Meritage Reports Third Quarter 2005 Results
28th Consecutive Quarter of Sales Growth
Meritage Hospitality Group Inc. (Amex: MHG), the nation's only publicly traded Wendy's franchisee and O'Charley's franchisee, announced net sales for the third fiscal quarter ended August 28, 2005, increased 4.4% to $14.7 million, compared to $14.1 million during the same period last year. Meritage reported a net loss for the quarter of $460,000 or $0.11 per share, compared to net earnings of $126,000 or $0.00 per common share for the same period last year.
Net sales for the nine months ended August 28, 2005, increased 5.4% to $41.8 million, compared to $39.6 million during the same period last year. Meritage reported a net loss for the nine month period of $3,273,370 or $0.69 per share, compared to a net loss of $279,203 or $0.11 per share for the same period last year.
Meritage's Chief Executive Officer, Robert E. Schermer, stated, "We are pleased our restaurant business delivered the 28th consecutive quarter of sales increases in what has been a very competitive industry. This continued sales growth underscores our long-term commitment to business growth and intent to create long-term value for our shareholders."
In the third quarter, we continued with our previously reported strategy of funding a portion of the O'Charley's expansion with proceeds from real estate sale and leaseback transactions involving our Wendy's restaurants. These transactions result in the immediate recognition of debt extinguishment charges as well as significant state tax expense. However, on the positive side, the sale and leaseback transactions in fiscal 2005 have generated cash proceeds of $15.5 million, permitted the Company to pay down $8.8 million of long-term debt, and resulted in deferred long-term gains of $6.3 million.
Various factors affected our bottom line in the third quarter including prepayment penalties from the sale and leaseback transactions, expenses associated with the rapid expansion of our O'Charley's restaurants, increased competition, a weak Michigan economy, and the effects of higher gas prices and beef costs. In addition, our franchisor, Wendy's International, is experiencing difficulties that affect our Company and the entire Wendy's system. We believe many of these difficulties are in areas where our Company has limited or no control. Areas where Meritage maintains limited or no control include national advertising, marketing, menu and product engineering, menu pricing and supply chain/food costs. Despite this, operations at our Wendy's unit level continue to demonstrate exceptional performance metrics. All 48 stores are "sparkle certified" meaning each store received the franchise system's highest grades in food safety, food quality, cleanliness and service. Likewise, our O'Charley's franchisor has recognized Meritage's restaurants for outstanding levels of service.
Schermer continued, "Due to the factors noted above, 2005 has been a challenging year. However, I continue to believe that our results provide an incomplete picture of the progress relating to our strategic development plans. Through its O'Charley's development efforts, Meritage is creating a diversified portfolio to hedge against the uncertainties and risks of geographical concentration and single brand identity."
Meritage is one of the nation's premier franchise operators currently operating 52 restaurants. The Company operates 48 "Wendy's Old Fashioned Hamburgers" restaurants throughout Western and Southern Michigan, serving more than nine million customers annually. Meritage has been one of the fastest growing Wendy's franchisees within the Wendy's franchise system over the past several years.
Meritage is also the nation's first O'Charley's franchisee with four O'Charley's restaurants in operation and additional restaurants under development. Meritage holds the right to develop O'Charley's restaurants throughout Michigan.
Net sales for the nine months ended August 28, 2005, increased 5.4% to $41.8 million, compared to $39.6 million during the same period last year. Meritage reported a net loss for the nine month period of $3,273,370 or $0.69 per share, compared to a net loss of $279,203 or $0.11 per share for the same period last year.
Meritage's Chief Executive Officer, Robert E. Schermer, stated, "We are pleased our restaurant business delivered the 28th consecutive quarter of sales increases in what has been a very competitive industry. This continued sales growth underscores our long-term commitment to business growth and intent to create long-term value for our shareholders."
In the third quarter, we continued with our previously reported strategy of funding a portion of the O'Charley's expansion with proceeds from real estate sale and leaseback transactions involving our Wendy's restaurants. These transactions result in the immediate recognition of debt extinguishment charges as well as significant state tax expense. However, on the positive side, the sale and leaseback transactions in fiscal 2005 have generated cash proceeds of $15.5 million, permitted the Company to pay down $8.8 million of long-term debt, and resulted in deferred long-term gains of $6.3 million.
Various factors affected our bottom line in the third quarter including prepayment penalties from the sale and leaseback transactions, expenses associated with the rapid expansion of our O'Charley's restaurants, increased competition, a weak Michigan economy, and the effects of higher gas prices and beef costs. In addition, our franchisor, Wendy's International, is experiencing difficulties that affect our Company and the entire Wendy's system. We believe many of these difficulties are in areas where our Company has limited or no control. Areas where Meritage maintains limited or no control include national advertising, marketing, menu and product engineering, menu pricing and supply chain/food costs. Despite this, operations at our Wendy's unit level continue to demonstrate exceptional performance metrics. All 48 stores are "sparkle certified" meaning each store received the franchise system's highest grades in food safety, food quality, cleanliness and service. Likewise, our O'Charley's franchisor has recognized Meritage's restaurants for outstanding levels of service.
Schermer continued, "Due to the factors noted above, 2005 has been a challenging year. However, I continue to believe that our results provide an incomplete picture of the progress relating to our strategic development plans. Through its O'Charley's development efforts, Meritage is creating a diversified portfolio to hedge against the uncertainties and risks of geographical concentration and single brand identity."
Meritage is one of the nation's premier franchise operators currently operating 52 restaurants. The Company operates 48 "Wendy's Old Fashioned Hamburgers" restaurants throughout Western and Southern Michigan, serving more than nine million customers annually. Meritage has been one of the fastest growing Wendy's franchisees within the Wendy's franchise system over the past several years.
Meritage is also the nation's first O'Charley's franchisee with four O'Charley's restaurants in operation and additional restaurants under development. Meritage holds the right to develop O'Charley's restaurants throughout Michigan.