Friendly Ice Cream Corporation Net Revenues Declined by $3.1 million

Friendly Ice Cream Corporation (AMEX: FRN) today announced financial results for the first quarter ended April 1, 2007.

Highlights - First Quarter Results

• Net revenues declined by $3.1 million, or 2.5%, to $122.6 million.

• Comparable restaurant sales decreased 4.1% for company-operated restaurants compared to a 4.8% increase in the first quarter of 2006.

• Comparable sales decreased 4.6% for franchised restaurants.

• The net loss from continuing operations was $0.73 per share versus $0.56 in the prior year first quarter.

• Excluding net gains on property and equipment, adjusted EBITDA declined by $0.9 million.

• At the end of the quarter, cash and cash equivalents were $21.9 million and during the quarter, there were no borrowings against the revolving credit facility.

• Friendly's opened one new company restaurant and franchisees opened one new franchise restaurant during the quarter.

George M. Condos, President and Chief Executive Officer, said, 'Since joining the Company in January 2007, I have visited a number of restaurants and have spoken to employees, franchisees and guests. My observations from these visits have resulted in the development of numerous initiatives to re-energize the Friendly's brand by improving the quality of our menu and guest experience and by creating a more contemporary environment within our restaurants. Beginning this month, we will introduce the first of these initiatives which includes a new line of cold beverages and a new service program to enhance our guest experience.'

Financial Results

The net loss in the first quarter of 2007 was $6.0 million, or $0.73 per share, compared to a net loss of $1.8 million, or $0.23 per share, reported for the first quarter of 2006. The net loss in the first quarter of 2006 included $2.6 million, or $0.33 per share, in net income from discontinued operations. Total revenues were $122.6 million compared to total revenues of $125.7 million for the prior year. Comparable restaurant sales decreased 4.1% for company-operated restaurants and 4.6% for franchised restaurants.

Adjusted EBITDA was $5.8 million in the first quarter of 2007 compared to adjusted EBITDA of $7.4 million in the first quarter of 2006. Excluding net gains on property and equipment, adjusted EBITDA was $5.8 million compared to $6.7 million in the prior year first quarter. An explanation of the use of non-GAAP financial measures is explained in the note below and in the supplemental disclosure attached to this press release.

Business Segments - First Quarter Results

Restaurant revenues were $93.2 million in the first quarter of 2007, a decrease of $2.1 million, as compared to restaurant revenues of $95.3 million for the prior year first quarter. Comparable restaurant sales decreased 4.1%, or $3.6 million, compared to an increase of 4.8% in the first quarter of 2006. Colder weather in 2007, especially at night, combined with more significant rain and snow events, had a negative impact on restaurant sales. The closing of six restaurants and the acquisition of six restaurants by franchisees resulted in revenue declines of $0.8 million and $1.7 million, respectively. These declines were offset by a $4.0 million increase in restaurant revenue from the opening of three new restaurants and the taking over operations of twelve formerly franchised restaurants over the past 15 months.

Adjusted restaurant EBITDA was $5.7 million, or 6.1% of restaurant revenues, in the first quarter of 2007 compared to $6.8 million, or 7.2% of restaurant revenues, in the prior year. Cost of sales, as a percentage of restaurant revenues, increased by 0.3% as compared to the prior year primarily due to increased commodity prices, as year over year menu pricing was minimal. Labor and benefits, as a percentage of restaurant revenues, decreased by 0.9% as a result of lower general manager bonus expense and a slight reduction in workers compensation insurance costs. Operating expenses of $24.3 million were $1.4 million higher than in the prior year first quarter mainly due to increased advertising costs, occupancy, utilities and supplies. These costs were partially offset by a $0.5 million decline in field overhead expenses due to a reduction in the number of field support positions.

In the first quarter of 2007, Foodservice revenues decreased $1.0 million to $25.9 million from $26.9 million in the first quarter of 2006. Franchise restaurant product revenues decreased by $0.3 million due to a lower average number of operating franchise restaurants during the quarter and from the decrease in franchise comparable sales of 4.6%. Sales to retail supermarket customers decreased by $0.7 million primarily due to a reduction in retail supermarket case volume of 5.8% and increased trade spending and sales allowances. Adjusted Foodservice EBITDA increased by $0.5 million from the prior year to $3.2 million due to favorable cream prices and lower selling expenses.

In December 2006 as a result of non-payment of rents and royalties, the Company's franchisee in the Orlando market surrendered 11 restaurants to the Company and closed one restaurant. The Company is currently operating these restaurants while looking for a new franchisee to take over their operation.

Franchise revenues of $3.5 million in the first quarter of 2007 were unchanged from the first quarter of 2006. Comparable franchise sales decreased by 4.6%. Franchise royalties decreased by $0.1 million due to a lower average number of operating franchise restaurants during the quarter combined with the decrease in comparable franchise sales. Rental income increased by $0.1 million as compared to the prior year due to increases in miscellaneous occupancy revenues that were partially offset by the decrease in the number of operating franchise restaurants. Adjusted franchise EBITDA was $2.1 million as compared to $2.4 million in the prior year.

Corporate expenses of $5.5 million in the first quarter of 2007 were favorable by $0.2 million as compared to the first quarter of 2006 primarily due to lower severance, fringe benefit and bonus expenses. These reduced expenses were partially offset by increased legal fees and stock compensation costs.



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