Caribou's Latest Domestic Ventures

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Caribou Coffee Company Inc. (CBOU) has recently opened a new unit in Cincinnati, Ohio. The new opening marks the company’s third store in Cincinnati and the thirty-fifth store in the Ohio market.

The Minneapolis-based Caribou entered into a partnership with Jungle Jim's International Market in Cincinnati's Eastgate Complex, so that customers could easily access the market while visiting Caribou Coffee shop. The market is slated to open in September this year. The alliance with Jungle Jim's is expected to boost footfalls in this latest venue in Cincinnati.

Apart from strengthening its presence in the existing markets, Caribou Coffee is gradually making its foray into less-penetrated markets like Washington, DC. The company recently opened a drive-thru unit in Vienna, Virginia. Management commented that while its openings have mostly been in the Chicago area in 2011, its 2012 agenda will include areas like Washington, DC, Denver and Minnesota, while ramping up in Chicago.

As of April 1, 2012, Caribou Coffee owns and operates 585 coffeehouses, including 174 franchised locations in 21 states, the District of Columbia and nine international markets. The company is expanding further in the international market and intends to consolidate its position in its existing markets before venturing into the new ones.

Although Caribou Coffee did not unveil any new coffeehouses in the first quarter of 2012, it aims to open approximately 20 stores in 2012. The openings are primarily back-end loaded. Overall, management has set a target of opening 55-70 stores in 2012 in both domestic and international markets, implying a year-over-year upside of 10% to 12%.      

We believe that Caribou Coffee remains well-positioned to sustain its growth momentum while generating improved earnings on the heels of innovative offerings. Apart from its variety in coffee, the company is trying several menu options to strengthen its foothold in the market. Recently, it opted for a system-wide roll-out of carbonated juice and tea lineup.

Caribou Coffee which competes with the likes of Starbucks Corporation (SBUX) and Jamba Inc. (JMBA) currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are maintaining our long-term Neutral recommendation on the stock.

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