Crumbs Bake Shop, Inc. Reports Third Quarter 2013 Financial Results Company Updates 2013 Financial Outlook

NEW YORK, Nov. 14, 2013 /PRNewswire/ -- Crumbs Bake Shop, Inc. ("Crumbs") (NASDAQ: CRMB), the largest cupcake specialty store chain in the U.S., today reported financial results for the third quarter ended September 30, 2013. 

Highlights of the Third Quarter 2013 Compared to the Third Quarter 2012:

  • Net sales increased 15.4% to $11.4 million from $9.9 million.
  • Comp store sales decreased 17.2%.
  • Store operating weeks increased 44.3% to 977 from 677.
  • Gross profit increased 11.4% to $6.1 million from $5.5 million.
  • Net loss attributable to stockholders was $(5.7) million or $(0.49) per share compared to $(1.1) million or $(0.20) per share. 
  • Adjusted EBITDA1, a non GAAP measure, was $(3.1) million compared to $(1.2) million.
  1. See financial tables for a reconciliation of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP measure, to GAAP results.

Third Quarter 2013 Financial Results 
Net sales increased 15.4% to $11.4 million in the third quarter of 2013 as compared to $9.9 million in the third quarter of 2012.  The increase was primarily attributable to $3.1 million in sales from the 30 stores not in the same store sales base offset by a $1.6 million decrease in sales from the 49 stores in the same store sales base.  During the quarter we saw sequential improvement on a monthly basis. Comp store sales were down 19.6% in July, 19.1% in August and 12.6% in September. Total store operating weeks increased 44.3% to 977 from 677 in the third quarter last year.

Cost of sales was $5.4 million compared to $4.4 million in the third quarter of 2012 and increased 270 basis points to 46.8% as a percentage of net sales.  Gross profit increased 11.4% to $6.1 million from $5.5 million in the third quarter of last year. The increases were attributable to a variety of factors, including operating our coffee business under the "We Proudly Serve" Starbucks program, increased handling costs associated with our e-commerce operation and increased customer sales discounts from promotional products. Management has instituted programs that it believes will reduce the cost of sales for coffee.

Staff expenses were $4.3 million compared to $3.3 million in the third quarter of 2012 and increased 400 basis points to 37.6% as a percentage of net sales. Increases in staff expenses were primarily attributable to 26 new stores opened during the last twelve months, including approximately 290 new store positions.

Occupancy expenses were $3.6 million compared to $2.5 million in the third quarter of last year and increased 580 basis points to 31.2% as a percentage of net sales. The increases in occupancy expenses were primarily related to lease expenses of $1.82 million associated with the opening of 26 stores since September 30, 2012 and cost of closing stores.

General and administrative expenses were $0.9 million compared to $0.8 million in the third quarter of 2012 and increased 50 basis points to 8.3% as a percentage of net sales.

Income tax expense was $2.39 million as a result of full valuation allowance placed on the deferred tax asset, net of payable to related parties pursuant to tax receivable agreement.

Adjusted EBITDA was $(3.1) million compared to $(1.2) million in the third quarter of last year.  See financial tables for a reconciliation of adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP measure, to GAAP results.

Net loss attributable to stockholders was $(5.7) million, or $(0.49) per basic and diluted share, compared to a net loss of $(1.1) million, or $(0.20) per basic and diluted share, in the third quarter of last year.  The weighted average number of common shares outstanding was 11.6 million in the third quarter of 2013 and 5.5 million in the third quarter of 2012.

Store Portfolio 
In the first three quarters of the year we have opened a total of 21 mall-based stores, including 11 in line stores and 10 kiosks.  During the third quarter of 2013, Crumbs opened 1 mall-based store and 2 kiosks in, or adjacent to, current trading areas. During the third quarter we experienced a slowing of sales, resulting in lower than projected annual sales for most of our mall stores.

The Company has also expressed its intention to close certain street-level stores in California, Connecticut, Illinois, Metropolitan New York City, and Washington D.C that management believes will be unable to reach acceptable levels of financial performance.  So far this year, Crumbs has closed 5 of those stores located in Connecticut, California, Illinois and Metropolitan New York City, and expects to close at least two additional stores in Manhattan by the end of the year.

October 2013 
During October, in total the Company experienced flat comp store sales.  In the first 27 days of the month the comp store trend was approximately negative 11%, continuing the sequential improvement experienced during the third quarter, while the remainder of the month the Company was operating against significant store closures from the effects of super storm Sandy in October 2012.

2013 Outlook 
Based upon actual results through the first three quarters of 2013, along with our revised outlook for the balance of the year, Crumbs is lowering its annual expectations of net sales to approximately $48 million from $53 million and adjusted EBITDA to approximately $(8.8) million from $(4.9) million.  The Company's revised sales projection reflects continued weakness at street-level stores as well as lower sales projections for mall stores as indicated above. Any additional store closures would also further impact both sales and adjusted EBITDA.  Management has initiated several strategies to improve the profitability of its stores. The Company is also negotiating and entering into various licensing agreements that will provide additional revenue.  In addition, decreases in corporate level expenses have been initiated with additional reductions planned. Although these changes should reduce the amount of expenses in the fourth quarter of 2013 and fiscal year 2014, additional cash will be needed to fund operations through December 31, 2013.  The Company is exploring a variety of strategic options which include equity and/or debt instruments to fund its future operating cash flow or enter into a strategic arrangement with a third party.  

See financial tables for a reconciliation of projected adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), a non-GAAP measure, to projected GAAP results.

Earnings Call 
The Company will not be conducting an earnings call for the third quarter of 2013.

About Crumbs Bake Shop, Inc. 
The first Crumbs bake shop opened in March 2003 on the Upper West Side of Manhattan and is well known for its innovative and oversized gourmet cupcakes. The Company currently has 78 locations in 12 states and the District of Columbia.

Forward Looking Statements  
Some of the statements in this press release constitute forward-looking statements within the meaning of the federal securities laws. Words such as "anticipate," "expect," "project," "intend," "plan," "believe," "target," "aim," "will" and words and terms of similar substance and any financial projections used in connection with any discussion of future plans, strategies, objectives, actions, or events identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. These statements are based on the beliefs of our management as well as assumptions made by and information currently available to us and reflect our current views concerning future events. As such, they are subject to risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, among many others: the risk that any projections, including earnings, revenues, expenses, synergies, margins or any other financial items that form the basis for management's plans and assumptions are not realized; the risk of disruption from being a public company, making it more difficult to maintain relationships with customers, employees or suppliers; a reduction in industry profit margin; the inability to continue the development of the Crumbs brand; the timing of and ability to achieve profitability of new stores; the inability to manage or fund rapid growth; requirements or changes affecting the business in which Crumbs Bake Shop, Inc. and Crumbs Holdings LLC and its wholly-owned subsidiaries are engaged; our ability to successfully implement new strategies; operating hazards; and competition and the loss of key personnel; changing interpretations of generally accepted accounting principles; continued compliance with government regulations; changing legislation and regulatory environments; the ability to meet the NASDAQ Stock Market's continued listing standards; a lower return on investment; and the general volatility of the market prices of our securities and general economic conditions.  These and other risks are discussed in detail in the periodic reports that Crumbs Bake Shop, Inc. files with the Securities and Exchange Commission (the "SEC"), including in the "Risk Factors" section of its Quarterly Report on Form 10-Q and its Annual Report on Form 10-K for the year ended December 31, 2012, and investors are urged to review those periodic reports and its other filings with the SEC, which are accessible on the SEC's website at www.sec.gov, before making an investment decision.  Crumbs Bake Shop, Inc.'s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC. We assume no obligation to update these forward-looking statements except as required by law.

Non-GAAP Information  
This press release includes certain numerical measures that are or may be considered "non-GAP financial measures" under the SEC's Regulation G.  "GAAP" refers to generally accepted accounting principles in the United States.  The reconciliations of such measures to the most comparable GAAP figures, in accordance with Regulation G, are included herein. Crumbs presents its results in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public, including use of Adjusted EBITDA as a financial measure, which also facilitates comparisons to our historical performance.

The Company is providing Adjusted EBITDA information, which is defined as net income of the combined company, including net income attributable to any non-controlling interest, determined in accordance with all applicable and effective GAAP pronouncements up to December 31, 2010, before interest income or expense, income taxes and any gains or losses resulting from the change in estimate relating to our tax receivable agreement, depreciation, amortization, deferred rent expense, losses or gains resulting from adjustments to the fair value of the contingent consideration, stock-based compensation expense, extraordinary or non-recurring expenses and all other extraordinary non-cash items for the applicable period as a compliment to GAAP results. Adjusted EBITDA measures are commonly used by management and investors as a measure of leverage capacity, debt service ability and liquidity. Adjusted EBITDA is not considered a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA are significant components in understanding and assessing our financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or superior to, such GAAP measures as net income, cash flows provided by or used in operating, investing or financing activities or other financial statement data presented in our consolidated financial statements as an indicator of financial performance or liquidity. Reconciliations of non-GAAP financial measures are provided in the accompanying tables. Since Adjusted EBITDA is not a measure determined in accordance with GAAP and is susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.

 

CRUMBS BAKE SHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)































Three Months Ended September 30,


Nine Months Ended September 30,





2013



2012



2013



2012






























Net sales


$

11,421


$

9,895


$

35,851


$

32,253
















Cost of sales



5,350



4,445



16,358



13,983
















Gross profit



6,071



5,450



19,493



18,270
















Operating expenses














  Selling expenses



573



296



1,686



982


  Staff expenses



4,294



3,325



12,186



10,070


  Occupancy expenses



3,560



2,515



9,752



7,307


  General and administrative



944



772



2,966



2,402


  New store expenses



37



142



427



323


  Depreciation and amortization



715



476



1,906



1,391


  Loss on disposal of property and equipment



-



-



85



14



















10,123



7,526



29,008



22,489
















Loss from operations



(4,052)



(2,076)



(9,515)



(4,219)
















Other income (expense)














  Interest expense



(165)



-



(241)



-


  Interest and other income



27



2



35



19


  Abandoned projects



(113)



(67)



(128)



(111)


  Change in fair market value of warranty liability



(109)



273



(218)



382



















(360)



208



(552)



290
















Loss before income tax benefit (expense)



(4,412)



(1,868)



(10,067)



(3,929)
















Income tax benefit (expense)



(2,387)



7



(2,387)



7
















Net loss attributable to the controlling and














 non-controlling interests


(6,799)



(1,861)



(12,454)



(3,922)
















Less: Net loss attributable to 













 non-controlling interest


1,106



749



2,035



1,588
















Net loss attributable to stockholders

$

(5,693)


$

(1,112)


$

(10,419)


$

(2,334)






























Net loss per common share, basic and diluted

$

(0.49)


$

(0.20)


$

(0.90)


$

(0.42)
















Weighted average number of common













 shares outstanding, basic and diluted


11,631



5,506



11,590



5,506
















 

 

CRUMBS BAKE SHOP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

















September 30,


December 31, 



2013


2012








ASSETS














Current assets







  Cash 


$

1,667


$

6,270

  Trade receivables



453



259

  Inventories



416



559

  Prepaid rent



777



600

  Other current assets



624



410








Total current assets



3,937



8,098








Property and equipment, net



17,610



13,209








Other Assets







  Deferred tax asset



-



4,773

  Restricted certificates of deposit



673



673

  Intangible assets, net



293



367

  Capitalized lease costs



851



440

  Deposits



268



289

  Debt issuance costs



884



0

  Other



10



38








Total other assets



2,979



6,580










$

24,526


$

27,887








LIABILITIES AND STOCKHOLDERS' EQUITY














Current liabilities






  Accounts payable and accrued expenses


$

2,256


$

2,080

  Payroll liabilities


119



357

  Sales tax payable


209



110

  Gift cards and certificates outstanding


223



234








Total current liabilities



2,807



2,781








Long-term liabilities







  Deferred rent



4,609



3,791

  Payable to related parties pursuant to tax receivable agreement



-



2,387

  Warranty liability



600



382

  Convertible notes payable



10,000



-








Total liabilities



18,016



9,341








Commitments and contingencies














Stockholders' equity







  Preferred stock, $.0001 par value; 1,000 shares authorized; 







  390 shares issued and outstanding at September 30, 2012







  and December 31, 2012



-



-

  Common stock, $.0001 par value; 100,000 shares authorized;







  7,381 shares issued, 5,786 outstanding at September 30, 2012 and







  7,100 shares issued, 5,506 outstanding at December 31, 2011



1



1

  Additional paid-in capital



39,535



39,117

  Accumulated deficit



(20,194)



(9,776)

  Treasury stock, at cost



(15,914)



(15,914)








       Total Crumbs Bake Shop, Inc. stockholders' equity


3,428



13,428








  Non-controlling interest



3,082



5,118








    Total stockholders' equity



6,510



18,546










$

24,526


$

27,887








 

 

 

CRUMBS BAKE SHOP, INC. AND SUBSIDIARIES

RECONCILIATION OF ADJUSTED EBITDA TO NEAREST COMPARABLE GAAP MEASURE

(in thousands)

















Three Months Ended September 30,



Nine Months Ended September 30,




2013



2012



2013



2012














Net income (loss) attributed to the controlling













and non-controlling interest

$

(6,799)


$

(1,862)


$

(12,454)


$

(3,922)


Depreciation and amortization


715



476



1,906



1,391


Interest expense


165



-



240



-


Interest income


-



-



(4)



(2)


Income tax expense (benefit)


2,387



(7)



2,387



(7)


Loss on disposal of fixed assets


-



-



85



14


Abandoned projects


113



67



128



111


Deferred rent expense


185



231



537



624


Stock based compensation


94



120



416



282


Change in fair value of warrant liability


109



(273)



218



(382)


Non-recurring expenses


(20)



-



(20)



8

Adjusted EBITDA

$

(3,051)


$

(1,248)


$

(6,561)


$

(1,883)














SOURCE Crumbs Bake Shop



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