LAKEWOOD, Colo., May 06, 2010 — Einstein Noah Restaurant Group, Inc. (NASDAQ: BAGL), a leader in the quick-casual segment of the restaurant industry operating under the Einstein Bros.(R) Bagels, Noah's New York Bagels(R), and Manhattan Bagel(R) brands, today reported financial results for the first quarter ended March 30, 2010.
Selected Highlights for the First Quarter 2010 Compared to the First Quarter 2009:
Total revenues rose slightly to $100.8 million from $100.4 million.
Total gross margin improved 230 basis points to 18.7% due to strong cost controls as well as a substantial improvement in manufacturing and commissary profitability.
Adjusted EBITDA improved to $8.7 million from $7.1 million.*
Adjusted net income and adjusted EPS on a dilutive basis improved to $1.5 million and $0.09, respectively, from $1.2 million and $0.07, respectively.*
Net income was $0.6 million and diluted EPS was $0.03 for the first quarter of 2010.
Redeemed $13.2 million in Series Z Preferred Stock.
Jeff O'Neill, Chief Executive Officer and President of Einstein Noah, stated, "Our first quarter performance underscores our successful execution of key sales and cost control strategies, and builds on our strong foundation of long-term growth opportunities. For the quarter, product innovation and creative promotions drove improvement in system-wide comparable sales and transactions, and we were pleased that consumers responded positively to our check building efforts despite intensifying competition in the breakfast daypart. We also improved our gross margins through our supply chain initiatives, and realized efficiencies in our manufacturing and store-level operations, which together facilitated 25.9% growth in adjusted net income for the period."
O'Neill continued, "Our cash flow generation is enabling us to meet or exceed our financial obligations, and is a major contributor to a strong and flexible capital structure. We intend to stay focused on this metric as we move toward a more asset light business model, characterized by accelerated franchise and licensing development and limited Company expansion. We believe this strategy is the surest means to maximize shareholder value over time."
First Quarter 2010 Financial Results
For the first quarter ended March 30, 2010, system-wide comparable store sales, turned positive to +0.1% for the first time in five quarters. Total revenues rose slightly to $100.8 million vs. $100.4 million in the first quarter of 2009. Company-owned restaurant sales similarly grew modestly, as the Company benefitted from a net increase of five additional company-owned restaurants since March 31, 2009. Company-owned comparable store sales were down slightly at -0.2%, but showed a sequential improvement from the -1.7% decrease in the fourth quarter of 2009.
Marketing initiatives increased $1.5 million compared to the prior-year period, as the Company launched its marketing investments last year in mid-February, whereas in the first quarter of 2010, increased marketing efforts were incurred over the entire three-month period. Company-owned restaurant gross profit was $15.3 million, or 16.9% of restaurant sales in the first quarter of 2010, compared to $13.5 million, or 14.9% of restaurant sales, in the first quarter of 2009.
As a percentage of company-owned restaurant sales, cost of goods sold was favorable by 200 basis points in the first quarter of 2010 compared to last year. Labor costs, as a percentage of company-owned restaurant sales, were favorable by 110 basis points in the first quarter of 2010 compared to the first quarter of 2009 due largely to savings from labor initiatives and decreased health benefit costs.
New Units and Development
Restaurant openings during the first quarter of 2010 consisted of 10 outlets, including three Einstein Bros. company-owned restaurants, one Manhattan Bagel and one Einstein Bros. franchise restaurants, and five Einstein Bros. licensed restaurants. One company-owned restaurant and one licensed restaurant were also closed during the period.
The Company benefitted from a net increase of eight additional franchise restaurants and 25 license restaurants since March 31, 2009. The effect of the new locations helped drive franchise and license related revenues up 16.7% to $2.2 million in the first quarter of 2010 from $1.8 million in the first quarter of 2009.
Other Operating Items
Manufacturing and commissary revenues fell modestly to $8.0 million in the first quarter of 2010 vs. $8.1 million, while gross profit grew 18.7% to $1.3 million, compared to $1.1 million in the first quarter of 2009. The substantial improvement in gross profit was attributed to lower raw ingredient costs as well as production and labor efficiencies at the Company's bagel manufacturing facility.
Adjusted EBITDA increased $1.6 million to $8.7 million in the first quarter of 2010, compared to $7.1 million in the first quarter of 2009. The 22.3% increase in adjusted EBITDA is attributable to the improvements previously mentioned.
Adjusted net income increased to $1.5 million, or $0.09 in adjusted EPS on a dilutive basis, in the first quarter of 2010, compared to $1.2 million, or $0.07 in adjusted EPS on a dilutive basis, in the first quarter of 2009.
The Company currently estimates a 2010 annual tax rate of 43.6%, excluding the impact of the modification of the Series Z. As previously disclosed, the 2009 annual tax rate of 41.3% excluded all changes in the valuation allowance. Most of the recorded tax expense represents the benefit realized from the Company's NOL carryforwards and the Company will continue to only pay minimal cash-taxes for the next several years.
* A reconciliation of all non-GAAP measures (Adjusted EBITDA, adjusted net income and adjusted earnings per share on a dilutive basis) to GAAP measures presented can be found in the accompanying tables below.
During the first quarter of 2010, the Company extended the redemption date for its Series Z Preferred stock held by Halpern Denny III, L.P. and committed to redeem all remaining outstanding shares, inclusive of the accrued additional redemption price, on or before June 30, 2011. The Company redeemed $13.2 million plus additional redemption in the first quarter of 2010 and expects $12 million to $15 million of the Series Z Preferred stock to be outstanding on June 30, 2010. The previous redemption date was June 30, 2010. The amended agreement had an impact of $0.9 million during the quarter resulting in net income of $0.6 million and diluted EPS of $0.03. (See the accompanying tables below).
2010 Outlook
The Company anticipates the opening of 10-12 new company-owned restaurants, 12-16 new franchised restaurants, and 35-45 licensed restaurants.
The Company currently has 15 signed development agreements for Einstein Bros. Bagels franchises. This coupled with the efforts to sign additional development agreements in 2010 is expected to ultimately yield an ending pipeline of 90-100 additional franchise locations.
Through the end of the quarter, the Company has secured contract pricing on approximately 53% of all major agricultural commodities for the remainder of 2010, which should result in favorable prices compared to 2009, along with an opportunity to benefit from further reductions in the market.
Conference Call Today
The Company will host a conference call to discuss first quarter 2010 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 James P. O'Reilly, chief concept officer.
The dial-in numbers for the conference call are 1-877-407-0784 for domestic toll-free calls and 1-201-689-8560 for international. The conference ID is 347934. A telephone replay will be available through May 13, 2010, and may be accessed by dialing 1-877-660-6853 for domestic toll-free calls or 1-201-612-7415 for international. Participants must enter account 3055 and conference ID 347934.
Source: Einstein Noah Restaurant Group Inc.