O’Charley’s Inc. Reports Results for the Third Quarter of 2010

O’Charley’s Inc. (Nasdaq: CHUX) today reported operating results for the 12-week period ended October 3, 2010, and filed its Form 10-Q for the third quarter of 2010.

“During the third quarter, the positive shift in momentum continued at Ninety Nine and Stoney River, as both concepts reported same store sales increases for the first time in three years”

Financial and Operating Highlights

• Revenue for the third quarter of fiscal 2010 decreased by 1.2 percent to $191.7 million from $194.1 million in the third quarter of fiscal 2009. Third quarter same-store sales at O’Charley’s company-operated restaurants declined by 2.2 percent, as a 2.7 percent increase in guest counts was offset by a 4.8 percent decline in average check. Same-store sales at Ninety Nine increased by 1.2 percent, as a 1.8 percent increase in average check was partially offset by a 0.6 percent decline in guest counts. Same-store sales at Stoney River Legendary Steaks increased by 1.7 percent, as a 15.4 percent increase in guest counts was partially offset by an 11.9 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, decreased to 11.8 percent of restaurant sales from 14.2 percent in the prior year quarter. Year-over-year margin improvement at Stoney River was offset by margin declines at O’Charley’s and Ninety Nine.
• Advertising and marketing expenses for the quarter were $8.0 million, or 4.2 percent of revenue, compared to $7.6 million, or 3.9 percent of revenue in the prior year quarter. General and administrative expenses for the quarter were $8.3 million, or 4.3 percent of revenue, compared to $8.7 million, or 4.5 percent of revenue in the prior year quarter.
• Loss from operations in the quarter was $5.6 million, or 2.9 percent of revenues, compared to income from operations of $0.3 million, or 0.1 percent of revenues in the prior year quarter. Results for the quarter include impairment and disposal charges of $2.5 million, compared with $0.3 million in the prior year quarter.
• Adjusted EBITDA in the quarter was $7.6 million, or 4.0 percent of revenues, compared to $13.0 million, or 6.7 percent of revenues in the prior year quarter. Adjusted EBITDA is a non-GAAP supplemental financial measure that the Company believes may be useful for understanding its financial performance. A reconciliation of adjusted EBITDA to income from operations is provided later in this release.
• Results for the quarter include interest expense of $2.5 million, and an income tax benefit of $0.6 million, resulting in a net loss attributable to common shareholders of $7.4 million, or $0.35 per diluted share. In comparison, net loss attributable to common shareholders in the prior year quarter was $2.1 million, or $0.10 per diluted share.
• Capital investment during the quarter was $3.2 million, compared to $4.5 million in the prior year quarter. At quarter end, the Company had a cash balance of $22.7 million, and $32.4 million available under its revolving line of credit.

“During the third quarter, the positive shift in momentum continued at Ninety Nine and Stoney River, as both concepts reported same store sales increases for the first time in three years,” said David W. Head, president and chief executive officer of O’Charley’s Inc. “This positive momentum extended to the O’Charley’s concept, where guest counts increased for the first time this year and same store sales showed substantial improvement versus recent trends. As part of our effort to induce trial by new and lapsed O’Charley’s guests, in early August we re-introduced ‘2 Meals for $14.99,’ featuring our proven favorites combined with value-priced appetizer, beverage, and full-meal offerings. We saw an immediate improvement in sales and guest counts, and as expected we also saw some decline in O’Charley’s margins. While we expect to continue to offer ‘2 Meals for $14.99’ for our value-oriented guests, we recently introduced ‘Classic Combos,’ offering enhanced combinations of steak, seafood and chicken at menu prices between $12.99 and $15.99.”

Outlook for the Fourth Quarter of 2010

For the fourth quarter of 2010, the Company is forecasting total revenue of between $184 million and $190 million, a loss from operations of between $3 million and $6 million, and adjusted EBITDA of between $5 million and $8 million. This forecast reflects the impact from closing two restaurants since the end of the third quarter, but does not reflect the impact of any impairment or severance charges that the Company may recognize in the fourth quarter.

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