O'Charley's Inc. Reports Results for the Third Quarter of 2009

O'Charley's Inc. (Nasdaq: CHUX), a leading casual-dining restaurant company, today reported its financial results for the 12-week period ended October 4, 2009.

Financial and Operating Highlights

Revenue for the third quarter of fiscal 2009 decreased $15.5 million or 7.4 percent to $194.1 million, from $209.6 million in the third quarter of fiscal 2008. Same-store sales for the third quarter of 2009 declined 7.6 percent at O'Charley's company-operated restaurants, 7.1 percent at Ninety Nine Restaurants, and 17.1 percent at Stoney River Legendary Steaks.

Restaurant-level margins, which the Company defines as restaurant sales less cost of food and beverage, payroll and benefits costs, and restaurant operating costs increased to 14.2 percent of restaurant sales from 13.6 percent in the prior year quarter. Declines in food and beverage costs, and reductions in restaurant operating costs, were partially offset by the deleveraging impact of reduced sales on payroll and benefits costs.

Income from operations in the quarter was $0.3 million, and loss before income taxes was $2.1 million. In comparison, loss from operations in the prior year quarter, which included a goodwill impairment charge of $48.0 million, was $48.6 million, and the loss before income taxes was $53.0 million.

Results for the third quarter include an income tax expense of $0.1 million, resulting in a net loss attributable to common shareholders of $2.1 million, or $0.10 per diluted share. The tax provision for the quarter reflects adjustments to the Company's full-year projections, and the impact of these adjustments on valuation reserves and discrete items. In comparison, net loss attributable to common shareholders in the prior year third quarter was $66.8 million, or $3.29 per share, and included the impact of the goodwill impairment charge and a valuation allowance on the Company's deferred tax assets.

For the 40-week period ended October 4, 2009, revenue was $692.0 million, income from operations was $17.5 million, and net earnings available to common shareholders were $7.7 million, or $0.36 per diluted share. In comparison, for the prior year period revenue was $728.3 million, loss from operations was $39.6 million, and net loss attributable to common shareholders was $64.3 million, or $3.06 per diluted share.

During the quarter, the Company completed the previously-announced transaction to outsource food and supply distribution for Ninety Nine Restaurants, and received cash proceeds of approximately $7 million. At the end of the quarter, the Company had cash balances of $18.1 million.

Although current economic conditions continue to limit its ability to project future sales performance, the Company affirmed its previously-issued forecast for the fourth quarter of 2009, and stated that it expects total revenue of between $190 million and $195 million in the fourth quarter of 2009, and a loss from operations of between $1 million and $4 million.

'This continues to be a challenging environment for casual dining companies, and like most of our competitors we experienced a decline in same-store sales during the quarter,' said Jeffrey D. Warne, president and chief executive officer of O'Charley's Inc. 'Based upon our same-store sales in the quarter, and industry same-store sales as reported in Knapp-Track(TM), we did not see signs of sequential improvement in consumer restaurant spending as the quarter progressed. Same-store sales at our Ninety Nine and Stoney River restaurant concepts exceeded their relevant Knapp-Track(TM) averages for the July through September period, while same-store sales at the O'Charley's concept lagged its relevant average by between one and two percentage points. We continued to see significant improvement in our guest satisfaction scores compared to the prior year quarter, with an increase of 600 basis points at O'Charley's and 400 basis points at Ninety Nine.'

'With reductions in food costs, the implementation of our theoretical labor cost system, and reductions in general and administrative costs, we believe that our expenses are well controlled. Since many of our costs have become relatively fixed at current levels of average weekly sales per restaurant, improvement in profit margins will require improvement in sales. Therefore, we remain focused on driving sales by differentiating our brands through innovative and value-oriented food and beverage offerings, and enhancing guest service, as our guests have responded favorably to our new menu offerings and service standards.'

O'Charley's Restaurants

Restaurant sales for company-operated O'Charley's decreased 6.9 percent to $122.1 million for the third quarter, reflecting the decline in same-store sales partially offset by the addition of one new company-operated restaurant since the third quarter of 2008. The same-store sales decrease of 7.6 percent was comprised of a 7.4 percent decrease in guest counts and a 0.2 percent decline in average check. Average check for company-operated restaurants in the third quarter was $12.86. Average weekly sales per company-operated restaurant were $43.6 thousand in the quarter, compared to $47.4 thousand in the prior year quarter. There were 245 O'Charley's restaurants, including 10 restaurants operated by franchisees, open at the end of the quarter. During the third quarter, the remaining two joint venture restaurants were converted to company ownership. Subsequent to the end of the quarter, Covelli Enterprises opened its fifth franchised O'Charley's restaurant, in Cuyahoga Falls, Ohio.

'During the third quarter, we continued to differentiate the O'Charley's brand through innovative food and beverage, and by emphasizing our value offerings,' Warne said. 'We introduced two meals for $14.99, featuring six new entrees designed to provide a reasonable margin to the Company, while providing our guests with craveable flavors and full-sized portions at a compelling value. In order to build on the popularity of this offering, we recently expanded its availability to all day every day, and expanded it to 10 entrees. Next week we will launch our new fall menu with four different covers, each featuring a different signature menu item. Reflecting our focus on building our lunch business, this menu will include our new Lunch Combos, which will provide guests an opportunity to mix and match two items from a list of 12. Prices will vary depending upon the items selected, and will start at $5.99. Additional value offerings will include our signature prime rib at $3.00 less than our regular menu price, and a margarita for $3.99.'

'Earlier this month, Wilson Craft joined our company as the Concept President for O'Charley's. Wilson has substantial experience in casual dining, including serving as CEO of Famous Dave's of America, Executive Vice President for LongHorn Steakhouses, and President of Chili's Grill and Bar. We believe that he is a great fit for our company, and look forward to his leadership of the O'Charley's concept team.'

Ninety Nine Restaurants

Restaurant sales for Ninety Nine Restaurants decreased 7.0 percent to $64.0 million in the third quarter, reflecting the decline in same-store sales, the addition of one new restaurant and the closing of one restaurant since the third quarter of 2008. The same-store sales decrease of 7.1 percent was comprised of a 3.4 percent decrease in guest counts and a 3.8 percent decline in average check. Average check in the third quarter was $14.25. Average weekly sales per restaurant were $46.0 thousand in the quarter, compared to $49.5 thousand in the prior year quarter. At the end of the quarter, the Company operated 116 Ninety Nine restaurants.

'During the quarter, Ninety Nine continued to reinforce its 'Great Meal. Great Deal' brand message with innovative food and beverage offerings and compelling values,' said Warne. 'In August, we began offering nine entrees for $9.99, featuring menu items designed to appeal to the core Ninety Nine guest, with one out of every four guests purchasing a featured entree. In order to build our lunch business, we recently introduced seven new lunch items starting at $5.99, including Buffalo Chicken Minis, Asian Chicken Salad, and an Ultimate Sirloin Steak Sandwich. In order to build on our successful bar business, we also introduced a bar menu featuring snack-size portions of select appetizers for $3.99, and beverage specials including a margarita for $3.99.'

Stoney River Legendary Steaks Restaurants

Restaurant sales for Stoney River Legendary Steaks decreased 15.4 percent to $6.6 million in the third quarter. The same-store sales decrease of 17.1 percent was comprised of a 1.0 percent decrease in guest counts and a 16.3 percent decline in average check. Average check for Stoney River in the third quarter was $39.76. Average weekly sales per restaurant were $55.1 thousand in the quarter, compared to $65.1 thousand in the prior year quarter. At the end of the third quarter, nine of the ten restaurants were included in the same store sales base. Subsequent to the end of the quarter, the Company opened a new Stoney River restaurant in Towson, Maryland.

'During the quarter, we continued to reposition Stoney River within the polished casual segment with our new menu format, menu offerings, and lower menu prices,' Warne said. 'In the quarter, we expanded the repositioning to our Chesterfield, MO and Annapolis, MD restaurants, bringing the total to five repositioned restaurants. At the four repositioned restaurants included in the same-store sales base, guest counts in the third quarter increased by approximately six percent compared to the prior year quarter, while guest counts at the restaurants that we have not yet repositioned declined by approximately seven percent. Given this success, we continued the roll-out to our three Atlanta restaurants at the end of the quarter, and plan to complete the roll-out by the end of November with our two Chicago restaurants.'

Outlook for 2009

Although current economic conditions continue to limit its ability to project future sales performance, the Company affirmed its previously-issued forecast for the fourth quarter of 2009, and stated that it expects total revenue of between $190 million and $195 million in the quarter, and a loss from operations of between $1 million and $4 million. The Company expects most of its costs as a percent of sales to remain relatively constant in the fourth quarter as compared to the third quarter.

'Our third quarter sales were towards the high end of the range that we offered in our prior forecast, while income from operations exceeded our forecast,' Warne said. 'Based upon historical seasonal patterns, our average weekly sales per restaurant in the fourth quarter tend to be comparable to the sales level for the third quarter. At current levels of average weekly sales per restaurant, many of our costs have become relatively fixed. Therefore, future improvements in our financial performance will require increases in average weekly sales, and driving sales remains the primary focus of our team.'


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