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Sbarro, Inc. Announces Results of Operations for the First Quarter Ended March 28, 2010

2010-05-17

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Sbarro In the first quarter, while we continued to face a challenging economic environment, we achieved comparable-unit sales and earnings in line with our business plan

First Quarter Financial Results

Revenues were $79.0 million for the quarter ended March 28, 2010 as compared to revenues of $79.6 million for the quarter ended March 29, 2009. The decrease in sales is due to a decrease in comparable unit sales of 1.6% in our QSR restaurants and lost sales from stores strategically closed of $2.2 million, partially offset by sales generated by new stores opened in 2010 and 2009 of $2.3 million. Domestic franchise comparable-unit sales declined 4.3%. The decrease in Company-owned and domestic franchise comparable-unit sales primarily reflects continued reduced consumer traffic throughout the United States as a result of the current economic environment. Without consideration for foreign currency fluctuations, international franchise comparable-unit sales increased 7.4%. The valuation of the U.S. Dollar relative to foreign currencies added an additional 10.0% increase in international franchise comparable unit sales.

EBITDA, as calculated in accordance with the terms of the Company’s bank credit agreements, was $7.8 million for the quarter ended March 28, 2010 as compared to $9.1 million for the quarter ended March 29, 2009. The decline was primarily the result of the decline in Company-owned comparable-unit sales and an increase in commodity costs during the quarter, specifically cheese, partially offset by cost savings initiatives and an increase in royalties on franchise sales.

Peter Beaudrault, Chairman of the Board, President and CEO of Sbarro commented, “In the first quarter, while we continued to face a challenging economic environment, we achieved comparable-unit sales and earnings in line with our business plan.”

As discussed in Exhibit A, EBITDA is a non-GAAP financial measure that management believes is an important metric for us to report to our investors, as we consider it a helpful additional indicator of our ability to meet future debt obligations and to comply with certain covenants in our borrowing agreements which are tied to this metric. Exhibit A includes a reconciliation of EBITDA to net loss, which is the most directly comparable financial measure under United States Generally Accepted Accounting Principles (“GAAP”). Exhibit A also identifies adjustments to EBITDA that are provided for under the Company’s bank credit agreements.


Exhibit A
SBARRO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)

	For The Three Months Ended March 28, 2010			For The Three Months Ended March 29, 2009
Revenues:
Restaurant sales	$	75,227		$	76,283
Franchise related income		3,757			3,299
Total revenues		78,984			79,582

Costs and expenses:
Cost of food and paper products		15,323			15,498
Payroll and other employee benefits		21,258			21,239
Other operating costs		30,012			29,844
Other income, net		(846	)		(1,176	)
Depreciation and amortization		3,374			4,201
General and administrative		7,600			8,401
Asset impairment, restaurant closings/remodels		-			880
Total costs and expenses, net		76,721			78,887

Operating income		2,263			695

Other (expense) income:
Interest expense		(7,449	)		(5,841	)
Write-off of deferred financing costs		-			(423	)
Interest income		-			32
Net other expense		(7,449	)		(6,232	)
Loss before income taxes and equity investments		(5,186	)		(5,537	)
Income tax expense		112			104
Loss before equity investments		(5,298	)		(5,641	)
Loss from equity investments		(62	)		(55	)
Net loss		(5,360	)		(5,696	)
Net loss (income) attributable to noncontrolling interests		163			(14	)
Net loss attributable to Sbarro, Inc.	$	(5,197	)	$	(5,710	)

Sbarro, Inc.

EBITDA Reconciliation

Quarters Ended March 28, 2010 and March 29, 2009

(unaudited)

EBITDA represents earnings before interest income, interest expense, taxes, depreciation and amortization. EBITDA, as calculated under the Company’s bank credit agreements, includes certain additional adjustments, as set forth in the reconciliation that follows. EBITDA is a non-GAAP financial measure and should not be considered in isolation from, or as a substitute for, net income, cash flow from operations or other cash flow statement data prepared in accordance with United States generally accepted accounting principles (“GAAP”) or as a measure of a company's profitability or liquidity. Rather, we believe that EBITDA provides relevant and useful information for analysts of, and investors in, our Senior Notes due 2015 (“Senior Notes”), and our lenders as EBITDA is one of the measures used in calculating our compliance with certain financial ratios in the indenture governing our Senior Notes and in determining compliance with certain financial covenants under the Company’s bank credit agreements.

The following tables reconcile net loss attributable to Sbarro, Inc. for the following periods in 2010 and 2009, respectively, to EBITDA as defined in the Company’s bank credit agreements for the same periods. We believe that net loss is the most directly comparable GAAP financial measure to EBITDA. All amounts below are in thousands.

	Three Months Ended March 28, 2010			Three Months Ended March 29, 2009

Net loss attributable to Sbarro, Inc.	$	(5,197	)	$	(5,710	)
Interest Expense		7,449			5,841
Interest Income		-			(32	)
Income Tax Expense		112			104
Depreciation and Amortization		3,374			4,201
EBITDA attributable to Sbarro, Inc.		5,738			4,404

Adjustments:
Non-cash charges and litigation charges ⁽¹⁾		488			1,615
Professional fees expensed for credit amendment, management fees and related expenses ⁽²⁾		297			641
Restructuring related expenses, store closing costs and severance ⁽³⁾		319			1,938
Preopening, joint venture operations and taxes in lieu of income tax		965			495
Bank Credit Agreement EBITDA	$	7,807		$	9,093

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(1)	Expenses relating to non-cash charges including deferred rent and asset impairments.
(2)	Financial advisory, accounting, legal and other similar advisory and consulting fees relating to the credit facility amendment and 2^nd lien transaction and accrued management fees and expenses.
(3)	Restructuring related expenses, severance or the discontinuance of any portion of operations, employees and/or management and operating losses of closed stores.