Seattle-based Tully's has agreed to sell the rights to operate its retail stores in Japan to Foodx Globe for $17.5 million. Under terms of the...

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Seattle-based Tully’s has agreed to sell the rights to operate its retail stores in Japan to Foodx Globe for $17.5 million.

Under terms of the deal, Japanese licensee Foodx will receive Tully’s trademarks, store designs and other intellectual-property assets for its 270 Japanese stores.

The deal is expected to close Aug. 31.

While Tully’s will no longer get royalties from Foodx, the two businesses will still coordinate product offerings.

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“They’re buying the brand, and it’s our brand,” Tully’s founder and Chairman Tom O’Keefe said. “We’ll still work together.”

The specialty-coffee retailer has been trying to raise raise money through equity or debt to open new U.S. retail stores, as its cash stockpile has dwindled. Tully’s ended the first quarter with $193,000 in cash.

O’Keefe said the deal would allow the company to carry out expansion plans without diluting shareholder value or having to pay interest.

He said the sale would not have a material impact on future earnings.

“While [Foodx)] is going to stop paying us royalties, we believe that we’re going to make more money” quickly by opening new U.S. retail stores, O’Keefe said.

Last year, Tully’s had talked with Foodx about “integrating” the two businesses, but Tully’s broke off the negotiations.

The failed merger talks cost Tully’s $550,000 in fees and expenses.

Tully’s yesterday reported a first-quarter loss of $885,000, narrowing 11.2 percent from the year-ago quarter.

Sales rose 5.4 percent to $13.7 million.

While sales for the wholesale division rose 47.1 percent, its retail business remained flat.

Comparable-store sales — a key retail gauge that measures sales for stores open at least a year — fell 1.3 percent for the quarter vs. a year ago.

The company has never posted a net profit.

Tully’s has focused on improving store service, including hiring more staff and introducing new products.

Monica Soto Ouchi: 206-515-5632 or msoto@seattletimes.com

Tully’s results
Dollar figures in thousands, except per share; parentheses denote losses.
July 3 June 27 %
1st QTR 2005 2004 CHG
Profit ($885) ($997) +11.2
Per share (0.05) (0.06) +16.7
Revenue 13,746 13,038 +5.4