Financial Overview September 2007
OVERLAND PARK , Kan. (Sep. 4) Applebee's, the first national casual-dining chain to report August same-store sales, was not able to snap the string of negative figures that has plagued it and most of the segment for much of the past two years. Applebee’s International Inc. said Tuesday that domestic systemwide same-store sales at units open more than 18 months fell 0.9 percent for the four weeks ended Aug. 26, compared with the same period a year ago. Same-store sales at domestic franchised restaurants decreased 0.7 percent, the company reported, while same-store sales at corporate restaurants fell 1.6 percent. Customer traffic at corporate stores declined between 6 percent and 6.5 percent, Applebee’s noted, which matched some of the chain’s worst traffic results in two years.
Applebee’s said both sales and traffic at corporate restaurants in the year-earlier period had been positively impacted by an advertising campaign that included a freestanding insert.
Applebee’s, which operates or franchises about 1,950 restaurants, agreed in July to be acquired by family-dining franchisor IHOP Corp. for about $2.1 billion. Like many of its casual-dining peers, Applebee’s has struggled against negative same-store sales and declining traffic counts for most of the past two years in the face of macroeconomic consumer pressures, such as higher gas prices and declining home values.
Systemwide domestic same-store sales for the eight weeks ended Aug. 26 decreased 0.9 percent, which reflected dips of 0.9 percent at domestic franchised restaurants and 0.8 percent at corporate restaurant locations.
COLUMBUS , Ohio (Sep. 4) Bob Evans Farms Inc. reported that year-over-year same-store sales for the four weeks ended Aug. 24 rose 4.3 percent at its namesake restaurants, but fell 1.9 percent at its Mimi’s Cafe chain.
Average menu prices for the month increased 2.6 percent at Bob Evans Restaurants and jumped about 3.9 percent at Mimi’s locations, signifying positive traffic at the Bob Evans chain but negative guest counts at Mimi’s.
Steve Davis, chairman and chief executive for the parent company, blamed the sales slowdown at Mimi’s partly on “the continued challenging industry environment in the casual-dining sector, as well as general pressures on consumer spending.” He added that the company is “putting in place programs to help rejuvenate same-store sales at Mimi’s in the months ahead.” He did not elaborate on those plans.
Bob Evans owns and operates about 579 Bob Evans Restaurants in 18 states and about 116 Mimi’s Cafes in 20 states. Same-store sales results are based on the 541 Bob Evans locations and 92 Mimi’s Cafes open the full 12 months in both fiscal 2006 and 2007.
HOUSTON — After a months-long delay in filing financial results because of an internal probe of stock option granting practices, LANDRY’S RESTAURANTS INC. on Friday posted a net loss for fiscal 2006 of $21.8 million on asset impairment charges and losses from discontinued operations. A year earlier, the operator of 179 casual-dining restaurants
and casino and entertainment properties had posted a net profit of $44.8 million. For 2006, Landry’s recorded after-tax charges of $6.3 million for asset impairments at continuing operations and $44.9 million for discontinued operations, reflecting the sale of the Joe’s Crab Shack chain. Landry’s owns the Rainforest Cafe, Saltgrass Steak House and Landry’s Seafood House brands, among others. Total corporate revenues for 2006 rose 26.4 percent to $1.13 billion, mainly on the fullyear inclusion of the Golden Nugget casinos, which Landry’s bought in September 2005. Restaurant and hospitality revenue rose 8.5 percent to $902.9 million. Thought the company is due in court Thursday for a hearing on note holders’ ongoing efforts to accelerate $400 million in debt as due immediately, Landry’s obtained a temporary restraining order against the creditors, whose action was triggered by the tardy financial filing.
SYRACUSE, N.Y. — CARROLS RESTAURANT GROUP, the largest Burger King franchisee and also operator and franchisor of the Pollo Tropical brand and proprietor of the Taco Cabana chain, reported a 65-percent surge in second-quarter profit on a 5-percent revenue gain and reduced costs from lease refinancings and debt reduction. For the three months ended June 30, Carrols earned $5.1 million, or 24 cents per share, versus $3.1 million, or 19 cents per share, a year earlier. The company reported savings of $5.4 million in interest expense for the quarter by refinancing lease obligations and paying down debt in 2006 with proceeds from its initial public stock offering. Corporate revenue for the quarter was $200.4 million. Burger King division sales rose 3.8 percent to $96.9 million, despite the closing of eight units over the past 12 months, aided by a 5.3-percent jump in same-store sales.
SEATTLE — Coffee-bar operator TULLY’S COFFEE CORP. said it has postponed a pending public offering because of “volatile stock market conditions.” Seattle-based Tully’s said proceeding with the offering, which was announced in April, “would not be in the best interest of shareholders” but that the company would continue to monitor the stock markets. Tully's had said it would use offering proceeds for growth and debt service.
COLUMBUS, Ohio — BOB EVANS FARMS INC., which operates 579 Bob Evans family-dining restaurants and 116 Mimi’s Cafe casual-dining units, reported second-quarter net income to $13.3 million, or 38 cents per share, versus year-earlier earnings of $13.1 million, or 36 cents per share, on improved restaurant sales and results from its wholesale food products division. The company’s restaurants had a 10-percent decline in operating income, mostly because of lower same-store sales at Mimi’s Cafe, higher food costs and lower gains from the sale of restaurant assets. Total restaurant sales increased 5 percent to $360.2 million for the second quarter, ended July 27. Corporate revenue increased 5.3 percent to $424.6 million, aided by the food products division’s 8-percent quarterly jump in sales. Same-store sales at Bob Evans Restaurants rose 3.2 percent for the period, with average menu prices up 2.4 percent. At Mimi’s Cafe, same-store sales fell 0.7 percent despite average menu prices rising 4 percent.
NEW YORK — TRIARC COS. INC., franchisor of the Arby’s brand and owner of about 1,000 of the chain’s nearly 3,600 sandwich outlets, posted a 10.7-percent drop in second-quarter restaurant operating profit on negative same-store sales at corporate Arby’s units and margin pressure from discounting and higher beef costs. Triarc, whose former chairman NELSON PELTZ now is nonexecutive chairman, also reiterated in its Aug. 10 earnings statement that it will change its name to reflect its “pure play” restaurant status and would pursue acquisitions after the pending
sale of asset management company DEERFIELD & CO. The Deerfield sale was expected to close in the current quarter, but Triarc blamed the delay on incomplete financing arrangements.
GREENWOOD VILLAGE, Colo. — RED ROBIN GOURMET BURGERS INC. posted a 32-percent drop in second-
quarter profit as a 31.5-percent jump in revenue to $178.6 million was eclipsed by one-time charges and increased costs for
dairy products, nonchicken proteins and cheese. For the quarter ended July 15, net income was $4.9 million, or 29 cents per share,
compared with year-before net income of $7.2 million, or 43 cents per share. Charges booked in the latest quarter totaled $1.8 million for the acquisition and integration of 15 formerly franchised restaurants in California and $1.65 million for settled California wage-and-hour litigation. Revenues totaled $178.6 million, boosted by a same-store sales increase of 3.1 percent at corporate restaurants and the opening of 29 locations during the quarter. Red Robin, which is operator or franchisor of more than 370 casual dining restaurants, last week said former Sonic Corp. president PATTYE L. MOORE had been appointed to Red Robin’s board of directors. Moore now is a consultant, speaker and author.
CARPINTERIA, Calif. — CKE RESTAURANTS INC., parent of the Hardee’s and Carl’s Jr. brands, Wednesday reported a 2.6 percent year-to-year jump in same-store sales at corporate restaurants for the four weeks ended Aug. 13 and said Carl’s Jr. had rolled out a new Patty Melt Burger as a limited-time offering. The launch Wednesday follows Hardee’s debut in May of the Patty
Melt Thickburger. Carl’s Jr.’s new sandwich is a charbroiled beef patty smothered with grilled onions and American cheese on
grilled rye bread. Franchisor-suggested prices are $2.89 for a single, $3.89 for a double and $4.59 for a Six Dollar Burger version.
CKE said its blended monthly same-store sales result reflected a flat performance by Carl’s Jr. and a 5-percent increase by Hardee’s.
In the same period ended last August, blended same-store sales rose 3.8 percent. Carpinteria-based CKE and its franchisees operate
1,101 Carl’s Jr. and 1,905 Hardee’s restaurants nationwide.
ATLANTA— AFC ENTERPRISES INC., franchisor or operator of 1,878 POPEYES CHICKEN & BISCUITS restaurants, posted a 29.4-percent increase in second-quarter profit to $6.6 million on revenue that rose 11.3-percent to $38.3 million, mostly on the re-opening of corporate locations that had been battered by Hurricane Katrina in 2005. AFC’s revenues also were helped by full-year sales from 13 formerly franchised restaurants that were acquired by the company in the second quarter of 2006. Popeyes systemwide domestic same-store sales for the latest quarter decreased 2.1 percent, which the company blamed on lower traffic.
SEATTLE — STARBUCKS CORP. sold $550 million in 10 year senior notes last week and earmarked the proceeds for debt payments and share repurchases, the company said. GOLDMAN, SACHS & CO., BANC OF AMERICA SECURITIES LLC and CITIGROUP GLOBAL MARKETS INC. were the joint lead managers for the sale, according to a prospectus. The public sale of the $550 million in 6.25-percent senior notes due August 15, 2017, netted Starbucks about $545.3 million after fees. The notes were rated “Baa1” by Moody’s Investors Service Inc. — its third-lowest investment grade rating — and BBB+ by Standard & Poor’s Ratings Services — its fourth-highest rating — with a stable outlook in both cases, Starbucks indicated. The Seattle-based coffeehouse giant said that as of July 1 it had about $2.5 billion in total liabilities on a consolidated basis, of which $880 million represented debt under outstanding commercial paper.
MIAMI — BURGER KING HOLDINGS INC. said Wednesday that it would use the “strong and consistent cash
flow” it expects this fiscal year to fund share repurchases, debt repayment and a shareholder dividend. The parent of the No. 2
burger brand, whose franchise system has more than 11,200 outlets units worldwide, said cash flow also would allow the company
to increase capital expenditures to build and remodel corporate restaurants. The comments from Burger King CFO BEN
WELLS came on the heels of a fourth-quarter report last week that boasted improved profit, revenues and same-store sales, but
left investors nervous about projections for fiscal 2008, which began July 1, especially regarding corporate spending.
MIAMI — Restaurant development costs, renovation expenses and investments in infrastructure ate into strong sales at
BENIHANA INC., leading to a dip in first-quarter profit compared with the same quarter a year ago. Benihana, operator or franchisor of 99 restaurants under three brands, had net income of $4.2 million, or 25 cents per share, for the quarter, which ended July 22, versus earnings of $4.5 million, or 26 cents per share, a year earlier. The company said restaurant opening costs nearly doubled from the prior first quarter and that marketing, general and administrative expenses rose 24.5 percent as the company was ramping up development of a larger restaurant base. Firstquarter revenue rose 12.6 percent to $89.9 million, aided by
same-store sales gains of 6.2 percent at the namesake teppanyaki chain, 4.4 percent at RA SUSHI and 10.3 percent at HARU.
OAK BROOK, Ill. — MCDONALD’S CORP. posted a 6.5 percent year-to-year increase in global same-store sales for July, with its two international regions beating U.S. same-store sales by several percentage points. Same-store sales for restaurants open more than 13 months jumped 9.9 percent in the Asia/Pacific-Middle East-Africa region, 7.7 percent in Europe and 4.3 percent in the United States. The company credited the strength of breakfast sales, new menu items, late-night hours, perceived value and new marketing programs for the U.S. sales increase. McDonald’s also pointed to a systemwide sales increase of 11.7 percent for the month, or 7.8 percent in constant currencies. The company and its
OVERLAND PARK, Kan. — APPLEBEE’S INTERNATIONAL INC. posted second-quarter earnings that beat average Wall Street estimates on revenue that rose 2.5 percent to $332.2 million. For the quarter ended July 1, Applebee’s earned $24.2 million, or 32 cents per share, versus $20.4 million, or 27 cents per share, a year earlier. Excluding discontinued operations, restaurant closure costs and $2.1 million, or 3 cents per share, in expenses related to the company’s exploration of strategic alternatives and proxy contest costs, earnings were $26.2 million, or 35 cents per share. Analysts average estimate of per-share profit was 31 cents. Systemwide domestic same-store sales fell 0.9 percent for the quarter. For the subsequent four weeks ended July 29, same-store sales dipped 0.8 percent. IHOP CORP. on July 16 offered $25.50 per share, or about $2.1 billion, for Applebee’s shares, and the deal is expected to close in the fourth quarter.
HOUSTON — LUBY’S INC., operator of 127 namesake cafeterias, closed on a five-year credit agreement of up to $100 million to help fund restaurant development, investments in existing locations and expansion of its “culinary services” contract-feeding unit, the company said July 19. The company said the facility might also be used for acquisitions, though it did not provide details on any pending deals. The agreement provides a $50 million revolving line of credit, which the company has the option to increase, subject to the terms of the pact, up to an additional $50 million. It replaces Luby’s previous three-year credit agreement, which totaled up to $60 million. The company’s plans call for the development of 45 to 50 new units over the next five years, it said, starting with a new prototype opening next month in Dallas.
LOUISVILLE, Ky. — YUM! BRANDS INC. might have to make a "material" additional tax payment because of a dispute with the INTERNAL REVENUE SERVICE over the way transfers within the restaurant franchisor's foreign subsidiaries were accounted, the company said in a securities filing. Yum, the parent of TACO BELL, KFC and PIZZA HUT, said it would “vigorously” contest any tax adjustments demanded by the IRS. Earlier this year, Yum said in Friday's securities filing, the IRS informed the company that it intends to propose certain adjustments relating to the transfers. Yum did not say how much it may be reassessed.
ANN ARBOR, Mich. — DOMINO’S PIZZA INC., parent of the mostly franchised 8,394-unit Domino’s chain, reported an earnings plunge of 90.5 percent for its second quarter on the negative impact of a debt recapitalization completed in April and legal fees in a California wage and labor lawsuit. The chain’s same-store sales returned to positive territory for the first time in six quarters, however, with a gain of 2.1 percent at domestic Domino’s locations. For the quarter ended June 17, Domino’s earned $2.3 million, or 4 cents per share, versus year-ago second-quarter earnings of $24.5 million, or 39 cents per share. Costs for the recapitalization — which included increased interest expense that totaled 21
cents per share — and legal fees negatively impacted per-share earnings in the latest quarter by 24 cents.
CALABASAS HILLS, Calif. — THE CHEESECAKE FACTORY INC. reported late Tuesday a 1.1-percent increase in its second-quarter profit despite a revenue surge of 16 percent to $373.2 million. The company’s total quarterly costs and expenses rose 16.6 percent from the same quarter a year ago, offsetting any sales gains, according to its financial statements. For the 13 weeks ended July 3, Cheesecake earned $23.7 million, or 33 cents per share, compared with earnings of $23.4 million, or 30 cents per share, in the year-ago second quarter. As reported earlier this month, companywide same-store sales increased 1.1 percent in the second quarter, which reflected same-store sales gains of 0.8 percent at the company’s flagship Cheesecake Factory brand and 5.7 percent at the GRAND LUX CAFE concept. Cheesecake operates about 125 namesake restaurants and nine Grand Lux Cafes.
NASHVILLE, Tenn. — J. ALEXANDER'S CORP., operator of the namesake casual-dining chain, reported a 34-percent rise in net income on a 4.2 percent rise in revenues for the second quarter, but warned of a possible slowdown for the remainder of the year. LONNIE J. STOUT II, J. Alexander's chairman, president and chief executive officer, cited softer sales at the beginning of the third quarter in explaining his caution about the remainder of 2007. He also noted that restaurant margins continue to be squeezed by rising costs. J. Alexander's raised its menu prices by 1 percent during the first half of 2007, leaving menu charges as of July about 3.9 percent above the prices of a year-ago, Stout indicated. He said he is hesitant to raise prices again due to continued cost pressures on the consumer. For the second quarter, net income jumped 34 percent to $953,000, compared with the $711,000 posted a year earlier. Revenues increased 4.2 percent to $34.7 million, up from $33.3 million. Average weekly same store sales rose 4.3 percent, primarily due to a 7-percent increase in the chain's average guest check.
DENVER — CHIPOTLE MEXICAN GRILL INC., operator or franchisor of 640 burrito restaurants, posted a nearly 40-percent year-to-year jump in second-quarter revenue on an 85.1-percent rise in profit. Same-store sales at Chipotle locations open more than 13 months increased 11.6 percent for the quarter ended June 30. Net income was $20 million, or 60 cents per share, versus $10.8 million, or 33 cents per share, a year earlier. Revenue totaled $274.3 million. Citing sales momentum, Chipotle increased its annual projection for same-store sales to the “high single- to low double-digit range.” The company said it expects to reach its goals of opening between 110 to 120 restaurants this year and posting per-share earnings growth of at least 25 percent.
TAMPA, Fla. — FAMILY SPORTS CONCEPTS INC., franchisor of more than 230 Beef ‘O’ Brady’s casual-dining restaurants, has completed a “major recapitalization” funded by private equity firm LEVINE LEICHTMAN CAPITAL PARTNERS. The parties did not disclose terms of the deal. The invested capital is to be used for shareholder dividends and additional unit growth, according to investment bank THE CYPRESS GROUP, which structured the deal. Beverly Hills, Calif.-based Levin Leichtman indicated that Beef ‘O’ Brady’s current management team, headed by chief executive CHUCK WINSHIP, would remain with the company. Beef ‘O’Brady’s reportedly had fiscal 2006 systemwide
sales of $181.0 million, up from $142.2 million a year earlier.
LEBANON, Tenn. — CBRL GROUP INC., parent of the 562-unit CRACKER BARREL OLD COUNTRY STORE family dining chain, posted a 1.6-percent increase in same-store restaurant sales for the six weeks ended Aug. 3, versus the same period a year earlier. The result was spurred by higher menu prices that offset declining traffic. The July same-store jump reflected a 1.9-percent rise in the average check, aided by an average menu price increase of 2 percent, the company said. Analysts’ estimated that the chain’s restaurant traffic slipped 0.3 percent, a better result than the 1.1-percent traffic dip in June. CBRL has said sales were driven by a new table configuration strategy to include more seating for two guests, a kitchen display system to improve service and new billboard-based marketing. The chain’s same-store gift shop
NEW YORK — Numerous restaurant stocks rose Wednesday on analysts’ reports citing restaurant operators’ abilities to control costs and stabilize sales in a difficult economic environment. Shares of fast-casual sandwich chain COSI INC. posted an industry leading share price gain for the day, and a handful of casual-dining
stocks, including O’CHARLEY’S, CALIFORNIA PIZZA KITCHEN and BJ’S RESTAURANTS, also rose despite that sector’s sales slump and investors’ concerns about a growth standstill. “After the recent pullback, we believe [restaurant] stocks are at attractive valuations,” securities analyst Ashley Woodruff of Friedman, Billings, Ramsey & Co. said in a note Wednesday. “Expectations and guidance for the [second half of 2007] look reasonable,
or conservative, for most companies.” She added that operators have been able to raise prices to offset cost increases.
PORTLAND, Ore. — An expanded steak program helped to boost second-quarter sales at MCCORMICK & SCHMICK’S SEAFOOD RESTAURANTS, yielding a 27.6-percent increase in net income to $4.5 million, or 31 cents per share, for the three months ended June 30. Revenues increased 16.8 percent over year-earlier results to $89.6 million, mostly aided by a 2.3-percent increase in same-store sales and income from the acquisition of five Boathouse restaurants in March. Despite its new attention to steaks, the company will not become less “seafood-centric,” said
chairman and chief executive DOUG SCHMICK. McCormick & Schmick’s has 68 namesake restaurants nationwide.
NEW YORK — GOLDMAN SACHS GROUP, the publicly traded investment giant whose revenues grew 60 percent in 2006 to $69.35 billion, said its Urban Investment Group will team with former Quiznos Canada president and Popeyes COO JAMES E. BOYD JR. to “identify and assess potential acquisition opportunities”
in the fast-casual and quick-service sectors. Targets would include “sizable concepts” able to grow through franchising and
company development. The Urban Investment arm deploys capital in ethnic minority-owned or -targeted businesses and urban real estate. Goldman Sachs also owns the private-equity firm GS Capital Partners and the British hotel chain Queens Moat Houses.