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Press Release

Einstein Noah Restaurant Group Reports Second Quarter 2012 Financial Results

August 02 2012

Company-owned Restaurant Sales Grew 3.0%
Cost of Goods Sold Improved 210 Basis Points

LAKEWOOD, Colo.--(BUSINESS WIRE)--Aug. 2, 2012-- Einstein Noah Restaurant Group, Inc. (NASDAQ: BAGL), a leader in the quick-casual segment of the restaurant industry operating under the Einstein Bros.® Bagels, Noah's New York Bagels®, and Manhattan Bagel® brands, today reported financial results for the second quarter ended July 3, 2012.

Highlights for the Second Quarter 2012 Compared to the Second Quarter 2011:

  • Total revenues increased 2.2% to $106.0 million from $103.7 million, reflecting a 3.0% increase in Company-owned restaurant sales, while manufacturing and commissary revenues decreased 7.2% due to recent commissary closures.
  • System-wide comparable store sales increased +1.3%, the fifth consecutive quarter of positive trends.
  • Net income was $3.0 million, or $0.17 per diluted share, which included $0.02 per diluted share for charges related to the strategic alternatives review process, compared to $3.1 million, or $0.18 per diluted share, which included gains of $0.03 per diluted share for the sale of two restaurants and the receipt of insurance proceeds.
  • Outstanding indebtedness was reduced by $1.9 million since April 3, 2012 to $70.5 million.
  • Adjusted EBITDA increased 13.7% to $11.0 million from $9.7 million. (*)

Jeff O’Neill, President and Chief Executive Officer, stated, “In addition to extending our track record of generating positive system-wide comparable store sales to five consecutive quarters, we also realized a 150 basis point improvement in store margins and a 13.7% increase in adjusted EBITDA in the second quarter. Our comparable store sales increase was driven through a combination of favorable product mix, pricing, and expanded catering sales, while the sequential improvement in traffic trends reflected the support for our new Smart Choices menu and expanded specialty beverage program. In addition, we are currently conducting a regional test focused on traffic building initiatives and, based on the positive response, have plans to roll this program through the balance of the year.”

O’Neill concluded, “As announced last quarter, our Board of Directors is reviewing strategic alternatives to maximize value for all stockholders, and we have no further update to provide at this time. Our Company priorities of executing on our asset-light expansion strategy, de-levering our balance sheet, paying a quarterly dividend, building on our comparable sales momentum, and realizing operational improvements through our comprehensive cost savings program have not changed. In fact, we are pleased to have already made substantial progress on these action items and expect continued focus will further strengthen our business model.”

Second Quarter 2012 Financial Results

For the second quarter ended July 3, 2012, system-wide comparable store sales increased +1.3%, reflecting +3.9% growth in average check that was driven primarily by product mix, pricing, and an increase in catering sales, and partially offset by lower comparable transactions. Total revenues increased 2.2% to $106.0 million from $103.7 million, reflecting a 3.0% increase in Company-owned restaurant sales, while manufacturing and commissary revenues decreased 7.2% due to recent commissary closures.

Restaurant gross margin as a percentage of company-owned restaurant sales increased 150 basis points to 17.7% from 16.2%, and was due primarily to operational efficiencies in food costs, and to a lesser extent, overall sales leveraging and higher pricing.

Manufacturing and commissary gross margin as a percentage of manufacturing and commissary revenues increased from 12.0% to 22.9%, and was due to benefits from various cost initiatives related to the efficiency program, but particularly, the closure of all five commissaries by the end of the first quarter of this year.

Overall, gross margin was $21.1 million in the second quarter of 2012 compared to $18.3 million in the second quarter of 2011, and as a percentage of total revenues, increased to 19.9% from 17.7% in the year-ago period.

General and administrative expenses increased to $10.0 million in the second quarter of 2012 from $8.6 million in the second quarter of 2011, and was primarily due to higher variable incentive compensation.

Strategic alternatives expenses were $0.4 million in the second quarter of 2012 for which there was no comparable expense in the second quarter of 2011.

Adjusted EBITDA rose 13.7% to $11.0 million in the second quarter of 2012 compared to $9.7 million in the second quarter of 2011. (*)

Income from operations decreased by $0.4 million to $5.6 million in the second quarter of 2012. In the second quarter of 2011, the Company recorded a gain of $0.9 million on the sale of two restaurants to a franchisee and the receipt of insurance proceeds related to a fire at one Company-owned restaurant.

Net income was $3.0 million or $0.17 per diluted share, which included $0.02 per diluted share for charges related to the strategic alternatives review process. This compares to net income of $3.1 million, or $0.18 per diluted share, in the second quarter of 2011, which included a gain of $0.03 per diluted share related to the sale of two restaurants to a franchisee and the receipt of insurance proceeds related to a fire at one Company-owned restaurant.

* A reconciliation of the non-GAAP measure to the nearest GAAP measure can be found in the accompanying tables below.

Restaurant Development

As of July 3, 2012, there were 783 Einstein Bros.® Bagels, Noah's New York Bagels®, and Manhattan Bagel® branded restaurants in operation. During the second quarter of 2012, the Company added 10 restaurants to its operations and ended the quarter with 448 Company-owned and operated restaurants, while franchisees and licensees ended the period with 95 and 240 restaurants, respectively.

Fiscal Year 2012 Guidelines

The Company is providing the following updated guidelines for the 52-week period and as noted.

  • 60 to 80 system-wide openings, including 8 to 12 Company-owned restaurants, 12 to 14 franchise restaurants, and 40 to 54 license restaurants.
  • Capital expenditures of $24 million to $26 million.
  • Commodity inflation of 2% to 3%.
  • The Company has secured price protection on approximately 90% and 100% of its wheat and coffee requirements, respectively.
  • General and administrative expenses of $10 million to $11 million per quarter, which includes incentive compensation expenditures.
  • An annual effective tax rate of approximately 39%; however, the Company will continue to only pay minimal cash-taxes for the next several years.

Conference Call Today

The Company will host a conference call to discuss its second quarter 2012 financial results today at 3:00 p.m. Mountain Time (5:00 p.m. Eastern Time). Hosting the call will be Jeff O’Neill, President and Chief Executive Officer, and Manny Hilario, Chief Financial Officer.

The dial-in numbers for the conference call are 877-397-0298 for domestic toll-free calls and 719-325-4903 for international. A telephone replay will be available through August 9, 2012, and may be accessed by dialing 877-870-5176 for domestic toll-free calls or 858-384-5517 for international. The conference ID is 5016242.

The conference call will also be webcast live from Einstein Noah’s website at www.einsteinnoah.com.

About Einstein Noah Restaurant Group

Einstein Noah Restaurant Group, Inc. is a leading company in the quick casual restaurant industry that operates and licenses locations primarily under the Einstein Bros.® and Noah's New York Bagels® brands and primarily franchises locations under the Manhattan Bagel® brand. The Company's retail system consists of over 780 restaurants in 39 states and the District of Columbia. It also operates a dough production facility. The Company's stock is traded on the NASDAQ under the symbol BAGL. Visit www.einsteinnoah.com for additional information.

Forward Looking Statement Disclosure

Certain statements in this press release, including statements under the heading “Fiscal Year 2012 Guidelines”, constitute forward-looking statements or statements which may be deemed or construed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “guideline,” “forecast,” “estimate,” “project,” “plan to,” “is designed to,” “look forward,” “expects,” “prospects,” “intend,” “indications,” “expect,” “should,” “would,” “believe,” “target,” “trend,” “contemplate,” “anticipates” and similar expressions and all statements which are not historical facts are intended to identify forward-looking statements. These forward-looking statements involve and are subject to known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance (financial or operating), or achievements to differ materially from the future results, performance (financial or operating), or achievements expressed or implied by such forward-looking statements. These unknown risks, uncertainties and other factors include but are not limited to (i) the results for the 2012 third quarter and year over year revenue and other financial results, comparable store sales, and margin performance are not necessarily indicative of future results, and our expectations for full year 2012 results are subject to shifting consumer preferences, new product execution, economic conditions, weather, competition, seasonal factors and cost containment initiatives, among other factors; (ii) our ability to improve transactions and our long-term growth are dependent upon consumer acceptance of our products and marketing initiatives, general economic and market conditions, among other factors; (iii) our ability to continue to improve store level margins and contain costs are dependent upon successfully executing plans for productivity improvements, labor efficiencies and food cost management; (iv) the ability to develop and open new company-owned, license and franchise restaurants and upgrade company-owned restaurants is dependent upon the availability of capital, securing acceptable financing and lease terms for desired locations, as well as the availability of contractors and materials, and securing necessary permits and licenses; (v) our ability to expand our development pipeline and ultimately expand our royalty stream is dependent upon the factors listed in (iv), above, and our ability to attract franchisees and licensees and negotiate favorable agreements; (vi) our ability to obtain lower costs for agricultural commodities is dependent upon weather, crop yield and production, the market, economic conditions, including market and inflationary pressures; (vii) our ability to build brand equity and create long-term value for our shareholders is dependent upon the success of our initiatives, financial results and the factors listed above, among other factors. These and other risks are more fully discussed in the Company's SEC filings.

Use of Non-GAAP Financial Information

In addition to the results reported in accordance with accounting principles generally accepted in the United States of America (“GAAP”) included in this filing, the Company has provided certain non-GAAP financial information, including earnings before interest, taxes, depreciation, amortization, restructuring expenses and other operating expenses/(income) (“adjusted EBITDA”) and free cash flow, which the Company defines as net cash provided by operating activities less net cash used in investing activities. Management believes that the presentation of this non-GAAP financial information provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of the Company’s results. In addition, the Company’s Board of Directors uses this non-GAAP financial information to evaluate the performance of the Company and the management team. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. The Company has reconciled the non-GAAP financial information to the nearest GAAP measure.

The Company includes in this document information on system-wide comparable store sales percentages. System-wide comparable store sales percentages refer to changes in sales of our restaurants, whether operated by the company or by franchisees and licensees, in operation for six fiscal quarters including those restaurants temporarily closed for an immaterial amount of time. Some of the reasons restaurants may be temporarily closed include remodeling, road construction, rebuilding related to site-specific catastrophes and natural disasters. Franchise and license comparable store sales percentages are based on sales of franchised and licensed restaurants, as reported by franchisees and licensees. Management reviews the increase or decrease in comparable sales to assess business trends. Comparable store sales exclude closed locations. When we intend to relocate a restaurant, we consider that restaurant to be temporarily closed for up to twelve months after it ceases operations. If a suitable relocation site has not been identified by the end of twelve months, we consider the restaurant to be permanently closed. Until that time, we include the restaurant in our open store count, but exclude its sales from our comparable store sales. As of July 3, 2012, there are five stores that we intend to relocate, and are thus considered to be temporarily closed.

The Company uses company-owned comparable store sales, franchise and license sales and the resulting system-wide sales information internally in connection with restaurant development decisions, planning, and budgeting analyses. The Company believes comparable store sales information is useful in assessing consumer acceptance of our brands; facilitates an understanding of our financial performance and the overall direction and trends of sales and operating income; helps the Company appreciate the effectiveness of its advertising and marketing initiatives; and provides information that is relevant for comparison within the industry.

Comparable store sales percentages are non-GAAP financial measures, which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP, and may not be equivalent to comparable store sales as defined or used by other companies. The Company does not record franchise or license restaurant sales as revenues. However, royalty revenues are calculated based on a percentage of franchise and license restaurant sales, as reported by the franchisees or licensees.

EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
   
 
13 weeks ended Increase/
(in thousands) (Decrease)
June 28, July 3, 2012
  2011     2012   vs. 2011
 
Revenues:
Company-owned restaurant sales $ 93,613 $ 96,399 3.0 %
Manufacturing and commissary revenues 7,797 7,239 (7.2 %)
Franchise and license related revenues   2,267     2,355   3.9 %
Total revenues 103,677 105,993 2.2 %
 

Cost of sales (exclusive of

depreciation and amortization shown separately below):

Company-owned restaurant costs
Cost of goods sold 28,164 27,003 (4.1 %)
Labor costs 27,156 28,208 3.9 %
Rent and related expenses 10,023 10,470 4.5 %
Other operating costs 10,226 10,176 (0.5 %)
Marketing costs   2,924     3,486   19.2 %
Total company-owned restaurant costs 78,493 79,343 1.1 %
 
Manufacturing and commissary costs   6,865     5,581   (18.7 %)
Total cost of sales 85,358 84,924 (0.5 %)
 
Gross margin:
Company-owned restaurant 15,120 17,056 12.8 %
Manufacturing and commissary 932 1,658 77.9 %
Franchise and license   2,267     2,355   3.9 %
Total gross margin 18,319 21,069 15.0 %
 
Operating expenses:
General and administrative expenses 8,615 10,032 16.4 %
Depreciation and amortization 4,607 5,011 8.8 %
Restructuring expenses - (74 )

**

Strategic alternatives expenses - 435 **
Other operating (income) expenses, net   (936 )   75   (108.0 %)
Income from operations 6,033 5,590 (7.3 %)
 
Interest expense, net   823     778   (5.5 %)
Income before income taxes 5,210 4,812 (7.6 %)
Provision for income taxes   2,130     1,856   (12.9 %)
Net income $ 3,080   $ 2,956   (4.0 %)
 
Net income – Basic $ 0.18 $ 0.17 (5.6 %)
Net income – Diluted $ 0.18 $ 0.17 (5.6 %)
Cash dividend declared per common share $ 0.125 $ 0.125 0.0 %
 
Weighted average number of common shares outstanding:
Basic 16,725,827 16,935,195 1.3 %
Diluted 17,004,316 17,213,322 1.2 %
 
** Not meaningful

EINSTEIN NOAH RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

PERCENTAGE RELATIONSHIP TO TOTAL REVENUES

(unaudited)

    13 weeks ended
(percent of total revenue)
June 28,   July 3,
2011 2012
 
Revenues:
Company-owned restaurant sales 90.3 % 91.0 %
Manufacturing and commissary revenues 7.5 % 6.8 %
Franchise and license related revenues 2.2 % 2.2 %
Total revenues 100.0 % 100.0 %
 
Cost of sales (exclusive of depreciation and amortization shown separately below):
Company-owned restaurant costs (1)
Cost of goods sold 30.1 % 28.0 %
Labor costs 29.0 % 29.3 %
Rent and related expenses 10.7 % 10.8 %
Other operating costs 10.9 % 10.6 %
Marketing costs 3.1 % 3.6 %
Total company-owned restaurant costs 83.8 % 82.3 %
 
Manufacturing and commissary costs (2) 88.0 % 77.1 %
Total cost of sales 82.3 % 80.1 %
 
Gross margin:
Company-owned restaurant (1) 16.2 % 17.7 %
Manufacturing and commissary (2) 12.0 % 22.9 %
Franchise and license 100.0 % 100.0 %
Total gross margin 17.7 % 19.9 %
 
Operating expenses:
General and administrative expenses 8.3 % 9.5 %
Depreciation and amortization 4.5 % 4.7 %
Restructuring expenses 0.0 % (0.1 %)
Strategic alternatives expenses 0.0 % 0.4 %
Other operating (income) expenses, net (0.9 %) 0.1 %
Income from operations 5.8 % 5.3 %
 
Interest expense, net 0.8 % 0.7 %
Income before income taxes 5.0 % 4.6 %
Provision for income taxes 2.0 % 1.8 %
Net income 3.0 % 2.8 %
 
(1) As a percentage of company-owned restaurant sales
(2) As a percentage of manufacturing and commissary revenues
EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
   
 
26 weeks ended Increase/
(in thousands) (Decrease)
June 28, July 3, 2012
2011 2012 vs. 2011
 
Revenues:
Company-owned restaurant sales $ 183,412 $ 189,846 3.5%
Manufacturing and commissary revenues 16,774 15,689 (6.5%)
Franchise and license related revenues 4,736 5,331 12.6%
Total revenues 204,922 210,866 2.9%
 
Cost of sales (exclusive of depreciation and amortization shown separately below):
Company-owned restaurant costs
Cost of goods sold 54,278 53,372 (1.7%)
Labor costs 54,186 55,076 1.6%
Rent and related expenses 20,278 20,747 2.3%
Other operating costs 19,341 19,503 0.8%
Marketing costs 6,226 5,990 (3.8%)
Total company-owned restaurant costs 154,309 154,688 0.2%
 
Manufacturing and commissary costs 14,449 12,477 (13.6%)
Total cost of sales 168,758 167,165 (0.9%)
 
Gross margin:
Company-owned restaurant 29,103 35,158 20.8%
Manufacturing and commissary 2,325 3,212 38.2%
Franchise and license 4,736 5,331 12.6%
Total gross margin 36,164 43,701 20.8%
 
Operating expenses:
General and administrative expenses 18,705 21,115 12.9%
Depreciation and amortization 9,147 9,778 6.9%
Restructuring expenses 213 480 125.4%
Strategic alternatives expenses - 435 **
Other operating (income) expenses, net (823) 259 (131.5%)
Income from operations 8,922 11,634 30.4%
 
Interest expense, net 1,733 1,578 (8.9%)
Income before income taxes 7,189 10,056 39.9%
Provision for income taxes 2,941 3,896 32.5%
Net income $ 4,248 $ 6,160 45.0%
 
Net income – Basic $ 0.26 $ 0.36 38.5%
Net income – Diluted $ 0.25 $ 0.36 44.0%
Cash dividends declared per common share $ 0.125 $ 0.250 100.0%
 
Weighted average number of common shares outstanding:
Basic 16,555,617 16,892,986 2.0%
Diluted 16,847,493 17,162,952 1.9%
 
** Not meaningful

EINSTEIN NOAH RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except earnings per share and related share information)

(unaudited)

 
  26 weeks ended
(percent of total revenue)
June 28,   July 3,
2011 2012
 
Revenues:
Company-owned restaurant sales 89.5 % 90.0 %
Manufacturing and commissary revenues 8.2 % 7.5 %
Franchise and license related revenues 2.3 % 2.5 %
Total revenues 100.0 % 100.0 %
 
Cost of sales (exclusive of depreciation and amortization shown separately below):
Company-owned restaurant costs (1)
Cost of goods sold 29.6 % 28.1 %
Labor costs 29.5 % 29.0 %
Rent and related expenses 11.1 % 10.8 %
Other operating costs 10.5 % 10.3 %
Marketing costs 3.4 % 3.2 %
Total company-owned restaurant costs 84.1 % 81.5 %
 
Manufacturing and commissary costs (2) 86.1 % 79.5 %
Total cost of sales 82.4 % 79.3 %
 
Gross margin:
Company-owned restaurant 15.9 % 18.5 %
Manufacturing and commissary 13.9 % 20.5 %
Franchise and license 100.0 % 100.0 %
Total gross margin 17.6 % 20.7 %
 
Operating expenses:
General and administrative expenses 9.1 % 10.0 %
Depreciation and amortization 4.5 % 4.6 %
Restructuring expenses 0.1 % 0.2 %
Strategic alternatives expenses 0.0 % 0.2 %
Other operating (income) expenses, net (0.4 %) 0.1 %
Income from operations 4.3 % 5.6 %
 
Interest expense, net 0.8 % 0.8 %
Income before income taxes 3.5 % 4.8 %
Provision for income taxes 1.4 % 1.9 %
Net income 2.1 % 2.9 %
 

(1) As a percentage of Company-owned restaurant sales

(2) As a percentage of manufacturing revenues

 

* Not applicable

** Not meaningful

EINSTEIN NOAH RESTAURANT GROUP, INC.
SELECTED FINANCIAL INFORMATION
(in thousands)
   
Selected Consolidated Balance Sheet Information: January 3, 2012 July 3, 2012
Cash and cash equivalents, end of period $ 8,652 $ 14,651
Property, plant and equipment, net 59,017 56,192
Total assets 204,732 206,059
Total debt 74,200 70,450
Total liabilities 116,919 114,335
 
 
 
26 weeks ended
Selected Consolidated Cash Flow Information: June 28, 2011 July 3, 2012
Net cash provided by operating activities $ 16,450 $ 23,897
Net cash used in investing activities (7,127 ) (10,665 )
Net cash used in financing activities (11,131 ) (7,233 )
Free cash flow (cash provided by operating

activities less cash used in investing activities)

9,323 13,232
Reconciliation of GAAP to Non-GAAP Measures:   13 weeks ended   26 weeks ended
  June 28,   July 3, June 28,   July 3,
2011   2012   2011 2012
 
Net income $ 3,080 $ 2,956 $ 4,248 $ 6,160
Adjustments to net income:
Interest expense, net 823 778

 

1,733

 

1,578
Provision for income taxes 2,130 1,856

 

2,941

 

3,896
Depreciation and amortization 4,607 5,011

 

9,147

 

9,778
Restructuring expenses - (74 )

 

213

 

480
Strategic alternatives expenses - 435

 

-

 

435
Other operating (income) expense, net   (936 )   75     (823 )   259
 
Adjusted EBITDA $ 9,704   $ 11,037   $ 17,459   $ 22,586

EINSTEIN NOAH RESTAURANT GROUP, INC.

SELECTED FINANCIAL INFORMATION

 
13 weeks ended July 3, 2012
Company      
Owned Franchised Licensed Total
Consolidated Total
Total beginning balance 447 91 239 777
Opened restaurants 1 5 4 10
Closed restaurants - (1 ) (3 ) (4 )
Refranchising, Net - -   -   -  
Total ending balance 448 95   240   783  
  Trailing 12 Months Activity
Company      
Owned Franchised Licensed Total
Consolidated Total
Beginning balance June 28, 2011 432

 

93 211 736
Opened restaurants 9

 

11 40 60
Closed restaurants (1 )

 

(1 ) (11 ) (13 )
Refranchising, Net 8  

 

(8 ) -   -  
Ending balance July 3, 2012 448  

 

95   240   783  

Source: Einstein Noah Restaurant Group, Inc.

Investor Relations:
Tom Ryan, 203-682-8200
tryan@icrinc.com
Raphael Gross, 203-682-8253
rgross@icrinc.com
or
Media Relations:
Michael Fox, 203-682-8200
mfox@icrinc.com
Liz Brady, 646-277-1226
lbrady@icrinc.com

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