Shells Seafood Restaurants Q1 Revenues Decreased 7.9%

Shells Seafood Restaurants, Inc. (OTC Bulletin Board: SHLL) reported financial results for its first quarter ended April 1, 2007.

Key metrics for the first quarter of 2007 compared to the first quarter of 2006 were:

• Revenues decreased 7.9% to $13.4 million.

• Comparable restaurant sales decreased 6.8%.

• Net income of $35,000, compared to $261,000. As adjusted for non- recurring items, net loss of $11,000, compared to net income of 284,000.

• Diluted earnings per share of $0.00, compared to $0.01 per share diluted.

Leslie Christon, President and CEO, commented, "We experienced a decrease in our first quarter sales results, which we attribute primarily to a combination of strong same-store sales last year when we were up 7.1% for the quarter, a softening economy in 2007, and substantial discounting in offerings this past quarter by many of our casual dining competitors in the Florida markets. We will continue to focus on creating value for our guests with improved menu offerings and service enhancements."

First Quarter 2007 Results

Revenues for the first quarter of 2007 decreased 7.9% to $13.4 million from $14.6 million in the first quarter of 2006; mostly due to a 6.8% decrease in same store sales. As of the end of the first quarter of 2007, Shells had 25 restaurants in operation, same as a year-ago.

Restaurant operating costs, consisting of food and beverage costs, labor and other operating costs increased 2.3% as a percentage of sales compared to the prior year. Food and beverage costs increased 0.6% as a percentage of sales compared to the prior year mostly reflecting the introduction of improved menu offerings. Labor costs decreased by 1.0% as a percentage of sales compared to the prior year, mostly due to the improvement in operational efficiencies, partially offset by an annual increase in the Florida minimum wage. Other operating costs were affected by higher occupancy, insurance, advertising and utilities expenses, resulting in a 2.7% increase as a percentage of sales, compared to the prior year.

"Our operators have done a tremendous job in managing costs effectively, despite further increases in Florida's minimum wage and other areas of operating expense so far this year," Christon stated. "We remain challenged, along with all Florida business owners, by rising insurance rates, utilities, and property taxes. With the tightening economy, we are continually looking to improve our value offerings to give our guests compelling reasons to dine with us. By aggressively working to build our sales and guest counts, we look to improve our profitability and ultimately deliver better value to our shareholders."

General & administrative expenses were $1.0 million, or 7.6% of revenues, in the first quarter of 2007 compared to $1.2 million, or 8.1% of revenues, in the first quarter of 2006. The Company continued to reduce its overhead, while increasing resources for recruiting and training in the first quarter of 2007 in comparison to the same period last year.

Depreciation expense increased $8,000, or 0.4% as a percentage of revenues, as compared to the prior year due to additional restaurant remodels completed throughout the first half of 2006.

Net interest expense in the first quarter of 2007 was $66,000, or 0.5% of revenues, compared to net interest expense in the first quarter of 2006 of $71,000, or 0.5% of revenues.

Net income for the first quarter of 2007 was $35,000, or $0.00 per diluted share based upon 25.5 million diluted common shares outstanding, compared to net income in the first quarter of 2006 of $261,000, or $0.01 per diluted share based upon 26.6 million diluted common shares outstanding. Adjusting for non-recurring items summarized in the ensuing tables, the Company incurred a net loss of $11,000 in the first quarter of 2007, compared to net income of $284,000 in the comparable period of 2006.



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