Financial Overview October 2007
Yum 3rd-Q profit climbs 17 percent; domestic comps lag LOUISVILLE , Ky. (Oct. 8) Yum! Brands Inc., reporting a third-quarter year-over-year profit jump of 17 percent, continued its pattern of strong international results fueled by business in China, which helped to compensate for domestic weakness.
The parent of the Taco Bell, Pizza Hut and KFC brands blamed its lagging U.S. performance — which included modest gains of 1 percent in both same-store sales and operating profit — on Taco Bell’s slow recovery from highly publicized disasters that included an E. coli outbreak at some units last year and a televised rat infestation in a New York City co-branded unit. Third-quarter same-store sales at U.S. Taco Bells fell 6 percent, which led to a U.S. systemwide blended-brand same-store sales uptick of just 1 percent, the company reported.
David Novak, chairman and chief executive of Yum, said he expects both improved Taco Bell results and U.S. profit growth in the fourth quarter. Domestic recovery, along with continued strong international results, should lead to full-year profit of $1.65 per share, the company said. That estimate was increased from previous guidance of annual profit totaling $1.63 per share. In fiscal 2006, Yum earned $1.46 per share, after adjusting for the company’s two-for-one stock split in June.
The company’s net income for its latest quarter ended Sept. 8 rose to $270 million, or 50 cents per share, from $230 million, or 42 cents per share, in the same quarter a year ago. Total revenue rose 13 percent to $2.56 billion. Analysts’ consensus forecast was for per-share profit of 45 cents on revenue of $2.44 billion.
Worldwide same-store sales increased 4 percent, including 11 percent growth in mainland China and 7 percent in the company’s International Division, which encompasses foreign locations outside of China, Thailand and Taiwan. Restaurant unit growth totaled 20 percent in mainland China, compared with an average of 4 percent in other foreign markets.
Yum operates, franchises or licenses 34,917 restaurants worldwide.
Avado Brands files for Ch. 11 bankruptcy — MADISON , Ga. (Sep. 6) Avado Brands Inc., parent company of the 91-unit Don Pablo’s and 22-unit Hops Grill & Brewery casual-dining chains, said Thursday that it has filed for Chapter 11 bankruptcy protection and will seek to sell its assets.
This is the second time that Avado has voluntarily filed for bankruptcy, following a February 2004 filing from which it emerged in May 2005. The company said it would sell its assets in an auction to “a better capitalized entity allowing for all of Avado’s restaurants to achieve their potential.”
Avado also said it has arranged and is seeking court approval for a $67 million debtor-in-possession credit facility from a group of lenders led by DDJ Capital Management LLC that would allow the company to continue operating its restaurants.
“We remain committed to our guests, our team members and our investors, and we intend to carry on,” chief financial officer Kurt Schnaubelt told Nation’s Restaurant News. “This is not a great day for us, but sometimes when you are in business you have to use the tools out there to do what you have to do.”
Schnaubelt said he would not discount negative pressures of the economy as a cause for the bankruptcy. He added that the company had not yet discussed the closures of any restaurants.
Avado’s latest bankruptcy filing in the U.S. Bankruptcy Court for the District of Delaware pegs its liabilities between $1 million and $100 million. A creditors meeting is scheduled for today, and Avado said it hopes to move quickly through the bankruptcy process.
According to bankruptcy filings, Avado generated estimated revenue of $227.8 million for the 12 months ended July 31, and a loss of $7.8 million before interest, tax, depreciation and amortization.
Paul Seidman, Avado’s senior vice president and director of marketing, told Nation’s Restaurant News that the company’s previous bankruptcy, which took more than a year to complete, was handled under a different management team.
He said he expects Avado’s restaurants to operate as usual, no matter what entity eventually buys the company.
“While there is no provision for the assumption of management, it would make sense that with 91 Don Pablo’s and 22 Hops restaurants the new owners will need a team already seasoned to the brands,” he said. Avado’s chief executive Raymond “Rick” Barbrick echoed that sentiment in a company statement.
“The management team plans to remain with the company and is confident in the future of Avado Brands and the strength of the Don Pablo’s and Hops restaurants,” Barbrick said in the statement.
OVERLAND PARK, Kan. — Domestic systemwide same-store
sales at APPLEBEE’S NEIGHBORHOOD GRILL & BAR continued to trend negative in the third quarter, even with a an
uptick of 0.6 percent for the last five weeks of the quarter ended
Sept. 30, APPLEBEE’S INTERNATIONAL INC. reported.
Domestic systemwide same-store sales for the third quarter fell
0.3 percent, reflecting a 0.2-percent drop at corporate restaurants
and a 0.4-percent drop at franchised locations. Domestic
systemwide same-store sales for the first nine months of the
year have declined 1.8 percent, the company said. Applebee’s
and its franchisees, which operate 1,953 restaurants, were able
to record a rare uptick in same-store sales for September, driven
by two more weeks of television advertising than a year ago, as
well as the chain’s new Ultimate Trios promotion. The
September systemwide sales increase of 0.6 percent reflected a
0.7-percent gain at corporate restaurants. The company expects
to release complete third quarter results during the week of Oct.
29. Applebee’s has set Oct. 30 as the date for a shareholder vote
on a proposed $2.1 billion buyout by IHOP CORP.
DUBLIN, Ohio — WENDY’S INTERNATIONAL INC.
Thursday said year-to-year same-store sales growth slowed in
the third quarter ended Sept. 30, increasing 0.2 percent at corporate
stores and 1.3 percent at franchised restaurants. Those
increases compare with jumps of 4.1 percent during the same
quarter last year for domestic corporate restaurants and 3.9 percent
for franchised outlets. Wendy’s, which is expected to confer
again this month with prospective buyers of the company,
credited limited-time promotions, such as the Baconator, for
the latest quarter’s uptick in sales. Wendy’s said its fall marketing
will promote Combo Choices, which allow customers to
mix and match a sandwich with various drinks and sides. The
No. 3 burger chain said it will continue to introduce its new
breakfast menu, currently in more than 750 restaurants, at more
locations. Wendy’s had 5,950 U.S.-based restaurants at the end
of 2006 and some 650 in other countries.
PORTLAND, Ore. — MCCORMICK & SCHMICK’S
SEAFOOD RESTAURANTS INC. has cut its third-quarter earnings
forecast by about one-third, citing weak traffic this month,
mainly fewer visits by “aspirational,” or lower-income, guests. The
operator of 72 namesake restaurants now anticipates third-quarter
revenue of about $88 million and flat same-store sales compared
with year-earlier results. Per-share earnings would total 16 cents, it
said. Those figures compare with the company’s earlier guidance of
$90 million to $91 million in revenue, a same-store increase of 1.5
percent to 2.5 percent, and per-share earnings of 21 cents to 23
cents. Full quarterly results are to be released in November.
ORLANDO, Fla. — DARDEN RESTAURANTS INC.’s pending
acquisition of RARE HOSPITALITY INTERNATIONAL
INC. took another step toward its expected October closing as
the casual-dining operator secured two new credit agreements
totaling $1.9 billion to help finance the deal, Darden said
Monday in filings with securities regulators. Darden’s purchase
of Rare Hospitality, the Atlanta-based owner and operator of the
LongHorn Steakhouse and The Capital Grille chains, was first
announced in August and is valued at about $1.4 billion, including
assumed debt. In Monday’s filings, Darden said it had
secured a $750 million revolving credit agreement and a $1.15
billion, 364-day interim credit agreement. The revolving-credit
pact can be used for working capital, capital expenditures, refinancing
debt and partial financing of the Rare acquisition. The
entire interim credit facility is earmarked for the purchase of
Rare, Darden said. Both loans are senior unsecured debt obligations.
Darden owns and operates about 1,400 restaurants under
four brands, including Red Lobster and Olive Garden.
CARPINTERIA, Calif. — CKE RESTAURANTS INC., parent
of the CARL’S JR. and HARDEE’S brands, blamed higher
packaging, food and occupancy expenses for its 33.7-percent
decline in net profit for the second quarter ended Aug. 13. The
increasing rents and higher costs for beef, cheese and pork,
among other commodities, led to a 2.8-percent increase in total
operating costs, CKE said. Net income fell to $9.4 million, or 15
cents per share, from a year-earlier second-quarter profit of $14.2
million, or 20 cents per share. The company’s operating income
fell 31 percent year-over-year to $23.4 million. Second quarter
corporate revenue dipped 0.4 percent to $363.1 million. Sales
from corporate restaurants fell 0.5 percent during the quarter to
$287.8 million, and were suppressed by the sales of formerly
CKE-owned outlets to franchisees in certain markets, the company
said. At the end of the second quarter, CKE and its franchisees
and licensees operated 1,111 Carl’s Jr. and 1,909 Hardee’s outlets.
ORLANDO, Fla. — DARDEN RESTAURANTS INC.,
owner-operator of 1,404 casual-dining restaurants, posted a 20-
percent year-over-year surge in first-quarter profit on revenue
that increased 7.9 percent from a year ago to $1.47 billion.
Darden attributed its strong results to increased same-stores sales
at its two flagship brands, RED LOBSTER and OLIVE
GARDEN, as well as new-unit development. The company’s net
earnings for the quarter that ended Aug. 26 were $105.9 million,
or 72 cents per share, compared with a profit of $88.5 million,
or 59 cents per share, a year ago. Earnings from continuing operations
— which exclude losses from more than 50 now-closed
Smokey Bones restaurants and the pending sale of that brand’s
remaining 73 outlets — rose to $106.6 million, or 73 cents per
share, from $93.3 million, or 62 cents per share. Darden said it
expects annual growth in per-share profit to be between 10 percent
and 12 percent, which would range between $2.78 and
$2.83 per share based on the company’s fiscal 2007 per-share
profit of $2.53. The company’s fiscal 2008 profit projection does
not include one-time costs related to Darden’s pending purchase
of RARE HOSPITALITY INTERNATIONAL INC.
SCOTTSDALE, Ariz. — P.F. CHANG’S CHINA BISTRO
INC. entered into a six- year, $150 million credit agreement this
month and used $15 million to repay the outstanding balance on
its previous credit facility. The company said in securities filings
that it planned to use the remaining $135 million to fund
share repurchases; to support standby letters of credit, which
generally are required by insurance companies for workers’
compensation and self-insurance programs; and for general corporate
purposes. JPMORGAN CHASE BANK is the credit
facility’s administrative agent, BANK OF AMERICA the syndication
agent and WELLS FARGO BANK the documentation
agent, according to the owner-operator of more than 150
namesake full-service restaurants in 35 states and 100 fast-casual
Pei Wei Asian Diners, primarily in the Southwest.
OAK BROOK, Ill. — MCDONALD’S CORP. cited breakfast,
beverages and new menu offerings as drivers of a global
August same-store sales jump of 8.1 percent, which was double
the gain most analysts had forecast. The worldwide increase
was fueled by a 7.4-percent U.S. same-store sales and a 12.4-
percent increase in the company’s Asia/Pacific-Middle East-
Africa region. The global August comparable-restaurant results
for outlets open at least 13 months beat McDonald’s global rise
of 6.5 percent for July. McDonald’s singled out Japan, Australia
and China as especially good performers and lauded the success
of locally relevant menu promotions, extended hours and
breakfast in those regions. Same-store sales in Europe rose 6.1
percent. Total systemwide sales for August increased 12.3 percent,
or 9.3 percent in constant currencies, the company reported.
McDonald’s and its franchisees operate more than 30,000
restaurants worldwide.
LOUISVILLE, Ky. — KFC is promoting its line of Famous
Bowls with a sweepstakes and a “What Wrong Would You Right”
contest tied to the Sept. 27 premiere of “My Name is Earl” on
NBC. Contestants can enter a secret code, found on in-store promotional
materials, at KFC’s website or text message the code to
a special number. The grand prize is $25,000. The other contest is
based on the TV show, whose namesake character decides to right
his past wrongs after winning $100,000 in the lottery. Contestants
can submit descriptions of the wrongs in their lives they’d like to
make right to be eligible for a $100 KFC gift checks.
NASHVILLE, Tenn. — CAPTAIN D’S SEAFOOD
KITCHEN is set to break a new TV campaign this fall as part of
the 600-unit chain’s reimaging efforts. Created by O2 IDEAS of
Birmingham, Ala., the campaign would feature a stop-motion
commercial showing a seaside artist painting a fish, which then
“swims” through crowds of people and ends up on a poster outside
a Captain D’s restaurant. The spot promotes the “all new, surprisingly
different Captain D’s Seafood Kitchen,” as the voiceover
explains. Captain D’s launched its reimaging initiative last
year with a new logo, store redesign and revamped menu.
LITTLETON, Colo. — CHAMPPS ENTERTAINMENT
INC., which is selling its 61 sports-theme restaurants, reported a
smaller fourth-quarter net loss than a year earlier, but a larger loss
for all of fiscal 2007. Champps’ loss for the fourth quarter ended
July 1 was $700,000, or 6 cents per share, versus $2 million, or 15
cents per share, in the closing quarter of 2006. But the full-year net
loss was $7.9 million, or 60 cents per share, compared with $1.6
million, or 12 cents per share in fiscal 2006. Total revenues for the
latest quarter fell 4.7 percent to $47.1 million, and fell 4.3 percent
to $198.07 million for the year. The sale of the Champps
Americana chain for nearly $75 million, or $5.60 per share, to
F&H ACQUISITION CORP., the holding company of Wichita,
Kan.-based FOX & HOUND RESTAURANT GROUP, is
expected to close Oct. 1 pending shareholder approval this month.
OKLAHOMA CITY — SONIC CORP., operator or franchisor
of 3,300 namesake drive-ins, said strong same-store sales in the
August-ended fourth quarter have made the company confident it
will hit the higher end of its earnings target for the quarter. Sonic
estimated the quarterly rise in systemwide same-store sales was
within its 2-percent to 4-percent target, with results at joint-venture
units “slightly above” that range. Fourth-quarter, per-share
profit will be at the higher end of a previously stated range of 32
cents to 33 cents, Sonic said, up from the year-earlier 29 cents.
WINSTON-SALEM, N.C. — KRISPY KREME DOUGHNUTS INC.’s attempted turnaround has hit a snag in the wake
of recent bankruptcy filings by two franchisees, with the company
Thursday reporting a nearly sixfold deeper second-quarter
loss than it posted a year earlier. The company’s net loss for
the three months ended July 29 was $27 million, or 42 cents per
share, compared with a loss of $4.6 million, or 7 cents per
share, in last year’s second quarter. Quarterly revenue for the
operator or franchisor of 411 Krispy Kreme outlets fell 7.5 percent
from a year earlier to $104.1 million. Impairment charges
and lease termination costs for the quarter totaled $22.1 million,
compared with $382,000 in last year’s same period. In the
latest quarter, 19 Krispy Kreme units were opened and 12 were
closed. In the first six months of the current fiscal 2008 franchisees
closed 13 locations, and the closure of a “significant
number” of additional franchised units is likely during the rest
of the fiscal year, Krispy Kreme said.
ST. LOUIS — PANERA BREAD CO. reported a year-over-year same-store sales increase of 3.1 percent for the five weeks ended
Aug. 28 at bakery-cafes open at least 18 months, leading many analysts to say the company has stabilized what had been a volatile year of same-store sales results. Panera reported negative and flat same-store sales for much of the year’s first half, citing harsh weather in the Midwest, where a majority of its stores are located. In April, May and June, same-store sales results fluctuated between increases of 1.2 percent and 3.1 percent. July’s same-store sales rose 3.9 percent, and with August’s increase of 3.1 percent, analysts said the chain is back on track. For its latest period, samestore sales increased 4.1 percent at corporate stores and 2.5 percent at franchised units. Panera and its franchisees operate 1,106 units under the Panera Bread and Saint Louis Bread Co. brands.
LEBANON, Tenn. — CBRL GROUP INC. reported that samestore
restaurant sales at 562-unit CRACKER BARREL OLD
COUNTRY STORE increased 3.1 percent for the four weeks
ended Aug. 31, versus the comparable period last year. The gain
was aided by a 2-percent increase in average checks, which was
helped by an average 2.7-percent increase in menu prices, the
company reported. Cracker Barrel’s same-store gift shop sales
increased 0.1 percent. MICHAEL A.WOODHOUSE, CBRL’s
chairman, president and CEO, said the positive sales and traffic
were partly due to consumers’ summer vacation travel and a later
start to the school year in some regions.