O'Charley's Inc. Reports Fourth Quarter and Fiscal 2009 Results

O'Charley's Inc. (Nasdaq: CHUX) today reported operating results for the 12-week and 52-week periods ended December 27, 2009.

Financial and Operating Highlights

- For the fourth quarter of 2009, revenue decreased $14.0 million or 6.9 percent to $188.9 million, from $202.9 million in the fourth quarter of 2008. Same-store sales at O'Charley's company-operated restaurants declined by 7.3 percent in the quarter, as a 0.2 percent increase in guest count was offset by a 7.5 percent decline in average check to $12.23. Same-store sales at Ninety Nine Restaurants declined by 6.5 percent, on a 2.0 percent decrease in guest count and a 4.5 percent decline in average check to $14.52. Same-store sales at Stoney River Legendary Steaks declined by 10.3 percent, as a 9.6 percent increase in guest count was offset by an 18.2 percent decline in average check to $38.82.

- For the 2009 fiscal year, revenue decreased $50.3 million or 5.4 percent to $880.8 million, from $931.2 million in the 2008 fiscal year. Same-store sales at O'Charley's company-operated restaurants declined by 5.8 percent for the year, on a 4.8 percent decrease in guest count and a 1.1 percent decline in average check. Same-store sales at Ninety Nine Restaurants declined by 6.8 percent, on a 4.7 percent decrease in guest count and a 2.2 percent decline in average check. Same-store sales at Stoney River Legendary Steaks declined by 16.4 percent, on a 4.7 percent decrease in guest count and a 12.3 percent decline in average check.

- Restaurant-level margins, which the Company defines as restaurant sales less cost of food and beverage, payroll and benefits costs, and restaurant operating costs declined to 12.7 percent of restaurant sales in the fourth quarter from 14.4 percent in the prior year quarter. This decline was due primarily to the deleveraging impact of reduced sales on payroll and benefits costs, and on rent and other fixed costs. For the full year, restaurant-level margins increased to 15.4 percent of restaurant sales from 15.1 percent in the prior year, as reductions in food and beverage costs and restaurant operating costs as a percent of restaurant sales offset increases in labor costs.

- Subsequent to the end of the fiscal year, the Company closed three Ninety Nine restaurants in Connecticut, and one O'Charley's restaurant in Florida, and plans to close two additional Ninety Nine restaurants. Results for the quarter include impairment charges for these closed restaurants; for one previously-closed Stoney River restaurant; and for three O'Charley's restaurants, seven Ninety-Nine restaurants and one Stoney River restaurant that will remain open. The non-cash impairment charges for these 18 restaurants were not included in the Company's previously-issued guidance, and increased the fourth quarter loss from operations by $9.2 million. Results for the full year include impairment charges of $11.4 million. Prior year results include goodwill and other impairment charges of $61.0 million for the fourth quarter, and $110.6 million for the full year.

- Including the impairment charges, loss from operations in the fourth quarter of 2009 was $11.1 million, while income from operations was $6.4 million for the full year. In comparison, loss from operations was $63.1 million in the prior year quarter and $102.7 million for the 2008 fiscal year.

- Results for the fourth quarter include net interest expense of $2.5 million, and income tax expense of $1.6 million, resulting in a net loss of $15.2 million, or $0.72 per share. For the 2009 fiscal year, net loss was $7.3 million, or $0.35 per share. In comparison, net loss in the prior year fourth quarter was $68.2 million, or $3.34 per share, while net loss for the prior fiscal year was $132.5 million, or $6.34 per share, and included the impact of a valuation allowance on the Company's deferred tax assets.

'Given the economic environment, this past year was one of the most challenging in the recent history of the casual dining industry,' said Jeffrey D. Warne, president and chief executive officer of O'Charley's Inc. 'Like most of our competitors, we experienced a decline in same-store sales. During the fourth quarter, we increased our focus on driving guest counts through innovative and value-oriented food and beverage offerings, and our guests responded. O'Charley's guest counts in the fourth quarter were positive for the first time in four years, Stoney River guest counts were positive for the first time in over three years, and Ninety Nine's guest counts showed an improvement versus recent trends. Each of our brands exceeded their relevant comparative Knapp-Track(TM) averages for same-store guest counts, and we continued to see significant improvement in our guest satisfaction scores compared to the prior year quarter. While the resulting declines in average check put pressure on our margins and negatively impacted our fourth quarter financial results, we believe that we induced trial among new and lapsed guests, and improved the positioning of our brands as preferred casual-dining destinations.'

Outlook for the First Quarter of 2010

While the Company expects economic conditions and consumer spending to gradually improve as 2010 progresses, it does not believe that it has sufficient visibility to offer a full-year projection of its financial performance. The Company's first quarter is a 16-week quarter, while its second through fourth quarters are each 12 weeks. Based upon historical seasonal patterns, average weekly sales per restaurant are typically higher in the first quarter than in subsequent quarters, and the Company typically generates a disproportionate share of its income from operations in the first quarter. The Company's sales in January 2010 were negatively impacted by inclement weather and continued discounting, and the Company continued to experience pressure on its margins. For the first quarter of 2010, the Company is forecasting total revenue of between $276 million and $282 million, and income from operations of between $6 million and $9 million. For the full year, the Company projects capital expenditures of between $14 million and $16 million. No new company-operated restaurant development is planned for 2010.

'Although our total revenue for the fourth quarter of 2009 was below the range that we offered in our prior forecast, our income from operations before non-cash impairment charges was within our guidance range,' Warne said. 'For 2010, we expect continued moderation in the cost of food commodities, and a continuation of the tight controls over labor scheduling and general and administrative costs that we implemented in 2009. 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, driving profitable sales and maximizing free cash flow remain the primary focus of our team.'

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