Financial Overview — August 2008
TAYLORS, S.C. — FATZ CAFE, a 45-unit casual-dining chain, plans to use a $40 million recapitalization to refinance its debt and fund expansion. The company and its financial sponsors said the deal was completed this summer by private-equity firm MILESTONE PARTNERS and executives of Fatz Cafe parent CAFE ENTERPRISES INC. The debt financing, provided by GE Capital Solutions Franchise Finance and Madison Capital Funding, consisted of a $35 million term loan to refinance debt and a $5 million revolver to build new units. Fatz Cafe CEO STEVE BRUCE led the management investment. Majority shareholder BILL BURTON, retired as chairman as part of the transaction, but will remain on the board.
NASHVILLE, Tenn. — STANDARD & POOR’S RATINGS SERVICES has cut the credit rating of O’CHARLEY’S INC. to a non-investment grade on expectations that its sales and profits will decline for the remainder of the year. The company, operator or franchisor of 369 O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks outlets, last month reported a net loss of $7.8 million for the July-ended second quarter, versus a loss of $1.1 million for the same period a year earlier.- TAMPA, Fla. — SHELLS SEAFOOD RESTAURANTS INC. has filed for Chapter 11 bankruptcy protection and closed eight of its 23 restaurants. The move comes a few days after Shells reported that WARREN R. NELSON had resigned as president and chief financial officer. Shells plans to continue operating the remaining 10 restaurants it owns. Not included in the bankruptcy filing are four Shells units the company manages but doesn’t own and the new Rock Beach Grill unit, in which Shells has a partial interest. Shells’ chief executive, MARC BERNSTEIN, said Wednesday that the bankruptcy was caused by general economic woes afflicting the industry. The eight shuttered Florida branches are in Ocala, Winter Park, Orlando, Kissimmee, Winter Haven, St. Petersburg, Holmes Beach and Fort Myers. Shells said it was seeking new financing but had not yet obtained any commitments. Court documents indicated that Shells’ liabilities as of June 30 totaled $10.2 million and that it held about $10.7 million in assets.
- EMERYVILLE, Calif. — After reporting a second-quarter loss of $89.2 million, JAMBA INC.’s new management team, which has been on the job for three weeks, said it would close additional JAMBA JUICE locations, terminate more employees and shift the company’s focus to franchised-unit growth and ready-to-drink retail products. The parent of 518 Jamba Juice outlets and franchisor of another 218 branches said it identified about 20 locations that it could soon close, depending on negotiations with landlords. So far this year Jamba has shuttered 11 units and terminated leases on 13 unbuilt locations. Jamba also said it terminated 16 corporate employees this week, bringing its total number of firings since April to 71, or 30 percent of its corporate support staff. For the quarter ended July 15, Jamba’s net loss, equal to $1.69 per share, compared with a year-earlier profit of $2.3 million, or 4 cents per share. In the latest quarter Jamba took a charge of $5.5 million for store closures and lease terminations and another of $82.6 million for trademark impairment. Revenues for the quarter rose 10 percent from a year earlier to $98.6 million. Same-store sales at corporate units fell 7.3 percent.
- MIAMI — BENIHANA INC. blamed declining traffic and rising costs for a nearly 48-percent drop in first-quarter profit, but the parent of three Japanese-style concepts said it still expects to hit its full-year earnings target. For the quarter ended July 20, Benihana’s net income was $2.2 million, or 12 cents per share, versus $4.2 million, or 25 cents per share, a year earlier. Revenue rose 5 percent to $94.5 million. Systemwide same-store sales fell 4.9 percent, which reflected drops of 3.4 percent at the namesake teppanyaki concept, 9.1 percent at RA Sushi and 7.7 percent at Haru. Benihana officials said the company would focus on improving operations, menu development and advertising to cut costs and drive sales. For all of fiscal 2009, Benihana maintained its earnings outlook of 60 cents to 65 cents a share, but cut its planned capital expenditures for the year by $13 million, in part by postponing remodeling plans for two restaurants. Benihana operates 60 namesake units, 21 RA Sushi units and nine Haru units. The company also is franchisor of another 19 Benihana restaurants.
- ORLANDO, Fla. — DARDEN RESTAURANTS INC. has slashed its fiscal-year financial forecast and projected first quarter results below Wall Street expectations, citing a “more challenging than anticipated economic and consumer environment.” Many financial analysts covering the company said the news does not bode well for other restaurant operators, especially those in casual dining. A bellwether of industry vitality, Darden on Tuesday said its previous expectations for same-store sales increases “proved optimistic” and that results “will remain under pressure for the balance of the fiscal year.” The company operates more than 1,700 restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grille, Bahama Breeze and Seasons 52 brands. Orlando-based Darden has weathered the economic downturn better than most of its competitors, posting positive sales at its Red Lobster and Olive Garden chains. Its admission that results won’t hit the company’s or analysts’ expectations sent Darden shares down more than 12 percent in trading Tuesday. In the first look at Darden’s sales trends for its first fiscal quarter, which ended Aug. 24, the company said same-store sales fell 3.7 percent at Red Lobster and 4.9 percent at LongHorn, versus year-earlier results. Olive Garden’s same-store sales rose 2.4 percent. Full first-quarter results would be released Sept. 16.
- MIAMI — Citing the strength of its movie promotions and longer operating hours, BURGER KING HOLDINGS INC. on Thursday reported a 42-percent rise in fourth-quarter profit and a 9-percent jump in quarterly revenue, to $646 million. The operator or franchisor of more than 11,500 Burger King restaurants recorded same-store sales surges of 5.3 percent globally and 5.5 percent in the United States and Canada. For the June 30-ended quarter, BK’s net income was $51 million, or 37 cents a share, versus earnings of $36 million, or 26 cents a share, a year earlier. For the latest full year, the No. 2 burger chain recorded profit of $190 million, or $1.38 per share, on revenue of $2.46 billion. In fiscal 2007,its profit was $148 million, or $1.08 per share, on revenue of $2.23 billion. Chairman and CEO JOHN CHIDSEY said Burger King tallied its best customer traffic in more than 10 years, despite challenging economic conditions. He reaffirmed BK’s ability to carry its upbeat financial momentum into fiscal 2009 and said per-share earnings would be $1.54 to $1.59 for the year.
- CARPINTERIA, Calif. — Premium “meat-as-condiment” burgers were credited for positive same-store sales at CKE RESTAURANTS INC.’s HARDEE’S and CARL’S JR. chains, for both the latest month and quarter. Starting last month, both brands introduced versions of the Prime Rib Burger. At a suggested $4.49, the offering is the highest-priced burger ever on each chain’s menu, CKE said. The company has focused on premium, higher-priced menu items when many quick-service players have promoted lower-priced value items to appease cost-conscious consumers. For the four weeks ended Aug. 11, same-store sales rose 4.2 percent at Carl’s Jr. and 1.4 percent at Hardee’s. For the company’s second quarter, also ended Aug. 11, same-store sales rose 3.8 percent at Carl’s Jr. and 3.3 percent at Hardee’s.
- TAMPA, Fla. — In the first public look at OUTBACK STEAKHOUSE’s financials since its parent company went private in a billion-dollar-plus buyout last year, it seems the casualdining chain isn’t faring any differently than its peers. Outback’s parent company, OSI RESTAURANTS PARTNERS LLC, booked negative revenue and same-store sales trends and a larger net loss than a year ago. It also recorded a $185.5 million provision for impaired assets and restaurant closures in its latest quarter. At Outback, the company’s 976-unit flagship chain, systemwide same-store sales fell 5.6 percent for the quarter ended June 30, versus the same quarter a year ago. Systemwide samestore sales fell 5.0 percent at CARRABBA’S ITALIAN GRILL, 8.0 percent at BONEFISH GRILL and 8.4 percent at FLEMING’S PRIME STEAKHOUSE & WINE BAR. In a conference call on Friday, CFO DIRK MONTGOMERY cited the “unusually challenging consumer environment” for weak traffic trends and reduced profitability.
- NEW YORK — STANDARD & POOR’S RATINGS SERVICES lowered the corporate credit ratings of UNO RESTAURANT HOLDINGS CORP. and SBARRO INC., saying both companies could soon breach debt covenants. At Uno, the operator or franchisor of more than 200 Uno Chicago Grill restaurants, the decision to hold off on a twice yearly interest payment due Friday triggered the ratings cut. Chief executive FRANK GUIDARA said Uno would skip that payment and use a 30-day grace period to present a new capital structure to bond holders. He said the company does not face a liquidity issue and is looking to recapitalize while the casual-dining chain’s financial performance is strong. S&P said Uno’s credit rating is “highly vulnerable to nonpayment.” At Sbarro, which operates or franchises 1,064 quick-service restaurants, ratings were lowered on “the growing possibility that Sbarro will breach financial covenants … because poor operating performance is continuing to erode EBITDA,” according to the S&P. An S&P analyst said Sbarro could be out of compliance in the fourth quarter, when maximum leverage ratios under the company’s agreements become more restrictive. Calls to Sbarro were not returned.
- COLUMBUS, Ohio — BOB EVANS FARMS INC. reported a 3.6-percent year-to-year increase in profit for its July-ended first quarter as sales gains and cost controls helped the company buck many trends hurting the restaurant industry. For the quarter ended July 25, Bob Evans earned $13.8 million, or 45 cents per share, compared with the year-ago quarter’s earnings of $13.3 million, or 38 cents per share. Net sales rose 3.7 percent, to $440.3 million. Same-store sales at the Bob Evans family-dining chain rose 2 percent, aided by menu price increases of 2.9 percent, the company said. Same-store sales at the company’s MIMI’S CAFE concept fell 6.5 percent, however. The company blamed “challenging economic conditions, sub-prime mortgage issues, lower home values and rising restaurant development costs.” The company warned that those conditions could hurt future development plans. There are 571 Bob Evans units and 135 Mimi’s Cafes.
- INDIANAPOLIS — The STEAK N SHAKE CO. reported a loss of nearly $10 million for its third quarter as sales fell and impairment charges and restaurant closures eliminated any profit from a year ago. For the quarter ended July 2, Steak n Shake posted a net loss of $9.8 million, or 35 cents per share, compared with year-ago profit of $124,000, or nil cents per share. The latest quarter included charges of $14.1 million, or 35 cents per share, related to 12 restaurants that the company plans to close in the current fourth quarter and 18 units that were written down in value. Charges related to a sale-leaseback transaction also were booked. Steak n Shake´s third quarter revenue fell 6.1 percent from a year ago to $144.3 million. Same-store sales declined 5.8 percent. As of July 2, there were 505 Steak n Shake restaurants, including 436 corporate units and 69 franchised locations.
- COSTA MESA, Calif. — EL POLLO LOCO INC., the privately held operator-franchisor of 406 grilled-chicken restaurants, swung to a net loss in its second quarter as a $10.7 million legal settlement and higher commodity costs erased the chain´s sales gains. For the quarter ended June 30, El Pollo Loco posted a net loss of $5.6 million, compared with profit of $1.4 million a year ago. Latest quarter revenue rose 9.6 percent to $76.4 million and reflected 15 new locations and a systemwide same-store sales increase of 1.9 percent. In June, El Pollo Loco paid a $10.7 million settlement to El Pollo Loco Mexico SA over former development rights and agreements in Mexico. Excluding the one-time settlement expense, El Pollo Loco´s operating income would have totaled $7.7 million in the latest quarter, down from $8.6 million a year ago. Other items that hurt profit included a 12.5-percent jump in chicken and other commodity costs and higher rent and utility expenses, the company said.
- OAK BROOK, Ill. — MCDONALD´S breakfast menu, chicken offerings, $1 beverage promotions and the marketing of its classic Big Mac helped drive same-store sales at domestic restaurants up 6.7 percent in July, the company said Friday. The jump was larger than expected, according to some analysts, and reflected menu price increases of about 4 percent this year. DAVID PALMER, securities analyst at UBS EQUITY RESEARCH, also noted that McDonald´s fastest-growing products, mainly breakfast and beverage items, hold lower food costs and may help profitability. “Strong growth in high-margin products augers well for U.S. profit growth in the third quarter in spite of rising hamburger commodity prices,” he said. For July, McDonald´s global same-store sales rose 8.0 percent, reflecting gains of 7.6 percent in Europe and 7.2 percent in the Asia-Pacific/Middle East/Africa region.
- HOUSTON — LANDRY´S RESTAURANTS INC., while awaiting a going-private buyout by its chief executive, reported a near-doubling of second-quarter net income to $13.9 million, or 90 cents a share, compared with year-earlier results. Revenue for the three months ended June 30 rose 1.1 percent to $311.4 million. Same-store sales for the company´s chains, including Rainforest Cafe, Saltgrass Steakhouse and Landry´s Seafood House, fell 2.5 percent. In last year´s second quarter, Landry´s earned $6.9 million, or 33 cents a share. Driving the profit gain, even as sales slowed, were reductions in cost of sales and general and administrative expenses, Landry´s said. The company also booked lower losses for discontinued operations, $157,000, including for the divested Joe´s Crab Shack chain, versus losses of $2.3 million a year earlier. Income from continuing operations for the second quarter rose 51.8 percent to $14.0 million, versus $9.2 million last year.
- LAKEWOOD, Colo. — EINSTEIN NOAH RESTAURANT GROUP said menu price hikes and operating-hour cutbacks are helping trim costs while driving sales and profits. The company and its franchisees operate 623 Einstein Bros. Bagels, Noah´s New York Bagels and Manhattan Bagels cafes. The chain began closing stores an hour early during the second quarter, at 4 p.m. or 5 p.m. “[The loss of one hour] had no impact on operational profit of the restaurants," CFO RICK DUTKIEWICZ told analysts Wednesday. To help offset negative traffic trends and the effects of earlier closings, prices were raised 6.9 percent in July. Cost savings from the shortened days and lowered interest expenses helped the company swing to a $6.9 million profit for the July 1-ended second quarter, from a $250,000 net loss a year earlier. Per-share earnings were 42 cents, compared with a loss of 2 cents per share a year earlier. Revenue rose 4.3 percent to $105 million.
- DALLAS — BRINKER INTERNATIONAL INC., parent of the Chili´s Grill & Bar brand, blamed high commodity costs and slowing sales for a 49-percent drop in fourth-quarter profit. The company also said it now seeks to sell a majority interest in the 212-unit Romano´s Macaroni Grill chain after previously looking for an outright buyer. Earnings for the quarter, which ended June 25, were $42.6 million, or 41 cents per share, versus $83.6 million, or 71 cents per share, a year earlier. Excluding special items, Brinker would have earned 50 cents per share, compared with 57 cents per share last year, it said. Results included Macaroni Grill´s operating results, as the chain is no longer earmarked for a full sale. Corporate revenue for the quarter fell 6 percent to $1.07 billion. Quarterly same-store sales rose 3.4 percent at Chili´s, but were down for all other Brinker chains, falling 2.3 ercent at On the Border Mexican Grill & Cantina, 0.5 percent at Maggiano´s Little Italy and 5.7 percent at Romano´s Macaroni Grill. Brinker and its franchisees operate 1,888 restaurants.
- DUBLIN, Ohio — WENDY´S INTERNATIONAL INC. blamed higher commodities costs and charges related to its restructuring process for a 32-percent plunge in second-quarter net income to $19.9 million, or 22 cents per share. In the yearearlier quarter, Wendy´s earned $29.2 million, or 33 cents a share. Excluding $10.1 million in restructuring costs and charges related to a special board committee´s review of strategic alternatives, Wendy´s would have earned 30 cents a share for the quarter, it said. Wendy´s is being acquired by Arby´s parent Triarc Cos. Inc., in a deal valued at $2.3 billion that´s expected to close by year-end. Wendy´s revenue for the quarter fell 0.2 percent from a year earlier to $631.9 million. Same-store sales were up 0.1 percent for company stores and 1.1 percent for franchised units. Wendy´s and its franchisees operate 6,625 restaurants.