to one of the coffee chain's outlets. He wasn't overly impressed. Despite the thematic touches to break out of the Starbucks mold (like a fireplace and some kid activity centers), it just didn't measure up to what he felt a competitor would need to truly take on the Seattle superstar.

If you see things differently, this may offer a tempting buying opportunity. The company has just inked licensing agreements with Kemps and General Mills (NYSE: GIS  ) , so you may soon seen the Caribou brand expanded at the grocery store level. It certainly didn't hurt Starbucks to see its name and java featured on everything from gourmet coffee to ice cream. However, the numbers don't lie. Starbucks is insanely profitable, while Caribou won't be there until 2007 at the earliest.

Like a hobbling caribou, this stock isn't going to be running away from you anytime soon. Take your time to complete your due diligence. Good luck in the ultimate expedition -- the hunt for stock gains.

Longtime Fool contributor Rick Munarriz doesn't fancy himself much of a coffee drinker, though some of the more exotic gourmet blends do tempt him. He does not own shares in any of the companies in this story. The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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