Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-32233

PEET’S COFFEE & TEA, INC.

(Exact Name of Registrant as Specified in Its Charter)

Washington		91-0863396
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1400 Park Avenue

Emeryville, California 94608-3520

(Address of Principal Executive Offices)(Zip Code)

(510) 594-2100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large Accelerated Filer o		Accelerated Filer x
Non-Accelerated Filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No x

As of May 3, 2009, 12,899,831 shares of registrant’s Common Stock were outstanding.

	INDEX
		Page
PART I	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	12
Item 4.	Controls and Procedures	13

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 6.	Exhibits	15
	Signatures	15

PART I – FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

PEET’S COFFEE & TEA, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share amounts)

	March 29,			December 28,
	2009			2008
ASSETS
Current assets
Cash and cash equivalents	$	12,003		$	4,719
Short-term marketable securities		4,558			8,600
Accounts receivable, net		10,115			11,924
Inventories		22,572			26,124
Deferred income taxes - current		2,922			2,922
Prepaid expenses and other		5,499			7,193
Total current assets		57,669			61,482

Property, plant and equipment, net		108,391			107,914
Deferred income taxes - non current		3,068			3,059
Other assets, net		2,812			3,897

Total assets	$	171,940		$	176,352

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and other accrued liabilities	$	9,366		$	9,858
Accrued compensation and benefits		8,294			8,852
Deferred revenue		4,979			6,350
Total current liabilities		22,639			25,060

Deferred lease credits		7,030			6,645
Other long-term liabilities		808			740
Total liabilities		30,477			32,445

Shareholders' equity
Common stock, no par value; authorized 50,000,000 shares;
issued and outstanding:12,880,000 and 13,174,000 shares		84,669			90,123
Accumulated other comprehensive income (loss)		(9	)		34
Retained earnings		56,803			53,750

Total shareholders' equity		141,463			143,907
Total liabilities and shareholders' equity	$	171,940		$	176,352

See notes to consolidated financial statements.

PEET’S COFFEE & TEA, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands, except per share amounts)

	Thirteen weeks ended
	March 29,		March 30,
	2009		2008
Retail stores	$	47,982	$	44,609
Specialty sales		24,122		22,526
Net revenue		72,104		67,135

Cost of sales and related occupancy expenses		32,568		31,989
Operating expenses		25,171		23,529
General and administrative expenses		5,938		5,562
Depreciation and amortization expenses		3,607		3,070
Total costs and expenses from operations		67,284		64,150

Income from operations		4,820		2,985

Interest income		78		304

Income before income taxes		4,898		3,289

Income tax provision		1,845		1,198

Net income	$	3,053	$	2,091

Net income per share:
Basic	$	0.23	$	0.15
Diluted	$	0.23	$	0.15

Shares used in calculation of net income per share:
Basic		13,039		13,956
Diluted		13,241		14,236

See notes to consolidated financial statements.

PEET’S COFFEE & TEA, INC.

CONS OLIDATED S TATEMENTS OF CAS H FLOWS

(Unaudited, in thousands)

	Thirteen weeks ended
	March 29,			March 30,
	2009			2008
Cash flows from operating activities:
Net income	$	3,053		$	2,091
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		4,141			3,605
Amortization of interest purchased		27			60
Stock-based compensation		643			668
Excess tax benefit from exercise of stock options		(28	)		(30	)
Tax benefit from exercise of stock options		17			19
Loss on disposition of assets and asset impairment		7			49
Deferred income taxes		(9	)		-
Changes in other assets and liabilities:
Accounts receivable, net		1,809			(44	)
Inventories		3,552			2,010
Prepaid expenses and other current assets		1,694			(178	)
Other assets		177			3
Accounts payable, accrued liabilities and deferred revenue		(3,235	)		1,075
Deferred lease credits and other long-term liabilities		453			529
Net cash provided by operating activities		12,301			9,857

Cash flows from investing activities:
Purchases of property, plant and equipment		(3,787	)		(8,828	)
Changes in restricted investments		884			-
Proceeds from sales and maturities of marketable securities		3,972			1,765
Purchases of marketable securities		-			(917	)
Net cash provided by/(used in) investing activities		1,069			(7,980	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		450			544
Purchase of common stock		(6,564	)		-
Excess tax benefit from exercise of stock options		28			30
Net cash provided by/(used in) financing activities		(6,086	)		574

Increase in cash and cash equivalents		7,284			2,451
Cash and cash equivalents, beginning of period		4,719			15,312

Cash and cash equivalents, end of period	$	12,003		$	17,763

Non-cash investing activities:
Capital expenditures incurred, but not yet paid	$	1,548		$	2,772
Other cash flow information:
Cash paid for income taxes		21			119

See notes to consolidated financial statements.

Peet’s Coffee & Tea, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1.	Basis of Presentation

The accompanying consolidated financial statements of Peet’s Coffee & Tea, Inc. and its subsidiaries (collectively, the “Company” or “Peet’s”) as of March 29, 2009 and for the thirteen weeks ended March 29, 2009 and March 30, 2008 are unaudited and, in the opinion of management, contain all adjustments, consisting only of normal recurring items necessary to present fairly the financial position and results of operations for such periods. The information included in this Quarterly Report on Form 10-Q (this “Form 10-Q”) should be read in conjunction with the Company’s annual consolidated financial statements in Peet’s Annual Report on Form 10-K for the year ended December 28, 2008 (the “2008 Form 10-K”).

The results of operations for the thirteen weeks ended March 29, 2009 are not necessarily indicative of the results expected for the full year.

Comprehensive Income

For the thirteen weeks ended March 29, 2009 and March 30, 2008, comprehensive income was $3,010,000 and $2,172,000, respectively. Comprehensive income consists of net income and net unrealized gains and losses on investments.

Net Income per Share

Basic net income per share is computed as net income divided by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur from common shares issued through stock options. Anti-dilutive shares of 1,567,229 and 1,109,443 have been excluded from diluted weighted average shares outstanding for the thirteen week periods ended March 29, 2009 and March 30, 2008, respectively.

The number of incremental shares from the assumed exercise of stock options was calculated by applying the treasury stock method. The following table summarizes the differences between basic weighted average shares outstanding and diluted weighted average shares outstanding used to compute diluted net income per share (in thousands):

	13 weeks ended
	March 29, 2009		March 30, 2008

Basic weighted average shares outstanding		13,039		13,956
Incremental shares from assumed exercise of stock options		202		281
Diluted weighted average shares outstanding		13,241		14,236

2.	Fair Value Measurements

Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“SFAS 157”) establishes a single authoritative definition of fair value, a framework for measuring fair value and expands disclosure of fair value measurements. The Company adopted the standard for financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. Effective December 29, 2008, the Company adopted the remaining provisions of FAS No. 157 that were initially delayed by FSP FAS No. 157-2. The adoption of the remaining provisions of FAS No. 157 as it relates to nonfinancial assets and liabilities did not have a material impact on our financial position or results of operations. As of the thirteen weeks ended March 29, 2009, no changes were made to the recorded costs of long-lived assets under SFAS No.157.

SFAS No. 157 requires financial assets and liabilities to be categorized based on the inputs used to calculate their fair values as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.

Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

The Company uses the market approach, as defined as Level 1 in the fair value hierarchy, to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Assets measured at fair value on a recurring basis are summarized below (in thousands):

	March 29,
	2009
Short-term marketable securities	$	4,558
Restricted cash (included in other assets, net)		2,442
	$	7,000

Unrealized gains or losses on marketable securities are recorded in accumulated other comprehensive income at each measurement date.

3.	Inventories

The Company’s inventories consist of the following (in thousands):

	March 29,		December 28,
	2009		2008
Green coffee	$	14,153	$	17,732
Other inventory		8,419		8,392
Total	$	22,572	$	26,124

4.	Stock Purchase Program

On September 6, 2006, the Company's Board of Directors authorized the Company to purchase up to one million shares of Peet’s common stock, with no expiration, and the Company announced its plan on September 12, 2006 on Form 8-K. During the thirteen weeks ended March 29, 2009, the Company purchased and retired 58,759 shares of common stock, at an average price of $20.38, in accordance with the stock purchase program. No shares remain available for purchase under this stock purchase program.

On October 27, 2008, the Board of Directors approved a stock purchase program providing for the additional purchase of up to one million shares of the Company’s common stock, with no deadline for completion and the Company announced its plan on October 28, 2008 on Form 8-K. During the thirteen weeks ended March 29, 2009, the Company purchased and retired 264,112 shares of common stock, at an average price of $20.32, in accordance with the stock purchase program. Purchases under the program would be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market.

In total, the Company purchased 322,871 shares at an average price of $20.33 during the thirteen weeks ended March 29, 2009.

5.	Stock-Based Compensation

Stock-based compensation expense consists of and was recognized in the consolidated statements of income as follows (in thousands):

	Thirteen weeks ended
	March 29, 2009		March 30, 2008
Stock-based compensation expense	$	592	$	618
ESPP expense		51		50
Total	$	643	$	668
Tax benefit	$	262	$	272

There were no stock options granted during the thirteen week period ended March 29, 2009. The estimated fair value per stock option granted for the thirteen week period ended March 30, 2008 was $8.81. The estimated fair value per award granted under the Company’s Employee Stock Purchase Plan (“ESPP”) for the thirteen week periods ended March 29, 2009 and March 30, 2008 was $5.96 and $6.37, respectively.

6.	Line of Credit

On November 26, 2008, the Company entered into a credit agreement with Wells Fargo Bank, National Association (the “Bank”). The credit agreement provides for a $25 million revolving line of credit, the proceeds of which may be used in the general course of business, including to fund working capital, capital expenditures, share repurchases and other needs of the Company.

Through March 29, 2009, there were no borrowings under this agreement. Total unused borrowing capacity under the credit agreement was $25.0 million as of March 29, 2009.

7.	Legal Proceedings

On July 14, 2008, a complaint was filed against Peet’s Coffee & Tea, Inc. in California Superior Court, Alameda County, by three former employees on behalf of themselves and all other California store managers. The complaint alleges that store managers based in California were not paid overtime wages, were not provided meal or rest periods, were not provided accurate wage statements and were not reimbursed for business expenses. The plaintiffs seek injunctive relief, monetary damages, penalties, costs and attorneys’ fees, and prejudgment interest. On October 8, 2008, the Company filed an answer denying the allegations set forth in the complaint and asserting a number of affirmative defenses thereto. On November 12, 2008, the plaintiffs filed an amended complaint asserting an additional claim for penalties. On November 26, 2008, the Company filed an answer thereto denying the allegations in the first amended complaint and asserting a number of affirmative defenses thereto. At this time, it is not feasible to predict the outcome of or a range of loss, should a loss occur, from this proceeding. The Company intends to vigorously defend against the litigation.

We may from time to time become involved in certain legal proceedings in the ordinary course of business. The Company is not a party to any other legal proceedings that management believes would have a material adverse effect on the financial position or results of operations of the Company.

8.	Segment Information

The Company operates in two reportable segments: retail and specialty sales. Retail store operations consist of sales of whole bean coffee, beverages, tea and related products through Company-operated retail stores. Specialty sales consist of whole bean coffee sales through three operating segments: grocery, home delivery, foodservice and office.

Management evaluates segment performance primarily based on revenue and segment operating income. The following table presents certain financial information for each segment. Segment income before taxes excludes unallocated marketing expenses and general and administrative expenses. Unallocated assets include cash, coffee inventory in the warehouse, corporate headquarter assets and intangible and other assets (dollars in thousands).

	Retail					Specialty					Unallocated			Total
			Percent					Percent								Percent
			of Net					of Net								of Net
	Amount		Revenue			Amount		Revenue						Amount		Revenue
For the thirteen weeks ended March 29, 2009
Net revenue	$	47,982		100.0	%	$	24,122		100.0	%				$	72,104		100.0	%
Cost of sales and occupancy		20,525		42.8	%		12,043		49.9	%					32,568		45.2	%
Operating expenses		19,756		41.2	%		5,415		22.4	%					25,171		34.9	%
Depreciation and amortization		2,762		5.8	%		427		1.8	%	$	418			3,607		5.0	%
Segment operating income		4,939		10.3	%		6,237		25.9	%		(6,356	)		4,820		6.7	%
Interest income												78			78
Income before income taxes															4,898
Total assets		58,885					16,248					96,807			171,940
Capital expenditures		1,731					707					1,349			3,787

For the thirteen weeks ended March 30, 2008
Net revenue	$	44,609		100.0	%	$	22,526		100.0	%				$	67,135		100.0	%
Cost of sales and occupancy		20,356		45.6	%		11,633		51.6	%					31,989		47.6	%
Operating expenses		19,026		42.7	%		4,503		20.0	%					23,529		35.0	%
Depreciation and amortization		2,378		5.3	%		340		1.5	%	$	352			3,070		4.6	%
Segment operating income		2,849		6.4	%		6,050		26.9	%		(5,914	)		2,985		4.4	%
Interest income												304			304
Income before income taxes															3,289
Total assets		60,361					13,562					109,408			183,331
Capital expenditures		3,987					441					4,400			8,828

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this report. Except for historical information, the discussion in this report contains certain forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology, such as “may,” “should,” “could,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “forecast” and similar expressions (or the negative of such expressions). Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks, uncertainties and other important factors. Given these risks, uncertainties and other important factors, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. Important factors that could cause actual results to differ materially include, but are not limited to, the following:

The current recession or a worsening of the United States and global economy could materially adversely affect our business. Our revenues and performance depend significantly on consumer confidence and spending, which have recently deteriorated due to the recession and may remain depressed for the foreseeable future. Some of the factors that could influence the levels of consumer confidence and spending include, without limitation, continuing conditions in the residential real estate and mortgage markets, access to credit, labor and healthcare costs, increases in fuel and other energy costs, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and operating results.

Increases in the cost and decreases in availability of high quality Arabica coffee beans could impact our profitability and growth of our business. Although we do not purchase coffee on the commodity markets, price movements in the commodity trading of coffee impact the prices we pay. Coffee is a trade commodity and, in general, its price can fluctuate depending on: weather patterns in coffee-producing countries; economic and political conditions affecting coffee-producing countries; foreign currency fluctuations; the ability of coffee-producing countries to agree to export quotas; and general economic conditions that make commodities more or less attractive investment options. If costs increase and we are unable to pass along increased coffee costs, our margin will decrease and our profitability will decrease accordingly. In addition, if we are not able to purchase sufficient quantities of high quality Arabica beans due to any of the above factors, we may not be able to fulfill the demand for our coffee, our revenue may decrease and our ability to expand our business may be negatively impacted.

	·	Because we have only one roasting facility, a significant interruption in the operation of our roasting and distribution facility could potentially disrupt our operations. A significant interruption in the operation of our roasting and distribution facility, whether as a result of a natural disaster, pandemic or other causes, could significantly impair our ability to operate our business. Since we only roast our coffee to order, we do not carry inventory of roasted coffee in our roasting plant. Therefore, a disruption in service in our roasting facility would impact our sales in our retail and specialty channels almost immediately. Moreover, our roasting and distribution facility and most of our stores are located near several major earthquake faults. The impact of a major earthquake on our facilities, infrastructure and overall operations is difficult to predict and an earthquake could seriously disrupt our entire business.
	·	Complaints or claims by current, former or prospective employees or governmental agencies could adversely affect us. We are subject to a variety of laws and regulations which govern such matters as minimum wages, overtime and other working conditions, various family leave mandates and a variety of other laws enacted, or rules and regulations promulgated, by federal, state and local governmental authorities that govern these and other employment matters. We have been, and in the future may be, the subject of complaints or litigation from current, former or prospective employees or governmental agencies. In addition, successful complaints against our competitors may spur similar lawsuits against us. For instance, in 2003, two lawsuits (which have since been settled) were filed against the Company alleging misclassification of employment position and sought damages, restitution, reclassification and attorneys’ fees and costs. In addition, on July 14, 2008, a complaint was filed alleging that store managers based in California were not paid overtime wages, were not provided meal or rest periods, were not provided accurate wage statements and were not reimbursed for business expenses. These types of claims and litigation involving current, former or prospective employees could divert our management’s time and attention from our business operations and might potentially result in substantial costs of defense, settlement or other disposition, which could have a material adverse effect on our results of operations in one or more fiscal periods.

For a discussion of additional material risks and uncertainties that the Company faces, see the discussion in the 2008 Form 10-K titled “Risk Factors.”

Company Overview and Industry Outlook

Peet’s is a specialty coffee roaster and marketer of fresh, deep-roasted whole bean coffee and tea sold through multiple channels of distribution for home and away-from-home enjoyment. Founded in Berkeley, California in 1966, Peet's has established a loyal customer base with strong brand awareness in California. Our growth strategy is based on the sale of whole bean coffee, tea and high-quality beverages in multiple channels of distribution including our own retail stores, grocery, home delivery, and office and restaurant accounts throughout the United States.

As we grow, we expect our operations to continue to be vertically integrated, allowing us to control the quality of our product at all stages. We purchase high quality Arabica coffee beans from countries around the world, and we use our artisan-roasting technique to bring out the distinctive flavor of our coffees. Because roasted coffee is perishable, we are committed to delivering our coffee under the strictest freshness standards. As a result, we do not stock or inventory roasted coffee. We roast to order and ship fresh coffee daily to our stores and customers. Control of purchasing, roasting, packaging and distribution of our coffee allows us to maintain our commitment to freshness, is cost effective, and enhances our margins and profit potential.

We expect the specialty coffee industry to continue to grow. We believe that this growth will be fueled by continued consumer interest in high quality coffee and related products. We believe that by offering high-quality products to consumers throughout the country, we will attract the same loyal customer base that we have attracted in California.

We believe growth opportunities exist in all of our distribution channels. We believe that our specialty sales can expand to geographies where we do not have a retail presence. Our first priority has been to develop primarily in the western U.S. markets where we already have a presence and have higher customer awareness. In the long-term, we expect to continue to open new retail stores in strategic west coast locations that meet our demographic profile and partner with distributors and companies who share our passion for quality and freshness and are willing and able to execute accordingly in the foodservice and office environment. In grocery, we expect to continue to expand into new markets although the full extent of our penetration will depend upon the development of specialty coffee as a category in many markets.

Coffee commodity costs began to decline in July 2008 after over four years of increases above the prior three to four year range. We expect the commodity market to continue to be volatile as worldwide demand, the strength of the dollar, and weather will continue to cause uncertainty in the market.

Our net revenues depend significantly on consumer confidence and spending, which have recently deteriorated due to the recession and may remain depressed for the foreseeable future. The current recession or a worsening of the United States and global economy could materially adversely affect our business as our revenues depend significantly on consumer confidence and spending. We believe that the current recession negatively impacted our net revenues in 2008 and the first quarter of 2009. Despite revenue growth that was less than our plan, we were able to increase our net earnings per share by 53% over the same period last year primarily by leveraging our infrastructure investments and diligently managing our costs. We plan to open approximately 6 to 8 new stores for the remainder of 2009, in addition to the two new stores we opened in the first quarter.

Results of Operations

The following discussion on results of operations should be read in conjunction with the consolidated financial statements and accompanying notes and the other financial data included elsewhere in this report.

	Thirteen weeks ended
	March 29,			March 30,
	2009			2008
Statement of income as a percent of net revenue:
Net revenue		100.0	%		100.0	%
Cost of sales and related occupancy expenses		45.2			47.6
Operating expenses		34.9			35.0
General and administrative expenses		8.2			8.3
Depreciation and amortization expenses		5.0			4.6
Income from operations		6.7			4.5
Interest income		0.1			0.5
Income before income taxes		6.8			5.0
Income tax provision		2.6			1.8
Net income		4.2	%		3.2	%

Percent of net revenue by business segment:
Retail stores		66.5	%		66.4	%
Specialty sales		33.5			33.6

Percent of net revenue by business category:
Whole bean coffee and related products		51.7	%		53.3	%
Beverages and pastries		48.3			46.7

Cost of sales and related occupancy expenses as a percent of segment revenue:
Retail stores		42.8	%		45.6	%
Specialty sales		49.9			51.6

Operating expenses as a percent of segment revenue:
Retail stores		41.2	%		42.7	%
Specialty sales		22.4			20.0

Percent increase (decrease) from prior year:
Net Revenue		7.4	%		16.7	%
Retail stores		7.6			14.3
Specialty sales		7.1			21.8
Cost of sales and related occupancy expenses		1.8			17.6
Operating expenses		7.0			18.8
General and administrative expenses		6.8			(6.4	)
Depreciation and amortization expenses		17.5			12.5

Selected operating data:
Number of retail stores in operation
Beginning of the period		188			166
Store openings		2			9
Store closures		-			-
End of the period		190			175

Thirteen Weeks Ended March 29, 2009 Compared to Thirteen Weeks Ended March 30, 2008

Net revenue

Net revenue for the thirteen weeks ended March 29, 2009 increased $5.0 million, or 7.4%, versus the same period in 2008 as a result of continued expansion of our retail and specialty sales segments. Sales of whole bean and related products increased 4.1% to $37.3 million. Net revenue from beverages and pastries increased 11.1% to $34.8 million.

In the retail segment, net revenue increased $3.4 million, or 7.6%, compared to the same period in 2008 primarily as a result of increased sales from the 16 new stores we opened in the last 12 months. During the first quarter of 2009, we opened 2 new stores compared to 9 during the same period in 2008. Sales of whole bean coffee and related products in the retail segment increased by 7.0% to $14.2 million, while sales of beverages and pastries increased by 7.8% to $33.8 million. The increase in net revenue was primarily related to sales at the stores we opened in 2008 and 2009. In addition, although the increased availability of Peet’s coffee in grocery stores continues to cannibalize whole bean sales in retail, sales in existing retail stores slightly increased over the prior year period primarily due to two special offering coffees.

In the specialty sales segment, net revenue increased $1.6 million, or 7.1%, compared to the first quarter of 2008. The increase in grocery was primarily due to new business we added in the eastern U.S. in the last two years. We added approximately 1,500 new grocery store accounts over the past 12 months, bringing the number of grocery stores selling Peet’s coffee to approximately 8,400. Net revenue in foodservice and office coffee sales increased 10.1% primarily due to new foodservice accounts.

	Thirteen weeks ended
(dollars in thousands)	March 29, 2009		March 30, 2008		Increase/(Decrease)
Grocery	$	13,387	$	12,061	$	1,326		11.0	%
Foodservice and office		6,706		6,092		614		10.1	%
Home delivery		4,029		4,373		(344	)	-7.9	%
Total specialty	$	24,122	$	22,526	$	1,596		7.1	%

Cost of sales and related occupancy expenses

Cost of sales and related occupancy expenses consist of product costs, including manufacturing costs, rent and other occupancy costs. As a percent of net revenue, cost of sales decreased from 47.6% in the first quarter of 2008 to 45.2% in the first quarter of 2009. The decrease from last year was due to cost control measures in the plant and retail stores, higher prices in retail and grocery, favorable product mix in foodservice and office, and lower milk and shipping costs, partially offset by higher green coffee costs.

For the remainder of the year, we expect continued savings from cost control measures and leverage of the roasting facility and neutral commodity costs in aggregate.

Operating expenses

Operating expenses consist of both retail and specialty operating costs, such as employee labor and benefits, repairs and maintenance, supplies, training, travel and banking and card processing fees. Operating expenses increased to $25.2 million, compared to $23.5 million for the first quarter of 2008, but decreased slightly as a percentage of net revenue to 34.9%, compared to 35.0%, for the first quarter of 2008. The decrease was primarily due to cost control measures in the retail business.

In the retail segment, operating expenses as a percent of net revenue decreased from 42.7% for the first quarter of 2008 to 41.2% for the first quarter of 2009 primarily due to cost control measures to lower training expenses, lower repairs expenses and lower supplies expenses, as well as leveraging of retail overhead costs.

As a percent of net revenue, specialty operating expenses increased from 20.0% for the first quarter of 2008 to 22.4% for the first quarter of 2009. The increase was primarily due to higher costs in grocery to support the expansion of the direct store delivery sales system into the eastern U.S.

General and administrative expenses

General and administrative expenses increased to $5.9 million compared to $5.6 million for the same period last year driven by higher payroll related costs.

Depreciation and amortization expenses

Depreciation and amortization expenses increased to $3.6 million, compared to $3.1 million for the corresponding period last year. The increase was primarily due to the opening of 16 new retail stores in the last 12 months.

Interest income

We invest in U.S. government, agency, municipal and guaranteed student loan obligations. Interest income includes interest income and gains or losses from the sale of these instruments. We earned $0.1 million in interest income in the first quarter of 2009, compared to $0.3 million for the same period last year. The difference was due to lower average cash balances and lower yields during the first quarter of 2009 compared to the same period in 2008.

Income tax provision

The effective income tax rate for the first quarter of 2009 is 37.7% compared to 36.4% during the first quarter of 2008 due to normal quarter to quarter rate fluctuations.

The Company does not expect the unrecognized tax benefits to change significantly within the next 12 months.

Liquidity and Capital Resources

At March 29, 2009 we had $12.0 million in cash and cash equivalents and $4.6 million in short-term marketable securities for a total of $16.6 million. Working capital was $35.0 million as of March 29, 2009.

Net cash provided by operations was $12.3 million for the thirteen weeks ended March 29, 2009 compared to $9.9 million for the same prior year period. Operating cash flows were positively impacted by higher net income, net of depreciation expense, timing of coffee purchases compared to the corresponding prior year period, and other changes in working capital.

Net cash provided by investing activities was $1.1 million for the thirteen weeks ended March 29, 2009 compared to a net use of $8.0 million in the prior year. Investing activities primarily relate to purchases of property, plant and equipment and maturities and purchases of marketable securities. During the thirteen week period ended March 29, 2009, we purchased property, plant and equipment totaling $3.8 million primarily related to improvements to existing stores, new stores and information technology support systems and hardware to support our growing infrastructure. Proceeds from maturities net of purchases of marketable securities and from a release of restricted investments totaled $4.9 million.

Net cash used by financing activities for the thirteen weeks ended March 29, 2009 was $6.1 million primarily from the repurchase of our common stock, offset by proceeds from stock option exercises.

For the next twelve months, we expect our cash flows from operations and cash and marketable securities to be sufficient for our operating and capital requirements, our existing share purchase program and our contractual obligations as they come due. The Company also has $25 million available through a credit agreement entered into on November 26, 2008 with Wells Fargo Bank, National Association, the proceeds of which may be used in the general course of business, including to fund working capital, capital expenditures, share repurchases and other needs of the Company. The line of credit has a maturity date of December 1, 2009, with an option by the Company to extend the maturity date to December 1, 2010.

The credit agreement contains customary affirmative and negative covenants, including a requirement to maintain the Company’s financial condition in accordance with certain ratios, such as Current Ratio, Leverage Ratio, EBITDAR Coverage Ratio, and minimum net income as defined in the agreement. In addition, events of default that permit the Bank to accelerate the Company’s outstanding obligations, include nonpayment of principal, interest, fees or other amounts, violation of covenants, inaccuracy of representations and warranties and upon the occurrence of bankruptcy and other adverse material change in the Company’s financial condition. Through March 29, 2009, there were no borrowings outstanding under this agreement and unused borrowing capacity under the credit agreement was $25.0 million as of March 29, 2009.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We invest excess cash in interest-bearing, U.S. government, agency, municipal and guaranteed student loan obligations. These financial instruments are all subject to fluctuations of daily interest rates. Therefore our investment portfolio is exposed to market risk from these changes.

The supply and price of coffee are subject to significant volatility and can be affected by multiple factors in the producing countries, including weather, political and economic conditions. In addition, green coffee bean prices have been affected in the past, and may be affected in the future, by the actions of certain organizations and associations that have historically attempted to influence commodity prices of green coffee beans through agreements establishing export quotas or restricting coffee supplies worldwide.

We currently use fixed-price purchase commitments, but in the past have used and may potentially in the future use coffee futures and coffee futures options to manage coffee supply and price risk.

Fixed-Price and Not-Yet-Priced Purchase Commitments

We enter into fixed-price purchase commitments in order to secure an adequate supply of quality green coffee beans and fix our cost of green coffee beans. These commitments are made with established coffee brokers and are denominated in U.S. dollars. We also enter into “not-yet-priced” commitments based on a fixed premium over the New York “C” market with the option to fix the price at any time. As of March 29, 2009, we had approximately $35.6 million in open fixed-priced purchase commitments and approximately $0.4 million in not-yet-priced commitments for a total of approximately $36.0 million with delivery dates ranging from April 2009 through July 2011. We believe, based on relationships established with our suppliers, that the risk of non-delivery on such purchase commitments is low.

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934, as amended, reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of March 29, 2009, the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable-assurance level.

There have been no changes in our internal controls over financial reporting during the fiscal quarter ended March 29, 2009 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases of Equity Securities

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
December 29, 2008 – February 1, 2009 (1), (2)		128,846	$	20.33		1,070,087		929,913
February 2, 2009 – March 1, 2009 (2)		89,508	$	20.55		1,159,595		840,405
March 2, 2009 – March 29, 2009 (2)		104,517	$	20.14		1,264,112		735,888
Total		322,871	$	20.33		1,264,112		735,888

(1)	Repurchases were made pursuant a stock repurchase program announced on September 6, 2006 providing for the repurchase of up to one million shares of the Company’s common stock with no deadline for completion. In January 2009, this plan was completed.

(2)

Repurchases were made pursuant a stock repurchase program announced on October 27, 2008, providing for the additional purchase of up to one million shares of the Company’s common stock, with no deadline for completion. Purchases under the program would be made from time to time on the open market at prevailing market prices or in negotiated transactions off the market.

Item 6. Exhibits

Exhibit

Description

3.1

Amended and Restated Articles of Incorporation.*

3.2

Amended and Restated Bylaws.*

4.1

Form of common stock certificate.*

31.1

Certification of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.2

Certification of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32.1

Certification of the Company’s Chief Executive Officer, Patrick O’Dea, pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2

Certification of the Company’s Chief Financial Officer, Thomas Cawley, pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the Registrant’s Information Statement of Form S-1 (File No. 333-47957) filed on October 13, 2000, as subsequently amended.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PEET’S COFFEE & TEA, INC.

Date: May 7, 2009	By:	/s/ Thomas P. Cawley
		Thomas P. Cawley
		Vice President, Chief Financial Officer and Secretary

Exhibit 31.1

CEO CERTIFICATION

I, Patrick O’Dea, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Peet’s Coffee & Tea, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date: May 7, 2009	By:	/s/ Patrick J. O’Dea
		Patrick J. O’Dea
		Chief Executive Officer

Exhibit 31.2

CFO CERTIFICATION

I, Thomas Cawley, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Peet’s Coffee & Tea, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date: May 7, 2009	By:	/s/ Thomas P. Cawley
		Thomas P. Cawley
		Chief Financial Officer

Exhibit 32.1

CEO CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.Sec. 1350, as adopted), Patrick O’Dea, the Chief Executive Officer of Peet’s Coffee & Tea, Inc. (the “Company”) hereby certifies that, to the best of his knowledge:

1. The Company’s quarterly report on Form 10-Q for the period ended March 29, 2009, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report” ) fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has set his hand hereto as of the 7th day of May, 2009.


			/s/ Patrick J. O’Dea
			Patrick J. O’Dea
			Chief Executive Officer

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Peet’s Coffee & Tea, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

Exhibit 32.2

CFO CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.Sec. 1350, as adopted), Thomas Cawley, Chief Financial Officer of Peet’s Coffee & Tea, Inc. (the “ Company”) hereby certifies that, to the best of his knowledge:

1. The Company ’ s quarterly report on Form 10-Q for the period ended March 29, 2009, to which this Certification is attached as Exhibit 32.2 (the “Periodic Report”) fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has set his hand hereto as of the 7th day of May, 2009.


			/s/ Thomas P. Cawley
			Thomas P. Cawley
			Chief Financial Officer