Steakhouse Partners Inc. Reports Third Quarter Financial Results

Net Revenues for the thirteen weeks ended September 28, 2004 were $12.8 million and operating earnings before interest, depreciation and taxes were over $1.3 million, versus prior year third quarter (twelve weeks) of $11.7 million and $0.7 million, respectively. The core restaurants reported a 1.4% same store sales increase over the same prior year period, which reflects the positive effect of the menu price increase partially offset by the elimination of discount coupons in all but a very few selected markets. Net loss for the thirteen weeks ended September 28, 2004 was $0.5 million, which includes a non-cash charge of approximately $0.2 million for employee and director stock options.

For the thirty-nine weeks ended September 28, 2004, net revenues were $40.6 million and operating earnings before interest, depreciation and taxes were over $4.6 million, versus prior year third quarter (thirty-six weeks) of $35.7 million and approximately $4.4 million, respectively. The core restaurants reported a 3.4% same store sales increase over the same prior year period. Net loss for the thirty-nine weeks ended September 28, 2004 was $0.9 million, which includes a non-cash charge in excess of $0.3 million for employee and director incentive stock options and $0.3 million of expenses associated with discontinued units approved for disposal by the bankruptcy court but not finalized until February 2004, as well as one-time charges of almost $0.1 million associated with the Company's implementation of "fresh start" accounting upon emergence from bankruptcy.

Chairman and CEO A. Stone Douglass said, "As we head into our fourth quarter, which is historically the Company's seasonally strongest quarter, the Company's operating performance for the nine months since coming out of bankruptcy protection was both gratifying and, at the same time, trying. Our revenue continues to trend favorably, which is attributable to three things: the gradually improving general economic climate, the fact that patronage of steak restaurants continues to be a growing segment within the overall restaurant industry, and certain operating initiatives we have taken at our venues. On the earnings side, however, while nearly all of our units made positive earnings contribution, our operating earnings performance was below the expectations we set for ourselves at the beginning of the year. Owing to unexpectedly high beef and dairy product costs, which adversely affected our industry sector, the Company's operating gross margins suffered. To address the adverse gross margin consequences of these cost increases, the Company has gradually implemented menu price increases and significantly decreased its dependence on discount coupons in a manner designed to recapture the earnings potential of its restaurants without unduly impacting patronage."

Mr. Douglass went on to state that, "I believe that we have taken the steps we needed to take to begin to counter the erosion in operating margins we faced for most of the year."

Steakhouse Partners is the owner and operator of a chain of 22 moderately priced, special occasion, family steak house restaurants and 3 specialty restaurants. Its venues are located in eight states, the majority of which are in the Far West and Midwestern states. The Company's steakhouse restaurants operate under the brand names Hungry Hunter, Mountain Jack's and Carvers.



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