Q1 2013 Einstein Noah Restaurant Group Inc. Earnings Conference Call
May 2, 2013 @ 5 PM ET
Press Release
Einstein Noah Restaurant Group Reports Third Quarter 2012 Financial Results
November 12 2012
Sixth Consecutive Quarter of Positive System-Wide Comparable Restaurant Sales
Net Income Increases 20.4% to
Highlights for the Third Quarter 2012 Compared to the Third Quarter 2011:
- Total revenues increased 1.9% to
$105.5 million from$103.5 million , reflecting a 3.4% increase in Company-owned restaurant sales. - System-wide comparable store sales increased 0.2%, the sixth consecutive quarter of positive trends.
- Net income was
$3.4 million (+20.4% vs. prior year), or$0.20 per diluted share, compared to a net income of$2.8 million , or$0.17 per diluted share, in the year-ago period. In the third quarter of 2012, the Company incurred$0.3 million , or$0.01 per diluted share, in pre-tax expenses related to the strategic alternatives review process. - Adjusted EBITDA increased 13.6% to
$11.7 million from$10.3 million . (*) - Year-to-date operating cash flow increased 23.2% to
$31.3 million from$25.4 million .
Jeff O'Neill, President and Chief Executive Officer, stated, "We improved our net income compared to the third quarter last year by realizing operational improvements in cost of goods and manufacturing, and delivered our sixth consecutive quarter of comparable store sales growth despite some softness related to the
Third Quarter 2012 Financial Results
For the third quarter ended
Manufacturing and commissary gross margin as a percentage of manufacturing and commissary revenues increased from 8.7% to 23.6% driven by benefits from various cost initiatives, but particularly, the closure of all five commissaries by the end of the first quarter of 2012.
Overall, gross profit was
General and administrative expenses increased to
Adjusted EBITDA rose 13.6% to
Income from operations increased by
Net income was
* A reconciliation of the non-GAAP measure to the nearest GAAP measure can be found in the accompanying tables below.
As of
Fiscal Year 2012 Guidelines
The Company is providing the following updated guidelines for the 52-week period and as noted.
- 66 to 72 system-wide openings, including 14 to 15 Company-owned restaurants, 12 to 14 franchise restaurants, and 40 to 43 license restaurants.
- Capital expenditures of
$24 million to $26 million . - Commodity inflation of 2% to 3%.
- The Company has secured price protection for all of its wheat and coffee requirements, respectively.
- General and administrative expenses of
$10 million to $11 million for the fourth 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.
For fiscal year 2013, the Company has secured price protection for approximately 33% of its wheat and 96% of its coffee requirements, respectively.
Conference Call Today
The Company will host a conference call to discuss its third quarter 2012 financial results today at
The dial-in numbers for the conference call are 888-430-8709 for domestic toll-free calls and 719-457-2689 for international. A telephone replay will be available through
The conference call will also be webcast live from Einstein Noah's website at www.einsteinnoah.com.
About
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
Use of Non-GAAP Financial Information
In addition to the results reported in accordance with accounting principles generally accepted in
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
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) | ||||||||||||
| September 27, | October 2, | 2012 | |||||||||||
| 2011 | 2012 | vs. 2011 | |||||||||||
| Revenues: | |||||||||||||
| Company-owned restaurant sales | $ | 92,311 | $ | 95,418 | 3.4 | % | |||||||
| Manufacturing and commissary revenues | 8,766 | 7,507 | (14.4 | %) | |||||||||
| Franchise and license related revenues | 2,455 | 2,569 | 4.6 | % | |||||||||
| Total revenues | 103,532 | 105,494 | 1.9 | % | |||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below): | |||||||||||||
| Company-owned restaurant costs | |||||||||||||
| Cost of goods sold | 27,693 | 26,676 | (3.7 | %) | |||||||||
| Labor costs | 27,329 | 27,906 | 2.1 | % | |||||||||
| Rent and related expenses | 9,926 | 10,761 | 8.4 | % | |||||||||
| Other operating costs | 10,145 | 10,649 | 5.0 | % | |||||||||
| Marketing costs | 1,567 | 3,017 | 92.5 | % | |||||||||
| Total company-owned restaurant costs | 76,660 | 79,009 | 3.1 | % | |||||||||
| Manufacturing and commissary costs | 8,004 | 5,738 | (28.3 | %) | |||||||||
| Total cost of sales | 84,664 | 84,747 | 0.1 | % | |||||||||
| Gross margin: | |||||||||||||
| Company-owned restaurant | 15,651 | 16,409 | 4.8 | % | |||||||||
| Manufacturing and commissary | 762 | 1,769 | 132.2 | % | |||||||||
| Franchise and license | 2,455 | 2,569 | 4.6 | % | |||||||||
| Total gross margin | 18,868 | 20,747 | 10.0 | % | |||||||||
| Operating expenses: | |||||||||||||
| General and administrative expenses | 8,610 | 9,091 | 5.6 | % | |||||||||
| Depreciation and amortization | 4,836 | 5,014 | 3.7 | % | |||||||||
| Restructuring expenses | 121 | - | ** | ||||||||||
| Strategic alternatives expense | - | 250 | ** | ||||||||||
| Other operating expenses, net | 47 | 60 | 27.7 | % | |||||||||
| Income from operations | 5,254 | 6,332 | 20.5 | % | |||||||||
| Interest expense, net | 772 | 744 | (3.6 | %) | |||||||||
| Income before income taxes | 4,482 | 5,588 | 24.7 | % | |||||||||
| Provision for income taxes | 1,647 | 2,174 | 32.0 | % | |||||||||
| Net income | $ | 2,835 | $ | 3,414 | 20.4 | % | |||||||
| Net income - Basic | $ | 0.17 | $ | 0.20 | 17.6 | % | |||||||
| Net income - Diluted | $ | 0.17 | $ | 0.20 | 17.6 | % | |||||||
| Cash dividend declared per common share | $ | 0.125 | $ | 0.125 | 0.0 | % | |||||||
| Weighted average number of common shares outstanding: | |||||||||||||
| Basic | 16,785,934 | 16,961,298 | 1.0 | % | |||||||||
| Diluted | 17,013,086 | 17,292,305 | 1.6 | % | |||||||||
| ** Not meaningful | |||||||||||||
| EINSTEIN NOAH RESTAURANT GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| PERCENTAGE RELATIONSHIP TO TOTAL REVENUES | ||||||||
| (unaudited) | ||||||||
| 13 weeks ended | ||||||||
| (percent of total revenue) | ||||||||
| September 27, | October 2, | |||||||
| 2011 | 2012 | |||||||
| Revenues: | ||||||||
| Company-owned restaurant sales | 89.2 | % | 90.5 | % | ||||
| Manufacturing and commissary revenues | 8.4 | % | 7.1 | % | ||||
| Franchise and license related revenues | 2.4 | % | 2.4 | % | ||||
| 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 | 30.0 | % | 27.9 | % | ||||
| Labor costs | 29.6 | % | 29.2 | % | ||||
| Rent and related expenses | 10.7 | % | 11.3 | % | ||||
| Other operating costs | 11.0 | % | 11.2 | % | ||||
| Marketing costs | 1.7 | % | 3.2 | % | ||||
| Total company-owned restaurant costs | 83.0 | % | 82.8 | % | ||||
| Manufacturing and commissary costs (2) | 91.3 | % | 76.4 | % | ||||
| Total cost of sales | 81.8 | % | 80.3 | % | ||||
| Gross margin: | ||||||||
| Company-owned restaurant (1) | 17.0 | % | 17.2 | % | ||||
| Manufacturing and commissary (2) | 8.7 | % | 23.6 | % | ||||
| Franchise and license | 100.0 | % | 100.0 | % | ||||
| Total gross margin | 18.2 | % | 19.7 | % | ||||
| Operating expenses: | ||||||||
| General and administrative expenses | 8.3 | % | 8.6 | % | ||||
| Depreciation and amortization | 4.7 | % | 4.8 | % | ||||
| Restructuring expenses | 0.1 | % | 0.0 | % | ||||
| Strategic alternatives expense | 0.0 | % | 0.2 | % | ||||
| Other operating expenses, net | 0.0 | % | 0.1 | % | ||||
| Income from operations | 5.1 | % | 6.0 | % | ||||
| Interest expense, net | 0.8 | % | 0.7 | % | ||||
| Income before income taxes | 4.3 | % | 5.3 | % | ||||
| Provision for income taxes | 1.6 | % | 2.1 | % | ||||
| Net income | 2.7 | % | 3.2 | % | ||||
| (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) | |||||||||||||
| 39 weeks ended | Increase/ | ||||||||||||
| (in thousands) | (Decrease) | ||||||||||||
| September 27, | October 2, | 2012 | |||||||||||
| 2011 | 2012 | vs. 2011 | |||||||||||
| Revenues: | |||||||||||||
| Company-owned restaurant sales | $ | 275,723 | $ | 285,264 | 3.5 | % | |||||||
| Manufacturing and commissary revenues | 25,541 | 23,196 | (9.2 | %) | |||||||||
| Franchise and license related revenues | 7,191 | 7,900 | 9.9 | % | |||||||||
| Total revenues | 308,455 | 316,360 | 2.6 | % | |||||||||
| Cost of sales (exclusive of depreciation and amortization shown separately below): | |||||||||||||
| Company-owned restaurant costs | |||||||||||||
| Cost of goods sold | 81,971 | 80,048 | (2.3 | %) | |||||||||
| Labor costs | 81,514 | 82,982 | 1.8 | % | |||||||||
| Rent and related expenses | 30,205 | 31,508 | 4.3 | % | |||||||||
| Other operating costs | 29,485 | 30,152 | 2.3 | % | |||||||||
| Marketing costs | 7,793 | 9,007 | 15.6 | % | |||||||||
| Total company-owned restaurant costs | 230,968 | 233,697 | 1.2 | % | |||||||||
| Manufacturing and commissary costs | 22,452 | 18,215 | (18.9 | %) | |||||||||
| Total cost of sales | 253,420 | 251,912 | (0.6 | %) | |||||||||
| Gross margin: | |||||||||||||
| Company-owned restaurant | 44,755 | 51,567 | 15.2 | % | |||||||||
| Manufacturing and commissary | 3,089 | 4,981 | 61.2 | % | |||||||||
| Franchise and license | 7,191 | 7,900 | 9.9 | % | |||||||||
| Total gross margin | 55,035 | 64,448 | 17.1 | % | |||||||||
| Operating expenses: | |||||||||||||
| General and administrative expenses | 27,314 | 30,206 | 10.6 | % | |||||||||
| Depreciation and amortization | 13,984 | 14,792 | 5.8 | % | |||||||||
| Restructuring expenses | 334 | 480 | 43.7 | % | |||||||||
| Strategic alternatives expense | - | 685 | ** | ||||||||||
| Other operating (income) expenses, net | (776 | ) | 319 | (141.1 | %) | ||||||||
| Income from operations | 14,179 | 17,966 | 26.7 | % | |||||||||
| Interest expense, net | 2,507 | 2,322 | (7.4 | %) | |||||||||
| Income before income taxes | 11,672 | 15,644 | 34.0 | % | |||||||||
| Provision for income taxes | 4,589 | 6,070 | 32.3 | % | |||||||||
| Net income | $ | 7,083 | $ | 9,574 | 35.2 | % | |||||||
| Net income - Basic | $ | 0.43 | $ | 0.57 | 32.6 | % | |||||||
| Net income - Diluted | $ | 0.42 | $ | 0.56 | 33.3 | % | |||||||
|
Cash dividends declared per common share |
$ | 0.250 | $ | 0.375 | 50.0 | % | |||||||
| Weighted average number of common shares outstanding: | |||||||||||||
| Basic | 16,588,907 | 16,915,756 | 2.0 | % | |||||||||
| Diluted | 16,856,275 | 17,200,034 | 2.0 | % | |||||||||
|
** Not meaningful |
|||||||||||||
| EINSTEIN NOAH RESTAURANT GROUP, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (in thousands, except earnings per share and related share information) | ||||||||
| (unaudited) | ||||||||
| 39 weeks ended | ||||||||
| (percent of total revenue) | ||||||||
| September 27, | October 2, | |||||||
| 2011 | 2012 | |||||||
| Revenues: | ||||||||
| Company-owned restaurant sales | 89.4 | % | 90.2 | % | ||||
| Manufacturing and commissary revenues | 8.3 | % | 7.3 | % | ||||
| 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 | 29.7 | % | 28.1 | % | ||||
| Labor costs | 29.6 | % | 29.1 | % | ||||
| Rent and related expenses | 11.0 | % | 11.0 | % | ||||
| Other operating costs | 10.7 | % | 10.6 | % | ||||
| Marketing costs | 2.8 | % | 3.1 | % | ||||
| Total company-owned restaurant costs | 83.8 | % | 81.9 | % | ||||
| Manufacturing and commissary costs (2) | 87.9 | % | 78.5 | % | ||||
| Total cost of sales | 82.2 | % | 79.6 | % | ||||
| Gross margin: | ||||||||
| Company-owned restaurant | 16.2 | % | 18.1 | % | ||||
| Manufacturing and commissary | 12.1 | % | 21.5 | % | ||||
| Franchise and license | 100.0 | % | 100.0 | % | ||||
| Total gross margin | 17.8 | % | 20.4 | % | ||||
| Operating expenses: | ||||||||
| General and administrative expenses | 8.9 | % | 9.6 | % | ||||
| Depreciation and amortization | 4.5 | % | 4.7 | % | ||||
| Restructuring expenses | 0.1 | % | 0.2 | % | ||||
| Strategic alternatives expense | 0.0 | % | 0.2 | % | ||||
| Other operating (income) expenses, net | (0.3 | %) | 0.1 | % | ||||
| Income from operations | 4.6 | % | 5.6 | % | ||||
| Interest expense, net | 0.8 | % | 0.7 | % | ||||
| Income before income taxes | 3.8 | % | 4.9 | % | ||||
| Provision for income taxes | 1.5 | % | 1.9 | % | ||||
| Net income | 2.3 | % | 3.0 | % | ||||
| (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 | October 2, 2012 | ||||||||
| Cash and cash equivalents, end of period | $ | 8,652 | $ | 12,668 | ||||||
| Property, plant and equipment, net | 59,017 | 58,841 | ||||||||
| Total assets | 204,732 | 207,563 | ||||||||
| Total debt | 74,200 | 68,575 | ||||||||
| Total liabilities | 116,919 | 113,910 | ||||||||
| 39 weeks ended | ||||||||||
|
Selected Consolidated Cash Flow Information: |
September 27, 2011 | October 2, 2012 | ||||||||
| Net cash provided by operating activities | $ | 25,429 | $ | 31,376 | ||||||
| Net cash used in investing activities | (11,955 | ) | (16,170 | ) | ||||||
| Net cash used in financing activities | (14,971 | ) | (11,190 | ) | ||||||
|
Free cash flow (cash provided by operating |
||||||||||
|
activities less cash used in investing activities) |
13,474 | 15,206 | ||||||||
|
Reconciliation of GAAP to Non-GAAP Measures: |
13 weeks ended | 39 weeks ended | |||||||||||||||
| September 27, | October 2, | September 27, | October 2, | ||||||||||||||
| 2011 | 2012 | 2011 | 2012 | ||||||||||||||
| (in thousands) | |||||||||||||||||
| Net income | $ | 2,835 | $ | 3,414 | $ | 7,083 | $ | 9,574 | |||||||||
| Adjustments to net income: | |||||||||||||||||
| Interest expense, net | 772 | 744 |
|
2,507 |
|
2,322 | |||||||||||
| Provision for income taxes | 1,647 | 2,174 |
|
4,589 |
|
6,070 | |||||||||||
| Depreciation and amortization | 4,836 | 5,014 |
|
13,984 |
|
14,792 | |||||||||||
| Restructuring expenses | 121 | - |
|
334 |
|
480 | |||||||||||
| Strategic alternative expenses | - | 250 |
|
- |
|
685 | |||||||||||
| Other operating expense (income), net | 47 | 60 | (776 | ) | 319 | ||||||||||||
| Adjusted EBITDA | $ | 10,258 | $ | 11,656 | $ | 27,721 | $ | 34,242 | |||||||||
| EINSTEIN NOAH RESTAURANT GROUP, INC. | |||||||||||||||||
| SELECTED FINANCIAL INFORMATION | |||||||||||||||||
| 13 weeks ended October 2, 2012 | |||||||||||||||||
| Company | |||||||||||||||||
| Owned | Franchised | Licensed | Total | ||||||||||||||
| Consolidated Total | |||||||||||||||||
| Total beginning balance | 448 | 95 | 240 | 783 | |||||||||||||
| Opened restaurants | 2 | 1 | 17 | 20 | |||||||||||||
| Closed restaurants | (1 | ) | (1 | ) | (4 | ) | (6 | ) | |||||||||
| Refranchising, Net | 1 | (1 | ) | - | - | ||||||||||||
| Total ending balance | 450 | 94 | 253 | 797 | |||||||||||||
| Trailing 12 Months Activity | |||||||||||||||||
| Company | |||||||||||||||||
| Owned | Franchised | Licensed | Total | ||||||||||||||
| Consolidated Total | |||||||||||||||||
| Beginning balance - September 27, 2011 | 431 |
|
94 | 233 | 758 | ||||||||||||
| Opened restaurants | 11 |
|
11 | 30 | 52 | ||||||||||||
| Closed restaurants | (1 | ) |
|
(2 | ) | (10 | ) | (13 | ) | ||||||||
| Refranchising, Net | 9 |
|
(9 | ) | - | - | |||||||||||
| Ending balance - October 2, 2012 | 450 |
|
94 | 253 | 797 | ||||||||||||
Source:
ICR
Investor Relations:
Raphael Gross, 203-682-8253
rgross@icrinc.com
or
Media Relations:
Liz Brady DiTrapano, 646-277-1226
lbrady@icrinc.com
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