O’Charley’s Inc. has reported operating results for the 12-week period ended October 2, 2011.
Financial and Operating Highlights
- With 12 fewer restaurants in operation, the Company’s revenue for the third quarter of 2011 declined slightly to $186.6 million from $188.6 million for the third quarter of 2010.
- O’Charley’s comparable sales for company-operated restaurants declined 0.9 percent for the third quarter of 2011 from the third quarter last year, as a 4.5 percent decline in guest counts was partially offset by a 3.8 percent increase in average check.
- Ninety Nine Restaurants comparable sales for the third quarter of 2011 accelerated for the fifth consecutive quarter, increasing 4.1 percent on a 4.0 percent increase in guest counts and a 0.1 percent increase in average check.
- Stoney River Legendary Steaks produced a fifth consecutive quarterly increase in comparable sales, increasing 6.8 percent for the third quarter. The concept’s comparable guest counts increased 6.1 percent, the eighth consecutive quarterly improvement, and average check rose 0.6 percent, the first quarterly improvement in the last 10 quarters.
- Restaurant-level margins declined to 11.5 percent of restaurant sales for the third quarter of 2011 from 12.1 percent for the third quarter of 2010, as a 190 basis point increase in food and beverage costs as a percentage of sales, primarily due to rising commodity costs, more than offset margin improvements in payroll and benefits and restaurant operating costs.
- Loss from operations was $0.6 million, or 0.3 percent of revenues, for the third quarter of 2011 compared with a loss from operations of $5.2 million, or 2.7 percent of revenues, for the third quarter of 2010. Results for the third quarter of 2010 included net impairment and disposal charges of $2.5 million or 1.3 percent of revenues.
- Loss from continuing operations was $4.0 million, or $0.18 per diluted share, for the third quarter of 2011, compared with a loss $7.0 million, or $0.33 per diluted share, for the third quarter of 2010. Net loss was $4.0 million, or $0.19 per diluted share, for the third quarter of 2011, compared with a net loss of $7.4 million, or $0.35 per diluted share, for the third quarter of 2010.
- Net cash provided by operating activities was $11.1 million for the first 40 weeks of fiscal 2011, and the Company had $30.8 million of cash and no drawings on its revolving credit facility at the quarter’s end.
- As disclosed on October 17, 2011, the Company completed a sale-leaseback transaction for 50 O’Charley’s properties which produced gross proceeds of $105 million. The Company is using the net proceeds, combined with existing cash, to retire all of its outstanding 9% Senior Notes during the fourth quarter. The Company expects the impact of the transaction to be a decrease in annual interest expense of approximately $10.0 million, a decrease in annual depreciation expense of approximately $2.5 million and an increase in annual rent expense of approximately $8.9 million, which includes straight-line rent and the estimated amortization of the deferred gain on the sale and the deferred financing costs. In conjunction with the sale-leaseback transaction, the Company entered into an Amended and Restated Credit Facility with its existing banks, which reduced the facility from $45 million to $30 million. While the terms and conditions are similar to the prior facility, the new facility provides the Company more flexibility regarding capital expenditures and also extends the maturity of the facility to 2016.
David W. Head, president and chief executive officer of O’Charley’s Inc., said, “We are pleased we met our financial guidance for the third quarter and continued the strong comparable sales performance of Ninety Nine Restaurants and Stoney River Legendary Steaks. We did not sustain the positive comparable sales momentum created at O’Charley’s over the previous four quarters. The decline in O’Charley’s guest counts compares to a 2.7 percent increase in guest counts for the third quarter last year, which was driven by the re-launch of the “2 Meals for $14.99” promotion. Although new, high quality menu introductions produced upward migration in guest satisfaction for O’Charley’s for the third quarter, we believe the promotion mis-match coupled with heightened economic uncertainty contributed to the decline in guest counts.
“We are using the substantial guest count and sales progress in two of our three concepts as a blueprint to regain momentum in our O’Charley’s concept. We have undertaken several initiatives designed to grow O’Charley’s guest counts that center on greater clarity and precision in communicating our message of high quality, flavorful food at an everyday value. We intend to keep our focus on improving the guest experience at all three of our concepts. As reflected in our continued increases in guest satisfaction scores, we believe this focus will translate into higher sales, improving margins and increased shareholder value.”
Financial Guidance
For the fourth quarter of 2011, a 12-week quarter ending December 25, 2011, the Company’s guidance includes: total revenues of between $177 million and $182 million; loss from operations of between $3 million and $6 million; and adjusted EBITDA of between $4 million and $7 million. The Company’s guidance for the fourth quarter includes an estimated loss of approximately $1.2 million associated with the sale of certain properties included in the sale-leaseback transaction completed earlier in the quarter. The Company anticipates capital expenditures of between $16 million and $18 million for fiscal 2011.
O’Charley’s Inc., headquartered in Nashville, Tennessee, is a multi-concept restaurant company that operates or franchises a total of 342 restaurants under three brands: O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks. The O’Charley’s concept includes 227 restaurants in 18 states in the Southeast and Midwest, including 221 company-owned and operated O’Charley’s restaurants, and 6 restaurants operated by franchisees. The menu, with an emphasis on fresh preparation, features several specialty items, such as hand-cut and aged USDA choice steaks, a variety of seafood and chicken, freshly baked yeast rolls, fresh salads with special-recipe salad dressings and signature caramel pie. The Ninety Nine concept includes 105 restaurants throughout New England and upstate New York. Ninety Nine has earned a strong reputation as a friendly, comfortable place to gather and enjoy great American food and drink at a terrific price. The menu features a wide selection of appetizers, salads, sandwiches, burgers, entrees and desserts. The Stoney River Legendary Steaks concept includes 10 restaurants in six states in the Southeast and Midwest. This steakhouse concept appeals to both upscale casual-dining and fine-dining guests by offering high-quality food and attentive customer service typical of high-end steakhouses, but at more moderate prices.