Financial Overview — March 2008
MARYVILLE, Tenn. — RUBY TUESDAY INC.´s lenders will give the restaurant company until April 18 to amend its debt agreements in order to avoid default, the company said. Last month, the operator or franchisor of 944 namesake restaurants said it expected to break certain lending covenants, specifically its debt–to–EBITDA ratio, because of slowed sales, reduced profits and the large amount of debt on its balance sheet. Ruby Tuesday has been using its cash to fund restaurant remodels and other rebranding initiatives, leaving even less money to service a debt load that stood at about $590 million as of Dec. 4. A technical default typically leads to higher interest rates and less–favorable lending agreements for the borrower. Ruby Tuesday said its lenders have waived the covenants until next month and will work with the company to tweak the loan terms on its credit facility and public notes.
LEBANON, Tenn. — CBRL GROUP INC. said Tuesday that same–store restaurant sales at its CRACKER BARREL OLD COUNTRY STORE family–dining chain rose 0.9 percent for the four weeks ended Feb. 29, versus the same period a year ago. Much like the prevailing trend across most of the industry, that sales gain was driven by menu price increases instead of growth in guest traffic. CBRL reported a 3.1–percent rise in average checks for February, aided by average menu price increases of about 3.2 percent. The numbers indicate that guest traffic was down 2.2 percent for the month, which one analyst noted was a deceleration from January, when Cracker Barrel´s year–to–year traffic was down 1.3 percent. The chain´s same–store gift shop sales increased 1.2 percent for the month, CBRL also reported. CBRL operates 572 Cracker Barrel restaurants–gift shop branches.- BOSTON — The management of AU BON PAIN and the private–equity firm LNK PARTNERS said they have completed their purchase of a controlling interest in the bakery–cafe brand for $100 million. The sellers include a division of PNC Financial Services Group Inc., AlpInvest Partners N.V. and contracting feeding giant Compass Group PLC, which retains an undisclosed minority stake. The investment is expected to support Au Bon Pain´s expansion in the United States and abroad. The company posted systemwide sales of nearly $300 million in 2007. Au Bon Pain consists of 226 unit fast–casual bakery–cafes that are typically supplied by commissaries.
- ATLANTA — Arby´s franchisor TRIARC COS. INC., which owns about 1,000 branches of the 3,600–unit sandwich chain, said fourth–quarter operating profit jumped 37 percent from a year ago to $32 million. The profit surge was attributed to new–unit development, franchisees´ positive same–store sales and expense controls that helped steady operating margins. In its report on fourth–quarter financial results, Triarc also reaffirmed its intention to grow through acquisitions. The company last year submitted an offer to buy Wendy´s International Inc. for an undisclosed price as the only confirmed bidder for the No. 3 burger chain to date. Arby´s corporate operating profit of $32 million for the quarter ended Dec. 31 compared with its $23.3 million yield a year earlier. Revenues rose 5 percent to $307 million, from $292.4 million a year earlier. For the full year, Triarc´s operating profit from the restaurant system was $108.7 million, compared with $95.3 million in 2006. Full–year revenue rose to $1.20 billion from $1.15 billion a year earlier, reflecting 103 new Arby´s restaurants but flat systemwide same–store sales.
- DUBLIN, Ohio — California Pizza Kitchen investor FARALLON CAPITAL MANAGEMENT LLC and its affiliates have amassed a 6.2–percent stake in WENDY´S INTERNATIONAL INC., according to securities filing. The documents indicate that the San Francisco–based hedge fund and affiliates paid $176.6 million for the 5.4 million shares, though the purchases “were not made for the purpose of acquiring control of the company.” However, the filers said they reserved the right to talk to other shareholders and Wendy´s management about the company´s strategic direction. Wendy´s began a review last April of a potential sale or refinancing of the company. Arby´s parent Triarch Cos. Inc. has submitted a bid to buy the 6,600–unit Wendy´s system for an undisclosed price. As of late December, Farallon owned about 7.3 percent of California Pizza Kitchen´s stock.
- GLENDALE, Calif. — While predicting more positive results for 2008, IHOP CORP. said its purchase of APPLEBEE´S last November led to a net loss for the company in the fourth quarter and all of fiscal 2007. Company officials on Wednesday made the forecast based on Applebee´s strategic move to adopt a nearly all–franchised model and efforts to turn same–store sales into positive territory. IHOP reported a net loss of $16 million, or 94 cents per share, for the fourth quarter ended Dec. 31, versus a profit of $10.3 million, or 57 cents per share, for the comparable quarter a year earlier. The loss was attributed mainly to charges of $16.1 million for the financing of IHOP´s $2.1 billion Applebee´s acquisition. The company´s interest expense for the latest quarter also surged to $19.8 million from $1.8 million a year earlier. Quarterly revenues, including one month of sales from Applebee´s 509 corporate locations and fees and royalties from about 1,450 franchised branches, more than doubled from a year earlier to $213.6 million. IHOP´s namesake system includes 1,344 pancake specialty restaurants, almost all of which are franchised. Systemwide same–store sales grew 3.7 percent at IHOP, but fell 2.9 percent at Applebee´s domestic locations, IHOP reported. The company´s rosy outlook for the current year includes an expectation that same–store sales will grow between 2 percent and 4 percent for the IHOP system and 1 percent to 2 percent for Applebee´s.
- LEBANON, Tenn. — Shares of CRACKER BARREL parent CBRL GROUP INC. surged Tuesday as the company reiterated a forecast that full–year, per–share profit should come in above Wall Street estimates and that annual same–store sales for the company´s fiscal year ending in July would remain positive despite economic headwinds affecting the industry. The rosy outlook came on the heels of CBRL´s report of an 80–percent drop in second–quarter net income to $20.2 million, or 85 cents per share. The year–to–year decline mainly reflected unfavorable comparisons to year–earlier results that had included $82 million in income from the company´s sale of the Logan´s Roadhouse chain. Income from continuing operations, now only the Cracker Barrel Old Country Store chain, declined 1 percent from a year ago to $20.2 million, or 85 cents a share, for the quarter, which ended Feb. 1, versus $20.5 million, or 60 cents a share,a year earlier. Revenue for the latest quarter grew 3.6 percent to $634.5 million.
- ANN ARBOR, Mich. — DOMINO´S PIZZA INC. blamed a near–doubling of interest expense and cautious consumer spending for the company´s 48–percent drop in profit for last year´s fourth quarter. Net income fell to $16.2 million, or 26 cents per share, for the quarter ended Dec. 30, from $31 million, or 49 cents a share, for the same quarter a year earlier. The company reported earnings of 21 cents per share for the latest quarter excluding debt recapitalization charges and gains both from the sale of a corporate airplane and from favorable outcomes from state tax issues. The result was 5 cents lower than Wall Street estimates. Revenue for the latest quarter rose 3 percent to $445.9 million, aided mostly by sales gains overseas as revenues from domestic corporate restaurants dipped 0.4 percent. Same–store sales fell 1.1 percent at U.S. corporate units, and 3.5 percent systemwide for all U.S. locations. Same–store sales rose 9.5 percent internationally. For fiscal 2007, Domino´s profit plunged 64 percent to $37.9 million, or 59 cents a share, from $106.2 million, or $1.65 per share. Domino´s and its franchisees operate 8,624 pizza outlets worldwide.
- LONDON — MCDONALD´S CORP. is divesting its 33–percent stake in PRET A MANGER, the British–based grab–and–go sandwich–salad–beverage chain that never pushed beyond its U.S. beachhead of a few stores in New York City. The chain´s intended buyers have promised to increase that U.S. presence by 50 percent. A controlling interest in Pret A Manger, which features organic and "all–natural" selections, is being sold by founders SINCLAIR BEECHAM and JULIAN METCALFE to BRIDGEPOINT CAPITAL, a European private–equity firm. GOLDMAN SACHS is reportedly buying a minority stake. The announcement from Bridgestone said McDonald´s "will no longer be part of the business" after the deal closes, without specifying if the burger giant was selling its stake to Bridgepoint, Goldman or some other minority investor. Pret A Manger currently has only 14 stateside branches. The chain has 175 shops in the United Kingdom and 11 in Hong Kong. Bridgepoint said it intends to open seven more stores this year in New York, where the existing outlet were said to be “already profitable.”
- HEATHROW, Fla. — RUTH´S CHRIS STEAK HOUSE INC. has continued to report bottom–line slippage with a 62–percent
plunge in fourth–quarter profit on a 1.1–percent uptick in revenues. The company said its performance was hit by “continuing challenges with guest traffic driven by an uncertain economy and a more cautious consumer.” For the 13–week quarter ended Dec. 30, the company earned $4.1 million, or 18 cents per share, compared with $10.7 million, or 46 cents per share, in the 14–week
quarter a year earlier. Revenue for the latest quarter was $89 million. Same–store sales fell 5.6 percent at corporate locations. The company and its franchisees operate 119 namesake restaurants.
- Tim Hortons Net Rises 12% on Expansion, Higher Prices — Tim Hortons Inc., Canada's biggest coffee–and–doughnut chain, reported profit climbed 12 percent as new stores and higher prices helped boost sales.
Fourth–quarter net income rose to C$75.7 million ($75 million), or 40 cents a share, the Oakville, Ontario–based company said today in a statement. Revenue advanced almost 11 percent to C$515.4 million. Profit matched the average estimate of analysts, while sales trailed their projection.
The chain added 119 locations in the quarter. It raised prices in 2007 in some areas and introduced pumpkin–spice muffins and chicken–fajita wraps to lure customers. This year, Tim Hortons expects to open at most 250 North American outlets, while sales existing U.S. sites slow as consumers trim spending.
``It's performing well even though the environment is becoming a bit more challenging,'' David Hartley, an analyst with BMO Capital Markets, said in an interview. ``They still came up with a decent–enough number.''
Tim Hortons gained 21 cents to C$35.62 by 4:10 p.m. in trading on the Toronto Stock Exchange. In New York, the shares advanced 1 cent to $35.15.
Sales at restaurants open at least 13 months increased 3.4 percent in Canada in the quarter. About 2 percent of the revenue growth came from higher prices, Tim Hortons said. A year earlier, sales at those locations climbed 9.3 percent, helped by purchases of a new breakfast sandwich.
U.S. Operations
In the U.S., so–called same–store sales rose 4.2 percent in the quarter and 4.1 percent last year. Tim Hortons reached its target for annual sales growth at existing outlets in Canada, while trailing the goal of at least a 6 percent increase in the U.S. The U.S. division had a C$477,000 loss in the quarter because of costs to open new stores and a rise in the Canadian currency, which reduced earnings in the dollar. In the U.S., same–store sales will rise 2 percent to 4 percent this year, the chain said. The lower target reflects ``economic challenges and competitive discounting,'' Tim Hortons said. It competes with McDonald's Corp. and the Dunkin' Donuts unit of Dunkin' Brands Inc. - SAN DIEGO — While disclosing a 2.2–percent year–to–year dip in its first–quarter profit, JACK IN THE BOX INC. revealed plans to introduce a slew of new products for its namesake chain, including smoothies, premium iced coffee drinks and such snack items as warm cinnamon rolls and Spicy Chicken Bites. The items, to be introduced during the coming year, reflect the quickservice category´s recent attention to new beverage, breakfast and snack offerings. For the quarter, which ended Jan. 20, Jack in the Box´s net income was $36.5 million, or 60 cents per share, compared with $37.4 million, or 52 cents per share, a year earlier. The surge in per–share income reflected a 16–percent drop in number of shares outstanding for the latest quarter as a result of corporate stock buybacks. Revenues rose 6 percent to $904.9 million, including sales and franchise fees from the 2,138–unit Jack in the Box chain, the 400–unit QDOBA MEXICAN GRILL chain and 61 QUICK STUFF convenience stores. Same–store sales at corporate Jack in the Box units rose 1.5 percent for the quarter, on top of a year–ago increase of 5.6 percent. The Denver–based Qdoba division booked a systemwide same–store sales jump of 4.5 percent, compared with a 4.1–percent jump a year earlier.
- NEW YORK — MARTHA STEWART LIVING OMNIMEDIA INC. has agreed to buy the nonrestaurant assets of chef EMERIL LAGASSE for at least $50 million. MSLO is acquiring the rights to Lagasse´s television programs; cookbooks; emerils.com website; and branded kitchen and food products, such as Bam! B–Q sauce and spices. The deal does not include Lagasse´s 11 restaurants or corporate office in New Orleans. MSLO said it would pay $50 million, including $45 million in cash and $5 million in stock. The deal is expected to close in the second quarter. The price could reach $70 million if certain performance targets are realized in 2011 and 2012, MSLO said.
- IRVING, Texas — CEC ENTERTAINMENT INC., parent of the 534–unit CHUCK E. CHEESE´S pizza and entertainment brand, said its fourth–quarter results plunged on asset impairment charges and tax adjustments. The company also said “pressures on consumer disposable income” negatively affected sales, which remained almost flat from a year ago, as new store development offset a quarterly same–store sales drop of 2.7 percent. For the three months ended Dec. 30, CEC´s net loss was $600,000, or 2 cents per share, compared with net income of $12.1 million, or 36 cents per share, in the same period of 2006. Net income for all of fiscal 2007 fell 3.5 percent from a year earlier to $55.9 million, or $1.76 per share, from $68.3 million, or $2.04 per share, in 2006.
- DENVER — Strong same–store sales and new store openings helped propel profit for CHIPOTLE MEXICAN GRILL INC. to $70.6 million in 2007, a 70.3–percent increase over the year earlier, the company reported. Chipotle, which now has 704 corporate restaurants, reached $1.1 billion in revenue, a 31.9–percent gain over the prior year. The fourth quarter, which ended Dec. 31, proved to be a strong 13 weeks: Same–store sales spiked 10.6 percent; net income rose 61.8 percent to $17.5 million, or 53 cents per share; revenue reached $288.9 million, a 31.5–percent increase; and the fast–casual burrito chain opened 37 new stores out of a total of 125 new units for the year. The sharply rising growth rates, however, were not enough to impress all analysts and investors. Chipotle´s shares fell about 3 percent in trading Friday because the fourth–quarter per–share profit did not meet analyst expectations and because Chipotle officials expressed caution for the year ahead because of current economic conditions that include rising commodity prices. Chipotle said it expects to be challenged by high dairy, wheat chicken and beef prices. This year´s same–store sales are expected to increase in the “single–to low double–digit range,” compared with last year´s jump of 10.8 percent. The company also anticipates opening 130 to 140 new restaurants this year.
- SPARTANBURG, S.C. — DENNY´S CORP. posted a more than sixfold increase in fourth–quarter profit on gains from the disposition of assets, but the company´s outlook for the new fiscal year led its stock to plummet in trading Thursday. Denny´s, operator or franchisor of 1,546 restaurants, expects its revenue to fall for 2008, mainly because of its continued sales of corporate units to franchisees. In addition, Denny´s expects negative samestore sales and continued negative guest traffic for the year. Increased costs, mainly for labor, are also expected. The company did note, however, that it expects lower interest expense as it continues to pay down debt, and improved cost margins from a changed menu mix. Net income for the fourth quarter ended Dec. 26 was $16.7 million, or 17 cents per share, up by $14.4 million from the prior fourth–quarter´s net of $2.3 million, or 2 cents per share. Adjusted income before taxes, however, was $3.4 million for the quarter, a decrease of $3.9 million compared with prioryear adjusted income of $7.3 million, the company said.
- MINNEAPOLIS — BUFFALO WILD WINGS INC. on Tuesday reported an 11.7–percent drop in fourth–quarter net income to $6 million, or 34 cents per share, reflecting one fewer operating week than in the prior year´s closing quarter and a 12.5–percent jump in costs and expenses for the latest period. The company´s results for the three months ended Dec. 30, however, still beat analyst expectations by 2 cents per share, and annual net income surged 20.8 percent from a year earlier to $19.7 million, or $1.10 per share. Excluding the extra operating week in fiscal 2006, Buffalo Wild Wings delivered on its annual projections of 20–percent revenue growth and 25–percent growth in net income. On an as–reported basis, revenue increased 9.7 percent to $91.4 million for the quarter, and 18.5 percent to $329.7 million for the year. Quarterly same–store sales increased 3.4 percent at corporate restaurants and 2.3 percent at franchised units, the company said. Annual same–store sales rose 6.9 percent at corporate locations and 3.9 percent at franchised units.
- COLUMBUS, Ohio — Citing “excellent cost management” and overall sales growth, BOB EVANS FARMS INC. reported a 7–percent increase in third–quarter net income on a revenue gain of 7.1 percent to $449.7 million. For the quarter, which ended Jan. 25, Bob Evans earned $20 million, or 61 cents per share, up from $18.7 million, or 51 cents per share, in the prior year´s third quarter. The company´s 19.6–percent increase in pershare earnings was aided by a reduced year–to–year share count from Bob Evans´ repurchase of 2.3 million shares of its stock during the latest quarter. Same–store sales at the BOB EVANS family–restaurant chain rose 1.5 percent for the quarter as average menu prices increased 2.8 percent. At the company´s other chain, the casual–dining MIMI´S CAFE system, same–store sales fell 2 percent despite a 2.6–percent increase in menu prices from a year earlier. The higher rate of menu price inflation than same–store sales growth indicated that customer traffic was off for both chains for the quarter, versus year–earlier results.
- ORLANDO, Fla. — Despite a “challenging economic environment,” DARDEN RESTAURANTS INC. said its third–quarter, per–share earnings are expected to exceed expectations because of positive same–store sales at its largest chains, RED LOBSTER, OLIVE GARDEN and LONGHORN STEAKHOUSE. Darden said it expects earnings per share from continuing operations for the quarter ending Feb. 24 to be 78 cents to 80 cents. Analysts´ consensus estimate was 77 cents, according to Thomson Financial. For its prior third quarter, Darden last year posted per–share earnings of 72 cents. The new estimate reflects about 5 cents per share in costs related to the acquisition and integration of Rare Hospitality International Inc., which was parent to the LongHorn and Capital Grille chains before it was purchased by Darden last October for about $1.4 billion. Darden now operates about 1,738 restaurants, including the Bahama Breeze and Seasons 52 chains.
- OAK BROOK, Ill. — MCDONALD´S CORP. credited strong breakfast and Dollar Menu sales for a 1.9–percent U.S. samestore sales increase for the month ended Jan. 31, an uptick from the flat same–store sales in December that triggered an unusual fall in the burger giant´s share price last month. Globally, McDonald´s same–store sales outpaced the U.S. uptick and rose 5.7 percent for the month. January same–store sales increased 8.2 percent in Europe and 7.8 percent in the company´s Asia–Pacific/Middle East/Africa region. The company, in a statement released Friday, pointed to unique premium and value menu items for the positive performance in Europe, especially in France, Germany and the United Kingdom. Extended operating hours and menu options geared to local consumer tastes drove performance in Australia, China and other markets in the APMEA region, the company said. Total systemwide sales rose 13.4 percent in January, or 7.1 percent in constant currencies, McDonald´s also reported. This spring, McDonald´s plans to introduce “Southern Style” chicken products and a Southwestern Salad. The chain is rolling out espresso–based beverages on a market by market basis.
- TOKYO — MCDONALD´S HOLDINGS CO. (JAPAN) LTD. has posted a more than fivefold annual increase in net profit for
2007 to the equivalent of about $73 million, or 7.82 billion yen, which the company credited to new menu items, extended operating hours and remodelings that included drive–thrus. Net profit for 2006 was 1.55 billion yen. The publicly owned operator or franchisor of 3,746 McDonald´s, about 12 percent of the chain´s global system, is 50–percent owned by MCDONALD´S CORP. of Oak Brook, Ill. The Tokyo–based company reported record sales of about $3.73 billion for the year, an 11.1–percent increase, and a 10–percent jump in same–store sales. At least 1,312 McDonald´s in Japan are now 24–hour operations.
- NASHVILLE, Tenn. — O´CHARLEY´S INC., operator or franchisor of 365 casual–dining restaurants, reported sharp declines in fourth–quarter and full–year earnings Thursday, blaming impairment charges and weak sales. Net profit was $727,000, or 3 cents per share, for the quarter ended Dec. 30 on revenues of $215.2 million, versus $5.2 million, or 22 cents per share, on revenues of $240.4 million a year earlier. Net profit for the year was $7.2 million, or 31 cents per share, versus $18.9 million, or 80 cents per share. Annual revenue was $977.8 million, up from $968.3 million in 2006. The company´s system includes 229 O´Charley´s, 115 Ninety Nine Restaurant and 10 Stoney River Legendary Steaks locations. Same–store sales at corporate units in the fourth quarter fell 4.3 percent at O´Charley´s, 4.5 percent at Stoney River, and 2.6 percent at Ninety Nine.