Tully's aims to perk up prospects

Tully's Coffee needs to grow faster.

That's the diagnosis from new Chief Executive John Buller, who took the post in August after serving more than a year on the Seattle company's board.

The brand is stronger than the business, he said. "It was driving me crazy. So here I am."

Buller doubts Tully's can turn a profit until it has more than its current stable of 123 stores. But it can't afford to add new stores without more cash.

So, the CEO aims to drive sales up quickly to prove it can be done, then find more investors to propel store growth.

If it works, Tully's will begin growing in earnest long after Starbucks has blanketed much of the country, a prospect that does not intimidate Buller.

"The Oracle of Coffee states that there's room for 40,000 stores [worldwide]," he said, in a nod to Starbucks Chairman Howard Schultz. "What's a few hundred stores he doesn't get?"

Tully's has not reported a true profit in all of its 14 years in business. Last year, it earned $20 million in the second quarter, all from the sale of its Japan operations and a related transaction.

This year, it was back to business as usual, with a second-quarter loss of $2.3 million, according to a Wednesday filing with the Securities and Exchange Commission.

The loss included $200,000 in severance pay to departing President John Dresel. The company also agreed to pay Buller at least $200,000 a year plus an unspecified bonus.

Net sales shrank 7 percent in the second quarter, although same-store sales were positive for the first time in over two years.

Tully's is not publicly traded but must file with the SEC because it has more than 500 shareholders. Founder and Chairman Tom O'Keefe owns about 30 percent of the company.

The filing says Tully's expects to seek more funding the next year — no surprise, since it had just $1.3 million in cash at quarter's end.

Until now, Tully's has been more focused on its coffee than its stores, Buller said.

He wants to expand on that, using his 21 years' experience with The Bon Marché.

To spur sales, Tully's is offering new pastries from Alki Bakery, switching from Hershey's to Ghirardelli chocolate in its drinks, and this month selling limited-edition Crimson Roast and Husky Blend for supporters of Washington State University and the University of Washington.

"This is the food version of cosmetics," Buller said. "It's all about product news, product stories and what's new."

Melissa Allison: 206-464-3312 or mallison@seattletimes.com