J. Alexander’s Q3 Net Sales Up 5.1%

J. Alexander’s Corporation (NASDAQ: JAX) today reported operating results for the third quarter and first nine months of fiscal 2011 ended October 2, 2011.

“We fell short of our food cost targets again in the third quarter as we continued to experience input cost increases in most major food categories, with beef, seafood, dairy and produce prices notably higher than a year ago.”

A summary of the third quarter of 2011, compared to the third quarter of 2010, follows:

• Net sales increased 5.1% to $36,944,000 from $35,164,000.
• Average weekly same store sales per restaurant increased by 5.0%.
• The loss before income taxes was $927,000 compared to a loss before income taxes of $1,012,000 in the third quarter of 2010.
• An income tax benefit of $321,000 was recorded in the third quarter of 2011 compared to an income tax benefit of $2,490,000 in the third quarter of 2010. The 2010 benefit was primarily the result of an asset cost segregation study performed by the Company which generated additional depreciation deductions that were carried back to offset taxable income in previous years.
• The net loss was $606,000 compared to net income of $1,478,000 in the third quarter of 2010, and the loss per share was $ .10 compared to diluted earnings of $.25 per share in the third quarter of 2010.

Commenting on results for the third quarter of fiscal 2011, Lonnie J. Stout II, Chairman, President and CEO, said, “We posted another excellent period of growth in net sales, our eighth consecutive quarter of same store sales gains. While we were pleased with our sales results, we remain very concerned about continued increases in our input costs and their effect on our cost of sales and operating results.”

For the third quarter of 2011, J. Alexander’s Corporation recorded average weekly same store sales per restaurant of $86,100 (which was the same as average weekly sales per restaurant since all restaurants are currently included in the same store base), up from $82,000 in the corresponding quarter a year earlier.

J. Alexander’s Corporation reported an increase of 0.3% in average weekly guest counts per restaurant from the comparable quarter of 2010. The average guest check, including alcoholic beverage sales for the quarter, rose 4.5% to $26.37 from $25.23 in the previous year’s third quarter. The effect of menu price increases for the quarter just ended was approximately 2.5% compared to the same period a year earlier.

The Company’s increases in same store sales contributed to lower labor and related costs and other restaurant operating expenses as percentages of net sales during the third quarter of the current year compared to the third quarter of 2010. Total labor and related costs decreased to 35.0% of net sales from 35.2% of net sales. Other restaurant operating expenses decreased to 22.8% of net sales from 23.3% of net sales. Depreciation and amortization of restaurant property and equipment also decreased to 4.0% of net sales for the third quarter of 2011 from 4.2% for the third quarter of 2010 because of the increase in same store sales.

Cost of sales increased to 33.2% of net sales for the third quarter of 2011 from 32.3% of net sales in the corresponding quarter of the previous year.

For the third quarter of 2011, J. Alexander’s Corporation’s restaurant operating margin (net sales minus total restaurant operating expenses divided by net sales) was 5.0%, the same as for the third quarter of 2010.

“Our cost of sales has been a major concern for most of the year,” Stout said. “We fell short of our food cost targets again in the third quarter as we continued to experience input cost increases in most major food categories, with beef, seafood, dairy and produce prices notably higher than a year ago.”

Stout said that beef costs have continued to escalate sharply in the fourth quarter and that the Company plans to increase menu prices ahead of the holiday season. He emphasized that the increases will be as aggressive as management believes is prudent given the continued fragile nature of consumer confidence and spending. Price increases earlier in the year included the effect of reformatting J. Alexander’s menus to create separate lunch and dinner menus and raising prices slightly in some restaurants at dinner as compared to lunch. He pointed out, however, that this action was not enough to offset the significant increases in input costs during the third quarter. According to Stout, the Company is also working on selected menu product revisions designed to lower food costs, and is adding some lower food cost items to J. Alexander’s printed menus and feature board program.

For the first nine months of 2011, J. Alexander's Corporation recorded net sales of $116,257,000, up from $110,225,000 reported in the first three quarters of 2010. The Company recorded net income of $513,000, or $ .08 per diluted share, compared to net income of $2,301,000, or $.38 per diluted share, posted in the comparable three periods of 2010.

J. Alexander's Corporation’s average weekly same store sales per restaurant were $90,400 in the first nine months of 2011, up 5.5% from $85,700 recorded in the first three quarters of 2010.

The Company’s average guest counts for the first nine months of 2011 increased 0.9% from the comparable nine months of 2010. The average guest check, including alcoholic beverage sales, increased 4.3% to $26.25. The effect of menu price increases for the first three quarters of 2011 was approximately 2.5% compared to the same period of the prior year.

Cost of sales for the first nine months of 2011 was 33.1%, up from 32.1% in the comparable nine month period of 2010. Restaurant labor and related costs for the first three quarters of the current year decreased to 33.7% of net sales from 34.2% of net sales in the same three periods of 2010, and other restaurant operating expenses decreased to 21.7% of net sales for the first nine months of 2011 compared to 22.5% for the same period in 2010. For the first nine months of 2011, J. Alexander's Corporation’s restaurant operating margin was 7.7%, up from 7.1% in the first three quarters of 2010.

Commenting on the fourth quarter, Stout said the “number one priority is to take additional steps to help offset the impact of surging input costs. We are tightly focused on what we can sensibly do to achieve this goal without interrupting our sales trends which have remained favorable through October. However, beef prices in October have been running 15% to 20% higher than at this time last year. And while we cannot predict what beef prices may do in the weeks ahead, they typically increase during the holidays, and we believe our fourth quarter cost of sales will remain close to if not higher than the level posted in the third quarter.”

Stout added “the forecast for the economy in the final quarter of 2011 is mixed. We do not believe it will slip into another recession, but we are acutely aware that consumer confidence has not fully recovered from historic lows of the most recent economic downturn. We will take this into consideration in making our menu price adjustments. Consumers are anxious and are seeking greater value from their discretionary spending than ever before. At J. Alexander’s, we are deeply committed to offering our guests exceptional value and providing them with a consistently enjoyable dining experience.”

J. Alexander’s Corporation operates 33 J. Alexander’s restaurant in thirteen states: Alabama, Arizona, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana, Michigan, Ohio, Tennessee and Texas. The Company’s menu features a wide selection of American classics, including steaks, prime rib of beef and fresh seafood, as well as a large assortment of interesting salads, sandwiches and desserts. J. Alexander’s also has a full-service bar that features an outstanding selection of wines by the glass and bottle.

J. Alexander’s Corporation is headquartered in Nashville, Tennessee.

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