Second Cup profits fall in Q4, 2012 due to new initiatives and charges

MISSISSAUGA, Ont. – The Second Cup Ltd. (TSX:SCU) reported Friday its profits dropped in the fourth quarter due to an increasingly competitive coffee market and charges related to a number of new initiatives it’s unveiling later this year.

The company lost $12 million dollars, or $1.21 per diluted share, for the period ended Dec. 29, 2012, it said.

That’s down from a profit of $2.3 million, or 23 cents per diluted share, in the comparable period a year earlier that was two days shorter.

Meanwhile, it posted an $12.9-million operating loss for the quarter, compared to a profit of $3.2 million.

Revenue was $7.7 million, a slight increase from $7.3 million a year ago.

Same-store sales, a key measurement in the retail sector, fell 4.2 per cent compared to an increase of 1.2 per cent a year ago.

Second Cup chief executive Stacey Mowbray said the franchisor was hit by several costs this quarter, including goodwill impairment charges of $2.4 million tied to an annual impairment test, which forecasted lower cash flows at its stores.

The company also recognized trademark impairment charges of $12.8 million.

“The quarterly results reflect the continuing intense competitive activity in the coffee category, as well as, the continued investment in new initiatives, which include a loyalty program, coffee revitalization and a new cafe design,” she said in a release.

Royalty revenue for the quarter decreased to $4 million, from $4.3 million a year ago, largely attributed to a decline in store sales.

For the year, the company said it booked an income loss of $8.2 million, or 95 cents per diluted share, compared to a profit of $9.6 million, or $1.34 cents per diluted share in 2011.

Full-year operating losses were $8.2 million, compared with a profit of $9.6 million in the previous year.

Total revenue was $26.3 million, slightly higher than $25 million in 2011. Same-store sales for the year decreased by 1.9 per cent, lower than 0.1 per cent in the previous year.

Second Cup said it closed 17 locations that were underperforming, and opened 18 new cafes, in 2012. This year, it plans on rolling out several new initiatives including a loyalty program and a new cafe design.

Shares in the company closed up two cents to $5.34 on the Toronto Stock Exchange on Friday, before the financial report was issued.

Second Cup was founded in 1975 and operates more than 350 coffee shops across Canada.