Ryan's Restaurant Q2 Earnings Plunge
Net earnings for the quarter amounted to $6,260,000 in 2005 and $14,170,000 in 2004. Earnings per share (diluted) amounted to 15 cents in 2005 compared to 33 cents in 2004.
Ryan's Restaurant Group, Inc. (Nasdaq: RYAN) reported second quarter 2005 results today.
Second quarter restaurant sales were $215,510,000 in 2005 compared to $216,546,000 for the comparable quarter in 2004. Net earnings for the quarter amounted to $6,260,000 in 2005 and $14,170,000 in 2004. Earnings per share (diluted) amounted to 15 cents in 2005 compared to 33 cents in 2004.
For the six months ended June 29, 2005, restaurant sales amounted to $425,149,000 compared to $428,203,000 for the comparable period in 2004. Net earnings were $18,073,000 in 2005 and $29,530,000 in 2004. Earnings per share (diluted) were 42 cents in 2005 compared to 68 cents in 2004.
Commenting on the quarter, Charles D. Way, CEO of the Company, said, "Our financial results for the second quarter were affected by weak sales and higher costs. During the quarter, we also took a $5 million charge to reflect the estimated minimum settlement of ongoing wage/hour litigation. In spite of promising sales results during the second quarter's holiday periods, we were disappointed with our same-store sales, which decreased by 4% for the quarter. While we believe that our customers' discretionary spending continues to be adversely impacted by high energy costs, we also understand that we must continually examine our strategies in order to attract and retain customers. Accordingly, our operations leadership team has held numerous meetings to re- focus on our restaurant operations standards, particularly those concerning staffing and exterior appearance. We continue to implement "theme nights" at our restaurants and are testing a buffet breakfast on Saturdays and Sundays at selected locations. We believe that breakfast represents an excellent way to increase sales that produce good margins without a significant investment, and we are excited about its potential impact on sales and profits."
Restaurant-level margins for the second quarter were impacted by higher hourly labor charges as well as by higher energy and general liability insurance costs. We continue to believe that higher staffing levels, which we implemented at the beginning of 2005, contribute to better customer service, which is obviously important for customer retention. Just like our customers, Ryan's is also impacted by higher electricity and natural gas costs. General liability insurance costs, which are based largely on the estimated future costs of claims, increased due to higher cost projections and by a $750,000 favorable adjustment in the second quarter of 2004. Restaurant-level costs were also affected by an $838,000 impairment charge related to an under- performing restaurant, which we have decided to close and sell. This charge is included in other restaurant expenses in the accompanying consolidated financial statements. Food costs increased slightly from the second quarter of 2004. Beef costs decreased slightly during the quarter, and we are very encouraged by the recent U.S. Circuit Court decision that may allow Canadian beef imports in the future. This development could potentially increase beef supplies and therefore lower our operating costs."
General and administrative expenses increased principally due to a $5 million charge to reflect the estimated minimum settlement for a wage/hour lawsuit that was filed in November 2002. Additional information about this case can be found in our reports filed with the Securities and Exchange Commission. At this time, we are negotiating a potential settlement with the plantiffs' attorney in order to avoid lengthy and costly court proceedings and will soon enter into a mediation process in hopes of reaching a mutually acceptable settlement. However, there can be no assurance that we will reach an agreement as a result of the mediation process, and it is not possible to predict this case's ultimate outcome."
Regarding our balance sheet, as a result of lower net earnings in this and prior quarters, we have not met the fixed charge coverage ratio covenants in our various debt agreements. At June 29, 2005, our fixed charge coverage ratio, which is defined consistently in all of our debt agreements, was 2.05 times compared to the minimum requirement of 2.25 times. We have been in contact with our lenders throughout the quarter regarding this possibility and have been informed that they intend to grant us a waiver for this covenant violation. Based on our projections, it appears likely that we will not be able to meet the 2.25 times requirement for the next several quarters. We met all other debt covenants at June 29, 2005 and do not anticipate having any trouble complying with the other covenants in our debt agreements in the foreseeable future. Our lenders have indicated that they will work with us to amend the minimum fixed charge coverage ratio requirement and possibly other requirements and limitations for our third quarter and forward. Until the credit agreements are amended, our debt will be classified as current on our balance sheet."
So far in 2005 we have opened nine restaurants, including two relocations, and plan to open another six restaurants, including two potential relocations, during the remainder of the year for a total of 15 new restaurants during 2005. All six restaurants planned for the remainder of 2005 are currently under construction. For 2006, we plan to build nine new restaurants, including three potential relocations. We believe that this reduction in new store expenditures will not only conserve cash flow, but will also allow us to spend more time to focus on building same-store sales at our existing restaurants."
At June 29, 2005, the Company owned and operated 346 restaurants. As disclosed in the Company's reports filed with the Securities and Exchange Commission, the franchise relationship with the Company's remaining franchisee terminated on June 30, 2005. Accordingly, there will be no franchised restaurants operating after the second quarter of 2005.
Second quarter restaurant sales were $215,510,000 in 2005 compared to $216,546,000 for the comparable quarter in 2004. Net earnings for the quarter amounted to $6,260,000 in 2005 and $14,170,000 in 2004. Earnings per share (diluted) amounted to 15 cents in 2005 compared to 33 cents in 2004.
For the six months ended June 29, 2005, restaurant sales amounted to $425,149,000 compared to $428,203,000 for the comparable period in 2004. Net earnings were $18,073,000 in 2005 and $29,530,000 in 2004. Earnings per share (diluted) were 42 cents in 2005 compared to 68 cents in 2004.
Commenting on the quarter, Charles D. Way, CEO of the Company, said, "Our financial results for the second quarter were affected by weak sales and higher costs. During the quarter, we also took a $5 million charge to reflect the estimated minimum settlement of ongoing wage/hour litigation. In spite of promising sales results during the second quarter's holiday periods, we were disappointed with our same-store sales, which decreased by 4% for the quarter. While we believe that our customers' discretionary spending continues to be adversely impacted by high energy costs, we also understand that we must continually examine our strategies in order to attract and retain customers. Accordingly, our operations leadership team has held numerous meetings to re- focus on our restaurant operations standards, particularly those concerning staffing and exterior appearance. We continue to implement "theme nights" at our restaurants and are testing a buffet breakfast on Saturdays and Sundays at selected locations. We believe that breakfast represents an excellent way to increase sales that produce good margins without a significant investment, and we are excited about its potential impact on sales and profits."
Restaurant-level margins for the second quarter were impacted by higher hourly labor charges as well as by higher energy and general liability insurance costs. We continue to believe that higher staffing levels, which we implemented at the beginning of 2005, contribute to better customer service, which is obviously important for customer retention. Just like our customers, Ryan's is also impacted by higher electricity and natural gas costs. General liability insurance costs, which are based largely on the estimated future costs of claims, increased due to higher cost projections and by a $750,000 favorable adjustment in the second quarter of 2004. Restaurant-level costs were also affected by an $838,000 impairment charge related to an under- performing restaurant, which we have decided to close and sell. This charge is included in other restaurant expenses in the accompanying consolidated financial statements. Food costs increased slightly from the second quarter of 2004. Beef costs decreased slightly during the quarter, and we are very encouraged by the recent U.S. Circuit Court decision that may allow Canadian beef imports in the future. This development could potentially increase beef supplies and therefore lower our operating costs."
General and administrative expenses increased principally due to a $5 million charge to reflect the estimated minimum settlement for a wage/hour lawsuit that was filed in November 2002. Additional information about this case can be found in our reports filed with the Securities and Exchange Commission. At this time, we are negotiating a potential settlement with the plantiffs' attorney in order to avoid lengthy and costly court proceedings and will soon enter into a mediation process in hopes of reaching a mutually acceptable settlement. However, there can be no assurance that we will reach an agreement as a result of the mediation process, and it is not possible to predict this case's ultimate outcome."
Regarding our balance sheet, as a result of lower net earnings in this and prior quarters, we have not met the fixed charge coverage ratio covenants in our various debt agreements. At June 29, 2005, our fixed charge coverage ratio, which is defined consistently in all of our debt agreements, was 2.05 times compared to the minimum requirement of 2.25 times. We have been in contact with our lenders throughout the quarter regarding this possibility and have been informed that they intend to grant us a waiver for this covenant violation. Based on our projections, it appears likely that we will not be able to meet the 2.25 times requirement for the next several quarters. We met all other debt covenants at June 29, 2005 and do not anticipate having any trouble complying with the other covenants in our debt agreements in the foreseeable future. Our lenders have indicated that they will work with us to amend the minimum fixed charge coverage ratio requirement and possibly other requirements and limitations for our third quarter and forward. Until the credit agreements are amended, our debt will be classified as current on our balance sheet."
So far in 2005 we have opened nine restaurants, including two relocations, and plan to open another six restaurants, including two potential relocations, during the remainder of the year for a total of 15 new restaurants during 2005. All six restaurants planned for the remainder of 2005 are currently under construction. For 2006, we plan to build nine new restaurants, including three potential relocations. We believe that this reduction in new store expenditures will not only conserve cash flow, but will also allow us to spend more time to focus on building same-store sales at our existing restaurants."
At June 29, 2005, the Company owned and operated 346 restaurants. As disclosed in the Company's reports filed with the Securities and Exchange Commission, the franchise relationship with the Company's remaining franchisee terminated on June 30, 2005. Accordingly, there will be no franchised restaurants operating after the second quarter of 2005.
