SPoT Coffee (Canada) Ltd.
TSX VENTURE : SPP

SPoT Coffee (Canada) Ltd.

May 05, 2011 14:28 ET

SPoT Coffee 2010 Annual Results: Reports Revenue Increase and 63% Reduction in Consolidated Loss

TORONTO, ONTARIO--(Marketwire - May 5, 2011) - SPOT COFFEE (CANADA) LTD. (TSX VENTURE:SPP) ("SPoT" or the "Company") released on May 2, 2011 its financial results for the year ended December 31, 2010. Complete audited financial statements and Management's Discussion and Analysis have been filed for public review at www.sedar.com and are available on the Company's website at www.spotcoffee.com.

2010 Overview

SPoT ended 2010 with six operating cafés that range in size from 2,000 to in excess of 4,000 square feet and two new cafés under development. The Company's current operating cafés are located in Buffalo (two cafés), Williamsville and Rochester in New York State, Delray Beach, Florida and Toronto, Canada. The Company's two cafés under development are SPoT Hertel located in Buffalo (expected opening summer 2011) and SPoT Park Place located in Toronto (projected opening in start of 2012).

The Company opened its sixth café, SPoT Delray Beach, during December 2010 . It is located in a historically protected building on Atlantic Avenue in the centre of downtown Delray Beach, a thriving residential and commercial community located on the east coast of Florida. On May 4, 2011 the Historic Preservation Board of the City of Delray Beach named SPoT Delray Beach the recipient of a 2011 Historic Preservation Board Award.

Additionally, during 2010, the Company continued the strategic redevelopment of some of its existing locations to optimize square footage, enhance menu items and provide a general refurbishment. In January 2010, SPoT officially completed the expansion and full renovation of one of the Company's highest revenue generating cafés, SPoT Elmwood, located in the heart of the Elmwood Village Community in Western New York. The expansion has doubled the area of the café to 4,050 sq. ft. and has increased available seating capacity to accommodate 185 patrons including the outdoor heated patio space. During October 2010, SPoT temporarily closed its Rochester location to begin renovation of the café. Once completed, the SPoT Rochester café will feature a more expansive kitchen to incorporate SPoT's gourmet pizza program, an enhanced seating area, and an updated service bar. SPoT Rochester is expected to re-open towards the end of May 2011.

SPoT is continuing to expand across North America and is currently evaluating several locations in Western New York, Florida and Southern Ontario.

Overall Operating Performance

The Company reduced its consolidated loss before taxes and non-controlling interest by 63% for the year ended December 31, 2010 to $707,835 from $1,921,911 from the prior year. Included in the consolidated loss for the year ended December 3 1, 2010 are certain one-off costs which include a period of rent expense coverage for SPoT Delray Beach prior to its opening, as well as accounting for certain non-cash expenses such as amortization and foreign exchange adjustments, as well as necessary accrual accounting adjustments. Accordingly, on a cash basis and adjusting for one-off costs, the Company's unaudited net loss before taxes and non-controlling interest for the year ended December 31, 2010 would be $152,759.

During the year, the key drivers reducing the consolidated loss include the Company's focus on streamlining and consolidating purchasing for all of the cafés, as well as optimizing the use of café labor, resulting in overall decrease in total café operating costs. Additionally, overall sales increased during the year due to the expansion and renovation of SPoT Elmwood, higher customer foot traffic in general, enhanced in-store marketing initiatives and an increase of other fresh, health-conscious alternatives offered on the menu.

Revenue

The Company generated revenues of $4,904,740 for the year ended December 31, 2010 compared to $4,666,829 for the same period in 2009, representing an overall increase of 5%. The increase is primarily due to higher sales at SPoT's Elmwood and Delaware cafés compared to the prior year. SPoT's recent marketing initiatives and significant expansion and renovation have positively impacted the Company's increase in sales. Additionally, during the second half of 2010, the Company initiated a comprehensive facilities maintenance program which includes refurbishing or replacing furniture and improving the overall functionality of the dining space experience for Spot's customers. In doing so, SPoT continues to maintain a high quality and well functioning dining atmosphere attracting more customers. The Company is also continuing to make more optimal use of each café by hosting community and corporate sponsored events, including working with local artists who display their art work in the cafés. The result has been to help draw more customers in and provide an overall enhanced customer experience. The cafés have also increased retail sales due to improved retail offerings and more effective marketing of retail items at the point of sale.

Cost of Sales and Gross Profit

Gross profit (measured as revenue less cost of sales) increased by 26% to $2,946,153 for the year ended December 31, 2010 from $2,338,514 for the prior year. For the year ended December 31, 2010 the gross margin percentage (measured as gross profit divided by revenue) was 60% and this represents a significant improvement over the prior year's percentage of 50%. Cost of sales improved in 2010 by 16% as the Company implemented several new cost cutting initiatives including a focus on improved efficiencies for supply ordering and waste control. During the fourth quarter of 2010, the Company entered into a national vendor contract for the supply of all food items for all the US cafés on a "cost plus" structure. This is expected to provide a significant improvement in vendor pricing with an increase in the volume of purchasing. In addition, a number of the Company's major suppliers have been changed in an effort to further reduce overall cost of sales while ensuring a consistent and high level of product quality. The training and incentive programs put into place for all café managers further encourages awareness to increase overall café efficiencies such as reducing waste, raising staff productivity and promoting sales.

Operating Expenses

Salaries and wages for the head office decreased by 40% for the year ended December 31 2010 to $311,633 from $522,843 for the prior year. This reduction was primarily due to reduced head office salaries and wages. In the cafés, labor costs increased by 17% and are directly attributable to the expansion of SPoT Elmwood, the opening of SPoT Delray Beach and increased sales at the majority of the Western New York cafés. However, the overall percentage of café labor to café sales has decreased by 2% due to improved café operating efficiencies. Continuing efforts have been made by SPoT management to ensure that all SPoT staff ("Spotters") are trained appropriately to help reduce staff turnover and increase labor efficiencies at each of the SPoT cafés. All Spotters undergo an initial intensive training period in which café managers individually train each staff member by working with them one-on-one. This helps to preserve the consistency and quality of the performance of Spotters in their respective cafés and has helped to ensure labor inefficiencies are being reduced, overall training costs are lower and as a result labor costs have been kept at a minimum.

Occupancy costs for the year ended December 31, 2010 decreased 4% to $848,895 from $882,814 for the prior year and is inclusive of lease expenses for the Company's head office premises and operating cafés. Increased leases expenses associated with new or the increased square footage of refurbished cafés were offset with a rent free period for one of the operating cafés that expired during May 2010 and the temporary reduction of lease expense relating to SPoT Rochester when it was closed during October 2010 for the commencement of renovation.

Office and general expenses have decreased by 33% year over year as the Company continues to improve efficiencies in their day to day operations.

Professional fees and consulting costs of $234,500 for the year ended December 31, 2010 were also 38% lower compared to the same period in 2009 as management has made a concerted effort to reduce these costs and increase staff productivity.

Travel expenses have decreased by 33% for the year ended December 31, 2010 to $93,832 from $139,561 in the prior year as SPoT's main focus during 2010 has been on continuing to develop new and existing operations based on existing geographic clusterings in Western New York, Southern Ontario and Florida, creating enhanced synergies in overall travel expenses and resulting in a decrease from the prior year.

Interest, accretion and bank charges for the year ended December 31, 2010 decreased 63% to $107,594 from $292,370 for the prior year. In 2009, the Company had convertible debentures outstanding for the first six and a half months. These debentures were converted to common shares on July 17, 2009 as part of the going public transaction.

Amortization costs for the year ended December 31, 2010 increased by 28% to $317,131 from $247,043 for the prior year. This increase is due to the completion at the start of 2010 of the extensive renovations at SPoT Elmwood. Amortization of property and equipment commences the month following the café becoming fully operational.

ABOUT SPOT

SPoT (www.spotcoffee.com) designs, builds and operates community-oriented cafés that provide its customers from every lifestyle and culture with the highest quality service, signature light meals and in- house roasted gourmet coffee. The current SPoT management team and directors have been successfully operating company-owned cafés since 2004.

Each SPoT café is a popular and friendly gathering place for its community where specialty coffee, upscale beverages, fresh baked goods, signature sandwiches, soups, salads and gourmet pizza, cakes, pastries and home baked goods are offered and enjoyed by its patrons in a warm, friendly and home-like environment.

The Company currently operates six cafés that range in size from 2,000 to in excess of 4,000 sq. ft. with two more cafés currently under development. Spot is currently evaluating several locations as part of its North American expansion.

Unlike other conventional gourmet coffee houses and quick service restaurants that are built on uniformity of product and style, each SPoT café maintains several unique and key features, including:
  • Dedication to create a friendly environment that nourishes and intensifies a sense of gathering and of community;

  • In-house roasting and blending SPoT's own award-winning premium Arabica coffee;

  • Unwavering commitment to offer the customers of the Company the highest quality products and services;

  • Innovative and varying café designs that consider both the culture and flavor of the specific communities of each café;

  • Choice of corner locations for each SPoT café at the center of their neighborhoods;

  • Ability to offer intimate and warm ambiances in each café to suit the social and private moods of SPoT's patrons; and

  • Trained and dynamic service staff that are proud to call themselves "Spotters" who enjoy serving their customers and make them feel at home.

Forward Looking Statements

Except for statements of historical fact relating to the Corporation, certain information contained herein constitutes forward-looking statements. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Except as required by applicable securities requirements, the Corporation undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of the release.

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