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Second Quarter 2011 Financial Results For Einstein Noah Restaurant Group

2011-08-08

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Einstein Noah Restaurant Group Free cash flow of $5.5 million compared to $4.7 million.

Einstein Noah Restaurant Group, Inc. (NASDAQ: BAGL), reported financial results for the second quarter ended June 28, 2011.

Selected Highlights for the Second Quarter 2011 Compared to the Second Quarter 2010:

Total revenues increased to $103.7 million from $103.5 million.
System-wide comparable store sales were +0.2%, a sequential increase of 100 basis points from the first quarter of 2011.
Adjusted EBITDA of $9.7 million compared to $11.7 million. (*)
Net income available to common stockholders of $3.1 million, or $0.18 per diluted share, compared to $3.6 million, or $0.21 per diluted share.
Free cash flow of $5.5 million compared to $4.7 million. (*)

Jeff O’Neill, Chief Executive Officer and President of Einstein Noah, stated, “We are pleased that our comparable sales trends improved sequentially in the second quarter, and continued to gain momentum thus far in the third quarter. Inflation remained high in the quarter, causing increased pressure on cost of goods sold and operating expenses, which will be alleviated going forward by a June price increase. I’m pleased with our overall labor management as well as marketing and general and administrative expenses. Additional pricing is planned for the third quarter to further defray inflationary pressures. We are also strengthening our financial condition through our implementation of a savings and efficiency program that we believe will drive at least $3.0 million of annualized savings from our business model upon completion.”

O’Neill concluded, “For the balance of the year, our top-line strategy is centered on three key elements including, a line-up of unique, new premium sandwiches, and the continuation of our successful lower calorie bagel thin sandwiches. In addition, given the successful test of our enhanced coffee platform with dedicated baristas, we plan to roll this program nationally across our system to compliment our delicious fresh baked food offerings. By successfully executing on our sales growth and cost saving efforts, we believe we are building a stronger foundation for our business going forward.”

Second Quarter 2011 Financial Results

For the second quarter ended June 28, 2011, system-wide comparable store sales increased 0.2%, reflecting strong growth in check driven by moderate pricing, favorable mix shift and strength in catering sales offset by lower comparable transactions as the Company rolled over its Free Bagel Friday promotion last year. Total revenues increased to $103.7 million from $103.5 million.

Total costs at Company-owned restaurants increased 2.3% as a percentage of Company-owned restaurant sales resulting in a gross margin of 16.2%. The decrease of the Company’s gross margin from 18.5% was primarily due to higher commodity costs.

Manufacturing and commissary gross profit decreased from $1.2 million to $0.9 million in the second quarter of 2011. The decline in gross profit was due to higher commodity costs and an unfavorable shift in product mix to third party customers.

Overall, gross profit was $18.3 million, or 17.7% of total revenues, in the second quarter of 2011 compared to $20.7 million, or 20.0% of total revenues, in the second quarter of 2010.

General and administrative expenses fell to $8.6 million from $9.0 million due to lower legal expenses, lower travel expenses, and lower recruiting fees.

Adjusted EBITDA was $9.7 million in the second quarter of 2011 compared to $11.7 million in the second quarter of 2010. (*) Income before income taxes decreased $0.5 million to $5.2 million from $5.7 million.

* A reconciliation of non-GAAP measures (EBITDA) to GAAP measures presented can be found in the accompanying tables below. Free cash flow is defined as net cash provided by operating activities less net cash used in investing activities.

New Units and Development

Restaurant openings during the second quarter of 2011 included 7 Einstein Bros. restaurants, which consisted of two Company-owned restaurant, one franchise restaurant, and four license restaurants. In addition, one Company-owned restaurant was relocated during the period.



EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
(unaudited)

		13 weeks ended						Increase/
		(dollars in thousands)						(Decrease)
		June 29,			June 28,			2011
		2010			2011			vs. 2010

Revenues:
	Company-owned restaurant sales	$	94,237		$	93,613		(0.7	%)
	Manufacturing and commissary revenues		7,256			7,797		7.5	%
	Franchise and license related revenues		1,980			2,267		14.5	%
Total revenues			103,473			103,677		0.2	%

Cost of sales (exclusive of depreciation and amortization shown separately below):
	Company-owned restaurant costs
	Cost of goods sold		26,843			28,164		4.9	%
	Labor costs		27,423			27,156		(1.0	%)
	Other operating costs		9,456			10,226		8.1	%
	Marketing costs		3,063			2,924		(4.5	%)
	Rent and related expenses		9,975			10,023		0.5	%
	Total company-owned restaurant costs		76,760			78,493		2.3	%

	Manufacturing and commissary costs		6,031			6,865		13.8	%
Total cost of sales			82,791			85,358		3.1	%

Gross profit:
	Company-owned restaurant		17,477			15,120		(13.5	%)
	Manufacturing and commissary		1,225			932		(23.9	%)
	Franchise and license		1,980			2,267		14.5	%
Total gross profit			20,682			18,319		(11.4	%)

Operating expenses:
	General and administrative expenses		8,985			8,615		(4.1	%)
	Depreciation and amortization		4,480			4,607		2.8	%
	Other operating expenses (income)		51			(936	)	**
Income from operations			7,166			6,033		(15.8	%)

Interest expense, net			1,435			823		(42.6	%)
Adjustment for Series Z modification			-			-		**
Income before income taxes			5,731			5,210		(9.1	%)
	Provision for income taxes		2,483			2,130		(14.2	%)
Net income		$	3,248		$	3,080		(5.2	%)

Net income		$	3,248		$	3,080		(5.2	%)
Less: Additional redemption on temporary equity			(191	)		-		(100.0	%)
Add: Accretion of premium on Series Z preferred stock			499			-		(100.0	%)
Net income available to common stockholders		$	3,556		$	3,080		(13.4	%)

Net income available to common stockholder per share – Basic		$	0.22		$	0.18		(18.2	%)
Net income available to common stockholders per share – Diluted		$	0.21		$	0.18		(14.3	%)
Cash dividend declared per common share		$	-		$	0.125		**

Weighted average number of common shares outstanding:
Basic			16,496,118			16,725,827		1.4	%
Diluted			16,813,355			17,004,316		1.1	%

** Not meaningful

EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
(unaudited)

		26 weeks ended						Increase/
		(dollars in thousands)						(Decrease)
		June 29,			June 28,			2011
		2010			2011			vs. 2010

Revenues:
	Company-owned restaurant sales	$	184,928		$	183,412		(0.8	%)
	Manufacturing and commissary revenues		15,227			16,774		10.2	%
	Franchise and license related revenues		4,130			4,736		14.7	%
Total revenues			204,285			204,922		0.3	%

Cost of sales (exclusive of depreciation and amortization shown separately below):
	Company-owned restaurant costs
	Cost of goods sold		52,549			54,278		3.3	%
	Labor costs		55,203			54,186		(1.8	%)
	Other operating costs		18,453			19,341		4.8	%
	Marketing costs		5,884			6,226		5.8	%
	Rent and related expenses		20,038			20,278		1.2	%
	Total company-owned restaurant costs		152,127			154,309		1.4	%

	Manufacturing and commissary costs		12,661			14,449		14.1	%
Total cost of sales			164,788			168,758		2.4	%

Gross profit:
	Company-owned restaurant		32,801			29,103		(11.3	%)
	Manufacturing and commissary		2,566			2,325		(9.4	%)
	Franchise and license		4,130			4,736		14.7	%
Total gross profit			39,497			36,164		(8.4	%)

Operating expenses:
	General and administrative expenses		19,057			18,705		(1.8	%)
	Depreciation and amortization		8,746			9,147		4.6	%
	Restructuring expenses		-			213		**
	Other operating expenses (income)		70			(823	)	**
Income from operations			11,624			8,922		(23.2	%)

Interest expense, net			3,186			1,733		(45.6	%)
Adjustment for Series Z modification			929			-		(100.0	%)
Income before income taxes			7,509			7,189		(4.3	%)
	Provision for income taxes		3,641			2,941		(19.2	%)
Net income		$	3,868		$	4,248		9.8	%

Net income		$	3,868		$	4,248		9.8	%
Less: Additional redemption on temporary equity			(241	)		-		(100.0	%)
Add: Accretion of premium on Series Z preferred stock			499			-		(100.0	%)
Net income available to common stockholders		$	4,126		$	4,248		3.0	%

Net income available to common stockholder per share – Basic		$	0.25		$	0.26		4.0	%
Net income available to common stockholders per share – Diluted		$	0.25		$	0.25		0.0	%
Cash dividend declared per common share		$	-		$	0.125		**

Weighted average number of common shares outstanding:
Basic			16,481,595			16,555,617		0.4	%
Diluted			16,788,850			16,847,493		0.3	%


** Not meaningful

EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE RELATIONSHIP TO TOTAL REVENUES
(unaudited)

		13 weeks ended
		(percent of total revenue)
		June 29,	June 28,
		2010	2011

Revenues:
	Company-owned restaurant sales	91.1%	90.3%
	Manufacturing and commissary revenues	7.0%	7.5%
	Franchise and license related revenues	1.9%	2.2%
Total revenues		100.0%	100.0%

Cost of sales (exclusive of depreciation and amortization shown separately below):
	Company-owned restaurant costs (1)
	Cost of goods sold	28.5%	30.1%
	Labor costs	29.1%	29.0%
	Other operating costs	10.0%	10.9%
	Marketing costs	3.3%	3.1%
	Rent and related expenses	10.6%	10.7%
	Total company-owned restaurant costs	81.5%	83.8%

	Manufacturing and commissary costs (2)	83.1%	88.0%
Total cost of sales		80.0%	82.3%

Gross margin:
	Company-owned restaurant (1)	18.5%	16.2%
	Manufacturing and commissary (2)	16.9%	12.0%
	Franchise and license	100.0%	100.0%
Total gross margin		20.0%	17.7%

Operating expenses:
	General and administrative expenses	8.7%	8.3%
	Depreciation and amortization	4.3%	4.5%
	Other operating expenses (income)	0.0%	(0.9%)
Income from operations		6.9%	5.8%

Interest expense, net		1.4%	0.8%
Adjustment for Series Z modification		0.0%	0.0%
Income before income taxes		5.5%	5.0%
	Provision for income taxes	2.4%	2.0%
Net income		3.1%	3.0%


(1) As a percentage of company-owned restaurant sales
(2) As a percentage of manufacturing and commissary revenues

EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
(unaudited)

		26 weeks ended
		(percent of total revenue)
		June 29,	June 28,
		2010	2011

Revenues:
	Company-owned restaurant sales	90.5%	89.5%
	Manufacturing and commissary revenues	7.5%	8.2%
	Franchise and license related revenues	2.0%	2.3%
Total revenues		100.0%	100.0%

Cost of sales (exclusive of depreciation and amortization shown separately below):
	Company-owned restaurant costs (1)
	Cost of goods sold	28.4%	29.6%
	Labor costs	29.9%	29.5%
	Other operating costs	10.0%	10.5%
	Marketing costs	3.2%	3.4%
	Rent and related expenses	10.8%	11.1%
	Total company-owned restaurant costs	82.3%	84.1%

	Manufacturing and commissary costs (2)	83.1%	86.1%
Total cost of sales		80.7%	82.4%

Gross margin:
	Company-owned restaurant	17.7%	15.9%
	Manufacturing and commissary	16.9%	13.9%
	Franchise and license	100.0%	100.0%
Total gross margin		19.3%	17.6%

Operating expenses:
	General and administrative expenses	9.3%	9.1%
	Depreciation and amortization	4.3%	4.4%
	Restructuring expenses	0.0%	0.1%
	Other operating expenses (income)	0.0%	(0.4%)
Income from operations		5.7%	4.4%

Interest expense, net		1.5%	0.9%
Adjustment for Series Z modification		0.5%	0.0%

Income before income taxes		3.7%	3.5%
	Provision for income taxes	1.8%	1.4%
Net income		1.9%	2.1%


(1) As a percentage of Company-owned restaurant sales
(2) As a percentage of manufacturing revenues

* Not applicable
** Not meaningful

EINSTEIN NOAH RESTAURANT GROUP, INC.
SELECTED FINANCIAL INFORMATION
(dollars in thousands)
(unaudited)



Selected Consolidated Balance Sheet Information:	December 28, 2010			June 28, 2011
Cash and cash equivalents, end of period	$	11,768		$	9,960
Property, plant and equipment, net		56,663			54,040
Total assets		205,067			199,854
Total debt		87,700			77,825
Total liabilities		127,681			118,588



	26 weeks ended
Selected Consolidated Cash Flow Information:	June 29, 2010			June 28, 2011
Net cash provided by operating activities	$	20,859		$	16,450
Net cash used in investing activities		(8,509	)		(7,127	)
Net cash used in financing activities		(12,872	)		(11,131	)
Free cash flow (cash provided by operating activities less cash used in investing activities)		12,350			9,323

	Reconciliation of GAAP to Non-GAAP Measures:
		13 weeks ended					26 weeks ended
		June 29,		June 28,			June 29,		June 28,
		2010		2011			2010		2011
		(dollars in thousands)
Net income		$	3,248	$	3,080		$	3,868	$	4,248
	Adjustments to net income:
	Interest expense, net		1,435		823			3,186		1,733
	Provision for income taxes		2,483		2,130			3,641		2,941
	Depreciation and amortization		4,480		4,607			8,746		9,147
	Adjustment for Series Z modification		-		-			929		-
	Restructuring expenses		-		-			-		213
	Other operating expenses (income)		51		(936	)		70		(823	)

Adjusted EBITDA		$	11,697	$	9,704		$	20,440	$	17,459

Restaurant Counts:	Trailing 12 Months Activity
	Company
	Owned		Franchised		Licensed		Total
Consolidated Total
Beginning balance June 29, 2010	430		83		184		697
Opened restaurants	5		11		31		47
Closed restaurants	-		(4	)	(4	)	(8	)
Refranchised restaurants	(3	)	3		-		-
Ending balance June 28, 2011	432		93		211		736