Shells Seafood Restaurants, Inc. Q2 Revenues decreased 12.1% to $11.5 million.

Shells Seafood Restaurants, Inc. (BULLETIN BOARD: SHLL) today reported financial results for its second quarter ended July 1, 2007.

Key metrics
Second quarter of 2007 compared to the second quarter of 2006:

* Revenues decreased 12.1% to $11.5 million.

* Comparable restaurant sales decreased 10.8%.

* Net loss of $1,152,000, compared to net loss of $9,000. Excluding non- recurring items, net loss of $628,000, compared to $334,000.

* Net loss per share of $0.06, compared to net loss per share of $0.00. Excluding non-recurring items, net loss per share of $0.03, compared to net loss per share of $0.02.

First 26-weeks of 2007 compared to the first 26-weeks of 2006:

* Revenues decreased 9.9% to $24.9 million.

* Comparable restaurant sales decreased 8.7%.

* Net loss of $1,117,000, compared to net income of $252,000. Excluding non-recurring items, net loss of $639,000, compared to a net loss of $50,000.

* Net loss per share of $0.06, compared to net income per share of $0.01 diluted. Excluding non-recurring items, net loss per share of $0.03, compared to net loss per share of $0.00.

Leslie Christon, President and CEO, commented, "Our sales were disappointing in the second quarter. We believe higher gasoline prices, a difficult local economy, and competitive value offerings in the marketplace have heavily influenced consumer dining out patterns here in Florida. Consumers generally are experiencing higher personal costs in, among other things, insurance premiums, property taxes, energy bills and fuel costs. As a result, we believe they are choosing lower cost dining alternatives, while reducing their number of dining-out experiences. Additionally, we were up against strong performance in the 2nd quarter last year, when our same-store sales increased 8.3%. We will continue to focus on providing a quality experience at a great value to our guests. We remain committed to delivering that value over the long term through our menu offerings, our hospitality, and our ambience. We believe that ultimately this will yield improved results for our investors."

Operating Results

Revenues for the second quarter of 2007 decreased 12.1% to $11.5 million from $13.1 million in the second quarter of 2006, mostly due to a 10.8% decrease in same store sales and the under-performance of two non-comparable restaurants, one of which was closed and disposed of in June 2007. As of the end of the second quarter of 2007, the Company had 24 restaurants in operation, compared to 25 restaurants at the end of the second quarter of 2006.

Restaurant operating costs, consisting of food and beverage costs, labor, other operating costs and depreciation expense, were $11.1 million, or 96.8% of sales, in the second quarter of 2007, compared to $12.1 million, or 92.9% of sales, in the second quarter of 2006. The 3.9% increase in restaurant operating costs, as a percentage of sales was mostly a result of a loss of operating leverage as reflected by the reduction in sales volume.

A provision for asset impairment of $610,000 relating to an under performing restaurant was recognized in the second quarter of 2007. Additionally, the leasehold interest in a second under performing restaurant was sold for $225,000 in June 2007 and a net gain of $86,000 was recognized after the disposition of related assets.

General & administrative expenses were $917,000, or 8.0% of revenues, in the second quarter of 2007 compared to $977,000, or 7.5% of revenues, in the second quarter of 2006. The unfavorable variance as a percentage of revenues reflects the reduction in sales leverage and the affect of incremental stock option expense.

Loss from operations for the second quarter of 2007 was $1,109,000, or $1,101,000 below the comparable period of 2006 and, excluding non-recurring items in both periods, $339,000 below 2006. Loss from operations for the first 26-weeks of 2007 of $973,000 was $1,441,000 below the income from operations of $468,000 for the comparable period of 2006 and, excluding non- recurring items in both periods, $640,000 below 2006.

The net loss for the second quarter of 2007 was $1,152,000, or $0.06 per share based upon 20.1 million common shares outstanding, compared to a net loss in the second quarter of 2006 of $9,000, or $0.00 per share based upon 16.2 million shares outstanding. As adjusted for non-recurring items as summarized in the ensuing financial tables, the net loss for the second quarter of 2007 was $628,000, or $0.03 per share, compared to a net loss in the second quarter of 2006 of $334,000, or $0.02 per share.

The net loss for the first 26-weeks of 2007 was $1,117,000, or $0.06 per share based upon 18.9 million common shares outstanding, compared to net income in the first 26-weeks of 2006 of $252,000, or $0.01 per share diluted based upon 26.3 million diluted shares outstanding. As adjusted for non- recurring items as summarized in the ensuing financial tables, the net loss for the first 26-weeks of 2007 was $639,000, or $0.03 per share, compared to a net loss in the first 26-weeks of 2006 of $50,000, or $0.00 per share.

About the Company

The Company manages and operates 24 full-service, neighborhood seafood restaurants in Florida under the name "Shells".

Logos, product and company names mentioned are the property of their respective owners.

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