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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 $3.4 million

LAKEWOOD, Colo. -- (BUSINESS WIRE) -- Nov. 12, 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 third quarter ended October 2, 2012.

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 July 4th Holiday. We attribute the continuation of our positive top-line trend to favorable product mix, expanded catering, and specialty beverage sales which we supported through our ongoing marketing investments. Our 2012 development plans are on target with our previously guided range, and we are excited to continue expanding our national brand presence through a combination of committed franchise and license partners and disciplined company unit growth."

Third Quarter 2012 Financial Results

For the third quarter ended October 2, 2012, system-wide comparable store sales increased 0.2%, reflecting 4.1% growth in average check that was driven by a combination of price and favorable product mix, offset by comparable transactions. Total revenues increased 1.9% to $105.5 million from $103.5 million, reflecting a 3.4% increase in Company-owned restaurant revenues, while manufacturing and commissary revenues decreased 14.4% reflecting the planned commissary closures earlier this year.

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 $20.7 million in the third quarter of 2012 compared to $18.9 million in the third quarter of 2011, and as a percentage of total revenues, increased 150 basis points to 19.7% from 18.2% in the year-ago period.

General and administrative expenses increased to $9.1 million in the third quarter of 2012 from $8.6 million in the third quarter of 2011, primarily due to higher variable incentive compensation plans.

Adjusted EBITDA rose 13.6% to $11.7 million in the third quarter of 2012 compared to $10.3 million in the third quarter of 2011. (*)

Income from operations increased by $1.1 million to $6.3 million in the third quarter of 2012.

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 alternative review process. In the third quarter of 2011, the Company incurred $0.1 million in pre-tax restructuring expenses in relation to the closure of one of its commissaries.

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

Restaurant Development

As of October 2, 2012, there were 797 Einstein Bros.® Bagels, Noah's New York Bagels®, and Manhattan Bagel® branded restaurants in operation. During the third quarter of 2012, the Company opened 20 restaurants and ended the quarter with 450 Company-owned and operated restaurants, while franchisees and licensees ended the period with 94 and 253 restaurants, respectively.

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 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 888-430-8709 for domestic toll-free calls and 719-457-2689 for international. A telephone replay will be available through November 13, 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 9930408.

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 795 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 October 2, 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)
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: Einstein Noah Restaurant Group, Inc.

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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