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Total Revenues Increased For Einstein Noah Restaurant Group Third Quarter

2011-11-07

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Einstein Noah Restaurant Group Sustained growth in franchise, license and manufacturing revenues.

Einstein Noah Restaurant Group, Inc. (NASDAQ: BAGL), operating under the Einstein Bros.® Bagels, Noah's New York Bagels®, and Manhattan Bagel® brands, reported financial results for the third quarter ended September 27, 2011.

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

Total revenues increased 2.1% to $103.5 million from $101.4 million.
System-wide comparable store sales increased 1.0%.
Adjusted EBITDA of $10.3 million compared to $10.9 million. (*)
Net income available to common stockholders of $2.8 million, or $0.17 per diluted share, compared to $3.6 million, or $0.21 per diluted share.

Jeff O’Neill, President and Chief Executive Officer, stated, “System-wide comparable store sales improved sequentially for the third consecutive quarter and we also benefitted from sustained growth in our franchise, license and manufacturing revenues. Although higher food costs pressured margins, we effectively controlled the remainder of our expenses and are on track to deliver annualized savings of $3.0 million. Looking ahead, we continue to identify and evaluate ways to streamline our business model without impacting the customer experience, with a particular emphasis on distribution network costs and manufacturing opportunities. In addition, our asset light, franchise first model allows us to grow our brand through unit expansion while returning value to our shareholders via our dividend program.”

O’Neill concluded, “From a brand perspective, we are concentrating on our core breakfast and lunch day parts. Specifically, we are focusing on everyday value with our $5 under 400 calories thintastic bundle, highlighting delicious fresh baked food offerings such as premium sandwiches, lower calorie bagel thins, and an enhanced coffee platform with dedicated baristas. Finally, we are building our catering business which grew approximately 20% in the quarter and we continue to evolve our franchise network, and license channel which will be a key contributor to our long term earnings leverage.”

Third Quarter 2011 Financial Results

For the third quarter ended September 27, 2011, system-wide comparable store sales increased 1.0%, reflecting strong growth in check, a favorable mix shift and strength in catering sales. This was partially offset by lower comparable transactions, as the Company continued to roll over its free bagel promotion from last year. Total revenues increased 2.1% to $103.5 million from $101.4 million.

As a percentage of Company-owned restaurant sales, total costs at Company-owned restaurants increased 150 basis points primarily due to higher commodity costs and a product mix shift towards catering and sandwiches, resulting in a gross profit margin of 17.0%. Labor costs, other operating costs, rent and related costs, and marketing costs on a combined basis held steady compared to the third quarter of 2010 as a percentage of Company-owned restaurant sales.

Manufacturing and commissary gross profit decreased to $0.8 million from $1.0 million in the third quarter of 2010. The decline in gross profit was primarily due to higher commodity costs and an unfavorable shift in product mix to third party customers.

Overall, gross profit was $18.9 million, or 18.2% of total revenues, in the third quarter of 2011 compared to $20.1 million, or 19.8% of total revenues, in the third quarter of 2010.

General and administrative expenses decreased to $8.6 million from $9.2 million due to lower variable incentive compensation, recruiting and relocation expenses.

Adjusted EBITDA was $10.3 million in the third quarter of 2011 compared to $10.9 million in the third quarter of 2010. (*) Income before income taxes decreased $1.3 million to $4.5 million from $5.8 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.

Restructuring Expenses

During the third quarter of 2011, the Company determined that it could streamline its supply chain and reduce costs by closing its five food commissaries. As a result, the Company incurred $0.1 million in restructuring expenses including termination benefits for the employees at its Columbus, Ohio commissary, which is expected to close by the end of the year. The closure of its remaining four commissaries should occur in the first quarter of 2012. The Company estimates it will incur additional restructuring expenses between $1.0 million and $1.2 million, which will consist of employee termination benefits, lease contract terminations, and other associated costs, and be equally split between 2011 and 2012.

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)
		September 28,			September 27,		2011
		2010			2011		vs. 2010

Revenues:
	Company-owned restaurant sales	$	91,822		$	92,311	0.5	%
	Manufacturing and commissary revenues		7,478			8,766	17.2	%
	Franchise and license related revenues		2,061			2,455	19.1	%
Total revenues			101,361			103,532	2.1	%

Cost of sales (exclusive of depreciation and amortization shown separately below):
	Company-owned restaurant costs
	Cost of goods sold		26,040			27,693	6.3	%
	Labor costs		27,216			27,329	0.4	%
	Other operating costs		10,108			10,145	0.4	%
	Marketing costs		1,750			1,567	(10.5	%)
	Rent and related expenses		9,696			9,926	2.4	%
	Total company-owned restaurant costs		74,810			76,660	2.5	%

	Manufacturing and commissary costs		6,488			8,004	23.4	%
Total cost of sales			81,298			84,664	4.1	%

Gross profit:
	Company-owned restaurant		17,012			15,651	(8.0	%)
	Manufacturing and commissary		990			762	(23.0	%)
	Franchise and license		2,061			2,455	19.1	%
Total gross profit			20,063			18,868	(6.0	%)

Operating expenses:
	General and administrative expenses		9,211			8,610	(6.5	%)
	Depreciation and amortization		4,498			4,836	7.5	%
	Restructuring expenses		-			121	**
	Other operating (income) expenses		(690	)		47	(106.8	%)
Income from operations			7,044			5,254	(25.4	%)

Interest expense, net			1,209			772	(36.1	%)
Income before income taxes			5,835			4,482	(23.2	%)
	Provision for income taxes		2,435			1,647	(32.4	%)
Net income		$	3,400		$	2,835	(16.6	%)

Net income		$	3,400		$	2,835	(16.6	%)
Less: Additional redemption on temporary equity			(124	)		-	(100.0	%)
Add: Beneficial conversion feature on temporary equity			169			-	(100.0	%)
Add: Accretion of premium on Series Z preferred stock			138			-	(100.0	%)
Net income available to common stockholders		$	3,583		$	2,835	(20.9	%)

Net income available to common stockholder per share – Basic		$	0.22		$	0.17	(22.7	%)
Net income available to common stockholders per share – Diluted		$	0.21		$	0.17	(19.0	%)
Cash dividend declared per common share		$	-		$	0.125	**

Weighted average number of common shares outstanding:
Basic			16,565,771			16,785,934	1.3	%
Diluted			16,791,275			17,013,086	1.3	%

**	Not meaningful

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


		13 weeks ended
		(percent of total revenue)
		September 28,		September 27,
		2010		2011

Revenues:
	Company-owned restaurant sales	90.6	%	89.2	%
	Manufacturing and commissary revenues	7.4	%	8.4	%
	Franchise and license related revenues	2.0	%	2.4	%
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	%	30.0	%
	Labor costs	29.6	%	29.6	%
	Other operating costs	11.0	%	11.0	%
	Marketing costs	1.9	%	1.7	%
	Rent and related expenses	10.6	%	10.7	%
	Total company-owned restaurant costs	81.5	%	83.0	%

	Manufacturing and commissary costs (2)	86.8	%	91.3	%
Total cost of sales		80.2	%	81.8	%

Gross margin:
	Company-owned restaurant (1)	18.5	%	17.0	%
	Manufacturing and commissary (2)	13.2	%	8.7	%
	Franchise and license	100.0	%	100.0	%
Total gross margin		19.8	%	18.2	%

Operating expenses:
	General and administrative expenses	9.1	%	8.3	%
	Depreciation and amortization	4.4	%	4.7	%
	Restructuring expenses	0.0	%	0.1	%
	Other operating (income) expenses	(0.7	%)	0.0	%
Income from operations		6.9	%	5.1	%

Interest expense, net		1.1	%	0.8	%
Income before income taxes		5.8	%	4.3	%
	Provision for income taxes	2.4	%	1.6	%
Net income		3.4	%	2.7	%


	(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)

		39 weeks ended						Increase/
		(dollars in thousands)						(Decrease)
		September 28,			September 27,			2011
		2010			2011			vs. 2010

Revenues:
	Company-owned restaurant sales	$	276,750		$	275,723		(0.4	%)
	Manufacturing and commissary revenues		22,705			25,541		12.5	%
	Franchise and license related revenues		6,191			7,191		16.2	%
Total revenues			305,646			308,455		0.9	%

Cost of sales (exclusive of depreciation and amortization shown separately below):
	Company-owned restaurant costs
	Cost of goods sold		78,589			81,971		4.3	%
	Labor costs		82,419			81,514		(1.1	%)
	Other operating costs		28,561			29,485		3.2	%
	Marketing costs		7,595			7,793		2.6	%
	Rent and related expenses		29,773			30,205		1.5	%
	Total company-owned restaurant costs		226,937			230,968		1.8	%

	Manufacturing and commissary costs		19,149			22,452		17.2	%
Total cost of sales			246,086			253,420		3.0	%

Gross profit:
	Company-owned restaurant		49,813			44,755		(10.2	%)
	Manufacturing and commissary		3,556			3,089		(13.1	%)
	Franchise and license		6,191			7,191		16.2	%
Total gross profit			59,560			55,035		(7.6	%)

Operating expenses:
	General and administrative expenses		28,268			27,314		(3.4	%)
	Depreciation and amortization		13,244			13,984		5.6	%
	Restructuring expenses		-			334		**
	Other operating income		(620	)		(776	)	25.2	%
Income from operations			18,668			14,179		(24.0	%)

Interest expense, net			4,395			2,507		(43.0	%)
Adjustment for Series Z modification			929			-		(100.0	%)
Income before income taxes			13,344			11,672		(12.5	%)
	Provision for income taxes		6,076			4,589		(24.5	%)
Net income		$	7,268		$	7,083		(2.5	%)

Net income		$	7,268		$	7,083		(2.5	%)
Less: Additional redemption on temporary equity			(365	)		-		(100.0	%)
Add: Beneficial conversion feature on temporary equity			169			-		(100.0	%)
Add: Accretion of premium on Series Z preferred stock			637			-		(100.0	%)
Net income available to common stockholders		$	7,709		$	7,083		(8.1	%)

Net income available to common stockholder per share – Basic		$	0.47		$	0.43		(8.5	%)
Net income available to common stockholders per share – Diluted		$	0.46		$	0.42		(8.7	%)
Cash dividends declared per common share		$	-		$	0.25		**

Weighted average number of common shares outstanding:
Basic			16,509,654			16,588,907		0.5	%
Diluted			16,786,191			16,856,275		0.4	%


**	Not meaningful

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

		39 weeks ended
		(percent of total revenue)
		September 28,		September 27,
		2010		2011

Revenues:
	Company-owned restaurant sales	90.5	%	89.4	%
	Manufacturing and commissary revenues	7.4	%	8.3	%
	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	%	29.7	%
	Labor costs	29.8	%	29.6	%
	Other operating costs	10.3	%	10.7	%
	Marketing costs	2.7	%	2.8	%
	Rent and related expenses	10.8	%	11.0	%
	Total company-owned restaurant costs	82.0	%	83.8	%

	Manufacturing and commissary costs (2)	84.3	%	87.9	%
Total cost of sales		80.5	%	82.2	%

Gross margin:
	Company-owned restaurant	18.0	%	16.2	%
	Manufacturing and commissary	15.7	%	12.1	%
	Franchise and license	100.0	%	100.0	%
Total gross margin		19.5	%	17.8	%

Operating expenses:
	General and administrative expenses	9.2	%	8.9	%
	Depreciation and amortization	4.3	%	4.5	%
	Restructuring expenses	0.0	%	0.1	%
	Other operating income	(0.2	%)	(0.3	%)
Income from operations		6.1	%	4.6	%

Interest expense, net		1.4	%	0.8	%
Adjustment for Series Z modification		0.3	%	0.0	%
Income before income taxes		4.4	%	3.8	%
	Provision for income taxes	2.0	%	1.5	%
Net income		2.4	%	2.3	%


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

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


Selected Consolidated Balance Sheet Information:	December 28, 2010			September 27, 2011
Cash and cash equivalents, end of period	$	11,768		$	10,271
Property, plant and equipment, net		56,663			54,354
Total assets		205,067			202,060
Total debt		87,700			75,950
Total liabilities		127,681			119,362



	39 weeks ended
Selected Consolidated Cash Flow Information:	September 28, 2010			September 27, 2011
Net cash provided by operating activities	$	32,552		$	25,429
Net cash used in investing activities		(10,560	)		(11,955	)
Net cash used in financing activities		(19,430	)		(14,971	)
Free cash flow (cash provided by operating activities less cash used in investing activities)		21,992			13,474

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

	Reconciliation of GAAP to Non-GAAP Measures:	13 weeks ended					39 weeks ended
		September 28,			September 27,		September 28,			September 27,
		2010			2011		2010			2011
		(dollars in thousands)
Net income		$	3,400		$	2,835	$	7,268		$	7,083
	Adjustments to net income:
	Interest expense, net		1,209			772		4,395			2,507
	Provision for income taxes		2,435			1,647		6,076			4,589
	Depreciation and amortization		4,498			4,836		13,244			13,984
	Adjustment for Series Z modification		-			-		929			-
	Restructuring expenses		-			121		-			334
	Other operating expenses (income)		(690	)		47		(620	)		(776	)

Adjusted EBITDA		$	10,852		$	10,258	$	31,292		$	27,721

	Trailing 12 Months Activity
	Company
	Owned		Franchised		Licensed		Total
Consolidated Total
Beginning balance September 28, 2010	429		85		200		714
Opened restaurants	4		11		42		57
Closed restaurants	(1	)	(3	)	(9	)	(13	)
Refranchising, net	(1	)	1		-		-
Ending balance September 27, 2011	431		94		233		758