Friendly Ice Cream Corporation Reports Third Quarter 2006 Results
Friendly Ice Cream Corporation (AMEX: FRN) today reported financial results for the third quarter and nine months ended October 1, 2006. Financial and performance highlights include:
• Net income in the third quarter was $2.0 million, or $0.24 per share, compared to net income of $3.4 million, or $0.43 per share, reported for the prior year. Income from continuing operations was $2.0 million, or $0.24 per share, compared to $2.4 million, or $0.30 per share, reported for the prior year. Total revenues were $141.9 million, an increase of $0.8 million as compared to total revenues of $141.1 million for the prior year. Comparable restaurant sales increased 1.7% for company-operated restaurants and decreased 1.7% for franchised restaurants.
• Year-to-date, net income was $4.8 million, or $0.60 per share, compared to $2.9 million, or $0.37 per share, reported for the prior year. Income from continuing operations was $1.6 million, or $0.19 per share, compared to $2.5 million, or $0.31 per share, reported for the prior year. Total revenues were $409.1 million, an increase of $1.2 million as compared to total revenues of $407.9 million for the prior year. Comparable restaurant sales increased 1.4% for company-operated restaurants and decreased 1.7% for franchised restaurants.
• One new franchise restaurant was opened during the third quarter of 2006.
• In the third quarter, two company-operated restaurants were re-franchised, resulting in a gain on franchise sales of restaurant operations and properties of $80 thousand.
• Thirty-six company-operated restaurants were remodeled during the third quarter.
• A development agreement was reached with a new franchisee for twelve Friendly's restaurants in the Raleigh-Durham, NC market. This is a new market for Friendly's and the first restaurant is scheduled to open in 2007.
Donald Smith, Chairman of the Board, said, 'We are pleased that restaurant comparable sales for company-operated restaurants appear to have stabilized during the quarter. However, we need to do more to successfully leverage the Friendly's brand and improve our operating performance. I am convinced that the opportunity still exists to further capitalize on our great brand by introducing exciting ice cream and food products that improve the overall value and affordability to families who buy our products and enjoy the Friendly's restaurant experience.'
Smith continued, 'Friendly's senior management is conducting a thorough review of every significant aspect of the Company and its operations to identify initiatives that will take advantage of our unique niche in the marketplace and at the same time improve our financial performance. Our near-term priority is to stabilize and improve profits in our company-operated restaurants. Additionally, we intend to accelerate our franchising efforts by developing a new-store prototype that results in acceptable returns to our franchisees. In the long-term, we are focused and committed to positioning Friendly's for operating success and increased shareholder value.'
Third Quarter Results
The review of third quarter results includes references to Adjusted EBITDA for each of the Company's business segments which are non-GAAP financial measures. Please see the note below for an explanation of the use of non-GAAP financial measures and the supplemental disclosure attached to this press release for a reconciliation of these measures to the most directly comparable GAAP financial measure.
Restaurant revenues were $104.8 million in the third quarter of 2006, a decrease of $1.8 million, as compared to restaurant revenues of $106.6 million for the prior year third quarter. Comparable restaurant sales increased 1.7% which was more than offset by a $3.0 million decline in restaurant revenue from the re-franchising of 11 company-operated restaurants over the past 15 months. Adjusted restaurant EBITDA was $10.8 million, or 10.3% of restaurant revenues, in the third quarter of 2006 compared to $10.2 million, or 9.4% of restaurant revenues, in the prior year. Cost of sales, as a percentage of restaurant revenues, improved by 1.1% as compared to the prior year due to increased menu prices, product re-formulations and flat commodity costs. Labor and benefits, as a percentage of restaurant revenues, decreased by 0.7% as a result of menu price increases and a reduction in group insurance claims which offset higher crew level wages and increased general manager bonus expense. Operating expenses of $27.3 million were the same in both years. Also, general and administrative expenses were unfavorable versus the prior year due to increased field management costs.
In the third quarter of 2006, Foodservice revenues were $32.9 million, an increase of $2.1 million, as compared to $30.8 million for the third quarter of 2005. Franchise restaurant product revenues increased by $1.2 million due to increased revenue from additional franchise restaurants that was in part offset by a decline in franchise comparable sales. Sales to retail supermarket customers increased by $0.9 million. An increase in retail supermarket case volume of 14.4% was partially offset by increased trade spending and sales allowances. Adjusted foodservice EBITDA increased by $1.0 million from the prior year to $5.3 million due to the increase in sales and lower cream prices.
Franchise revenues were $4.2 million in the third quarter of 2006 as compared to $3.8 million in the prior year. The $0.4 million increase in revenue was primarily due to an increase in initial franchise fees and rental income from leased and sub-leased franchise locations. Increased franchise royalties from the opening of six new franchised restaurants and the re-franchising of 11 restaurants over the past fifteen months were offset by the closing of five under-performing restaurants and a 1.7% decline in comparable franchise sales. Adjusted franchise EBITDA was $3.0 million as compared to $2.7 million in the prior year.
Corporate expenses of $5.0 million in the third quarter of 2006 increased by $1.3 million as compared to the prior year primarily due to increases in bonus and severance costs. These expenses were partially offset by reduced legal fees and other professional services.
As a result of the Company's intent to continue recording a full valuation allowance on tax benefits until an appropriate level of profitability can be sustained, the provision for income taxes was based on an estimate of current taxes payable through the third quarter of 2006. Accordingly, the income tax provision was $0.7 million for the three months ended October 1, 2006 as compared to $0.1 million for the three months ended October 2, 2005.
• Year-to-date, net income was $4.8 million, or $0.60 per share, compared to $2.9 million, or $0.37 per share, reported for the prior year. Income from continuing operations was $1.6 million, or $0.19 per share, compared to $2.5 million, or $0.31 per share, reported for the prior year. Total revenues were $409.1 million, an increase of $1.2 million as compared to total revenues of $407.9 million for the prior year. Comparable restaurant sales increased 1.4% for company-operated restaurants and decreased 1.7% for franchised restaurants.
• One new franchise restaurant was opened during the third quarter of 2006.
• In the third quarter, two company-operated restaurants were re-franchised, resulting in a gain on franchise sales of restaurant operations and properties of $80 thousand.
• Thirty-six company-operated restaurants were remodeled during the third quarter.
• A development agreement was reached with a new franchisee for twelve Friendly's restaurants in the Raleigh-Durham, NC market. This is a new market for Friendly's and the first restaurant is scheduled to open in 2007.
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Donald Smith, Chairman of the Board, said, 'We are pleased that restaurant comparable sales for company-operated restaurants appear to have stabilized during the quarter. However, we need to do more to successfully leverage the Friendly's brand and improve our operating performance. I am convinced that the opportunity still exists to further capitalize on our great brand by introducing exciting ice cream and food products that improve the overall value and affordability to families who buy our products and enjoy the Friendly's restaurant experience.'
Smith continued, 'Friendly's senior management is conducting a thorough review of every significant aspect of the Company and its operations to identify initiatives that will take advantage of our unique niche in the marketplace and at the same time improve our financial performance. Our near-term priority is to stabilize and improve profits in our company-operated restaurants. Additionally, we intend to accelerate our franchising efforts by developing a new-store prototype that results in acceptable returns to our franchisees. In the long-term, we are focused and committed to positioning Friendly's for operating success and increased shareholder value.'
Third Quarter Results
The review of third quarter results includes references to Adjusted EBITDA for each of the Company's business segments which are non-GAAP financial measures. Please see the note below for an explanation of the use of non-GAAP financial measures and the supplemental disclosure attached to this press release for a reconciliation of these measures to the most directly comparable GAAP financial measure.
Restaurant revenues were $104.8 million in the third quarter of 2006, a decrease of $1.8 million, as compared to restaurant revenues of $106.6 million for the prior year third quarter. Comparable restaurant sales increased 1.7% which was more than offset by a $3.0 million decline in restaurant revenue from the re-franchising of 11 company-operated restaurants over the past 15 months. Adjusted restaurant EBITDA was $10.8 million, or 10.3% of restaurant revenues, in the third quarter of 2006 compared to $10.2 million, or 9.4% of restaurant revenues, in the prior year. Cost of sales, as a percentage of restaurant revenues, improved by 1.1% as compared to the prior year due to increased menu prices, product re-formulations and flat commodity costs. Labor and benefits, as a percentage of restaurant revenues, decreased by 0.7% as a result of menu price increases and a reduction in group insurance claims which offset higher crew level wages and increased general manager bonus expense. Operating expenses of $27.3 million were the same in both years. Also, general and administrative expenses were unfavorable versus the prior year due to increased field management costs.
In the third quarter of 2006, Foodservice revenues were $32.9 million, an increase of $2.1 million, as compared to $30.8 million for the third quarter of 2005. Franchise restaurant product revenues increased by $1.2 million due to increased revenue from additional franchise restaurants that was in part offset by a decline in franchise comparable sales. Sales to retail supermarket customers increased by $0.9 million. An increase in retail supermarket case volume of 14.4% was partially offset by increased trade spending and sales allowances. Adjusted foodservice EBITDA increased by $1.0 million from the prior year to $5.3 million due to the increase in sales and lower cream prices.
Franchise revenues were $4.2 million in the third quarter of 2006 as compared to $3.8 million in the prior year. The $0.4 million increase in revenue was primarily due to an increase in initial franchise fees and rental income from leased and sub-leased franchise locations. Increased franchise royalties from the opening of six new franchised restaurants and the re-franchising of 11 restaurants over the past fifteen months were offset by the closing of five under-performing restaurants and a 1.7% decline in comparable franchise sales. Adjusted franchise EBITDA was $3.0 million as compared to $2.7 million in the prior year.
Corporate expenses of $5.0 million in the third quarter of 2006 increased by $1.3 million as compared to the prior year primarily due to increases in bonus and severance costs. These expenses were partially offset by reduced legal fees and other professional services.
As a result of the Company's intent to continue recording a full valuation allowance on tax benefits until an appropriate level of profitability can be sustained, the provision for income taxes was based on an estimate of current taxes payable through the third quarter of 2006. Accordingly, the income tax provision was $0.7 million for the three months ended October 1, 2006 as compared to $0.1 million for the three months ended October 2, 2005.