Frisch’s Restaurants, Inc. (NYSE Amex: FRS) reported a modest decline in sales in its 16-week fiscal first quarter ended September 20, 2011, which is consistent with national trends of declining customer counts in the family dining restaurant segment. Consolidated revenues declined 1.3% to $91,728,189 from $92,925,834 in last year’s first quarter. The Company experienced a net loss of $2,274,283 in the quarter compared to net earnings of $2,741,279 last year. This loss was driven by a $4,000,000 pre-tax charge from the impairment of fixed assets, along with associated shuttering costs, related to the closure of six of our underperforming Golden Corral stores. Diluted loss per share for the quarter was $(0.46) compared to $0.54 earnings per diluted share last year.
In our Big Boy segment, same store sales were essentially flat while overall sales increased 2.0% as a result of new store openings. Gross profit in the Big Boy segment declined 16.7% in the quarter versus prior year primarily as a result of higher food and paper costs and depreciation expense. Higher food costs continue to reflect industry trends driven by increased costs of corn and other commodities. Higher depreciation expense is generated by new stores placed in service in the past 12 months.
Same store sales in our Golden Corral segment declined 4.9% while overall sales declined 7.8% reflecting the closure of the six underperforming stores on August 23, 2011. Gross profit in the Golden Corral segment declined 39.3% in the quarter versus prior year as a result of lower same store sales, the store closures and higher food and paper costs. Food costs in our Golden Corral segment increased over prior year but were moderated somewhat as we were able to lock in longer term prices on certain commodities.
At the Corporate level, administrative and advertising expense increased 16.3% as a result of a $371,000 stock award to the CEO combined with other legal and administrative costs related to the strategic assessment of our Golden Corral business segment. The effective tax rate declined to 16% in the quarter compared to 32% in last year’s first quarter due to the lower pre-tax income reflecting the $4 million impairment of the six closed Golden Corral stores which had minimal impact on the general business tax credits expected for the full year.
Craig F. Maier, President and Chief Executive Officer, said, “Our first quarter was very tough from both a revenue and cost perspective. The family dining segment of the restaurant industry continues to suffer from both declining customer counts as the U.S. economic recovery languishes along with inflation impacting our food costs.
“We did take decisive action in the quarter to improve the profitability of our Golden Corral business segment by shuttering six underperforming stores which were unprofitable in fiscal 2011. In the weeks following these closures, we are seeing improved revenues at nearby Golden Corral and Big Boy stores as customers migrate from the shuttered stores,” concluded Mr. Maier.
The Company opened one new Big Boy restaurant in July in our first quarter and a second restaurant in October in our second quarter. Frisch’s currently operates 96 company-owned Big Boy restaurants and there are an additional 25 franchised Big Boy restaurants operated by licensees. The Company also operates 29 Golden Corral restaurants.