O’Charley’s Inc. Reports Fourth Quarter and Fiscal 2010 Results

O’Charley’s Inc. (Nasdaq: CHUX) reported operating results for the 12-week and 52-week periods ended December 26, 2010.

“During the quarter, we closed a number of underperforming restaurants and also made reductions in our overhead costs. These were extremely difficult decisions that we felt were necessary in order to improve our competitive positioning and as a continuing step on the road to profitable growth.”

Financial and Operating Highlights

• For the fourth quarter of 2010, revenue decreased by 1.4 percent to $183.5 million, from $186.0 million in the fourth quarter of 2009. Same-store sales at O’Charley’s company-operated restaurants declined by 1.4 percent in the quarter, as a 0.8 percent increase in average check was offset by a 2.1 percent decline in guest counts. Same-store sales at Ninety Nine Restaurants increased by 1.3 percent, as a 3.0 percent increase in average check was partially offset by a 1.6 percent decline in guest counts. Same-store sales at Stoney River Legendary Steaks increased by 3.7 percent, as a 10.3 percent increase in guest counts was partially offset by a 6.0 percent decline in average check.
• For the 2010 fiscal year, revenue decreased by 4.2 percent to $830.1 million, from $866.3 million in fiscal 2009. Same-store sales at O’Charley’s company-operated restaurants declined by 4.9 percent for the year, on a 1.6 percent decline in guest counts and a 3.3 percent decline in average check. Same-store sales at Ninety Nine Restaurants declined by 1.5 percent for the year, as a 0.1 percent increase in average check was offset by a 1.6 percent decline in guest counts. Same-store sales at Stoney River Legendary Steaks declined by 1.5 percent for the year as a 9.8 percent increase in guest counts was offset by a 10.2 percent decline in average check.
• Restaurant-level margins declined to 11.1 percent of restaurant sales in the fourth quarter from 13.1 percent of restaurant sales in the prior year quarter. This decline was due primarily to higher cost of food and beverage, as well as higher restaurant operating costs as a percent of restaurant sales. For the full year, restaurant-level margins declined to 13.6 percent of restaurant sales from 15.7 percent in the prior year.

• General and administrative expenses for the quarter were $10.1 million, or 5.5 percent of revenue, and included severance costs of $1.5 million related to organizational changes made in the quarter. These changes were made to reduce overhead costs and to better position the Company for improved performance in fiscal 2011 and beyond. General and administrative expenses for the prior year quarter were $8.8 million, or 4.7 percent of revenue.
• During the fourth quarter of 2010, the Company closed 19 restaurants. Loss from continuing operations for the fourth quarter of 2010 includes charges for asset impairment and disposal, severance and other exit costs for ten of these closed locations that are deemed to be a component of continuing operations. These charges totaled $9.2 million and $6.3 million in the fourth quarter of 2010 and 2009, respectively.
• Loss from operations in the fourth quarter of 2010 was $15.2 million, or 8.3 percent of revenue, while loss from operations was $17.3 million, or 2.1 percent of revenue, for the full year. In comparison, loss from operations in the fourth quarter 2009 was $7.7 million, or 4.1 percent of revenue, while income from operations was $10.6 million, or 1.2 percent of revenue, for the full year.
• Loss from continuing operations was $16.4 million, or $0.77 per diluted share, in the fourth quarter of 2010 compared to a loss from continuing operations of $11.8 million, or $0.56 per diluted share, in the prior-year quarter. Loss from continuing operations for the full year of 2010 was $27.3 million, or $1.29 per diluted share, compared to a loss from continuing operations of $3.2 million, or $0.15 per diluted share, in the prior year.
• Nine of the restaurants closed during the fourth quarter of 2010 have been classified as discontinued operations in accordance with Accounting Standards Codification Topic 205-20 “Presentation of Financial Statements – Discontinued Operations.” Charges for asset impairment and disposal, severance and other exit costs as well as the results of operations for these restaurants are shown in “Loss from discontinued operations, net.” Prior year results for these restaurants have been classified and presented as discontinued operations. During the fourth quarter of 2010, these charges were $4.2 million, or $0.20 per diluted share, compared to $3.4 million, or $0.16 per diluted share, in the fourth quarter of 2009. “Loss from discontinued operations, net” for the fiscal year of 2010 was $7.6 million, or $0.36 per diluted share, compared to “Loss from discontinued operations, net” in the prior year of $4.2 million, or $0.20 per diluted share.

“Clearly, the results in the fourth quarter and in fiscal 2010 were disappointing to all,” said David W. Head, president and chief executive officer of O’Charley’s Inc. “During the quarter, we closed a number of underperforming restaurants and also made reductions in our overhead costs. These were extremely difficult decisions that we felt were necessary in order to improve our competitive positioning and as a continuing step on the road to profitable growth.”

“During the fourth quarter, we made progress in our turnaround efforts as all three restaurant concepts achieved sequential improvement in sales comparisons and record guest satisfaction scores. Same store sales growth at Ninety Nine and Stoney River accelerated from the third quarter, and same store sales comparisons at O’Charley’s improved sequentially for the second consecutive quarter. During 2011, we expect to continue our efforts to drive guest loyalty by ensuring that every guest experiences great food, great service and strong value, while we manage our costs to improve our financial performance. We strongly believe in the potential of our three concepts.”

Stoney River Management Change

The Company also announced that, effective February 2, 2011, Alfred (Fred) L. Thimm, Jr. joined the Company as President of the Stoney River Legendary Steaks concept. Thimm had previously served as the president and chief executive officer of Al Copeland Investments, Restaurant Division, and prior to that as president and chief operating officer of The Palm restaurants during their expansion from nine to 30 locations. Head stated, “Fred brings extensive experience to our leadership team and we believe that our Stoney River concept will benefit greatly from his expertise.” The Company also announced that Anthony (Tony) Halligan, III will be leaving his position as president of the Stoney River concept to pursue other interests.

Outlook for the First Quarter of 2011

For the first quarter of 2011, the Company is forecasting total revenue of between $260 million and $266 million, income from operations of between $3 million and $6 million, and adjusted EBITDA of between $16 million and $19 million. The Company’s first fiscal quarter is a 16-week quarter, while the remaining three quarters have 12 weeks each. Based upon historical seasonal patterns, average weekly sales per restaurant and restaurant level margins are higher in the first quarter than in the subsequent three quarters. Adjusted EBITDA is a non-GAAP financial measure. 

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