Einstein Noah Restaurant Group, a leader in the quick-casual segment of the restaurant industry operating under the Einstein Bros. Bagels, Noah’s New York Bagels, and Manhattan Bagel brands, has reported financial results for the third quarter ended September 27, 2011.
Selected Highlights for the Third Quarter 2011 Compared to the Third Quarter 2010:
- Total revenues increased 2.1% to $103.5 million from $101.4 million.
- System-wide comparable store sales increased 1.0%.
- Adjusted EBITDA of $10.3 million compared to $10.9 million.
- Net income available to common stockholders of $2.8 million, or $0.17 per diluted share, compared to $3.6 million, or $0.21 per diluted share.
Jeff O’Neill, President and Chief Executive Officer, stated, “System-wide comparable store sales improved sequentially for the third consecutive quarter and we also benefitted from sustained growth in our franchise, license and manufacturing revenues. Although higher food costs pressured margins, we effectively controlled the remainder of our expenses and are on track to deliver annualized savings of $3.0 million. Looking ahead, we continue to identify and evaluate ways to streamline our business model without impacting the customer experience, with a particular emphasis on distribution network costs and manufacturing opportunities. In addition, our asset light, franchise first model allows us to grow our brand through unit expansion while returning value to our shareholders via our dividend program.”
O’Neill concluded, “From a brand perspective, we are concentrating on our core breakfast and lunch day parts. Specifically, we are focusing on everyday value with our $5 under 400 calories thintastic bundle, highlighting delicious fresh baked food offerings such as premium sandwiches, lower calorie bagel thins, and an enhanced coffee platform with dedicated baristas. Finally, we are building our catering business which grew approximately 20% in the quarter and we continue to evolve our franchise network, and license channel which will be a key contributor to our long term earnings leverage.”
Third Quarter 2011 Financial Results
For the third quarter ended September 27, 2011, system-wide comparable store sales increased 1.0%, reflecting strong growth in check, a favorable mix shift and strength in catering sales. This was partially offset by lower comparable transactions, as the Company continued to roll over its free bagel promotion from last year. Total revenues increased 2.1% to $103.5 million from $101.4 million.
As a percentage of Company-owned restaurant sales, total costs at Company-owned restaurants increased 150 basis points primarily due to higher commodity costs and a product mix shift towards catering and sandwiches, resulting in a gross profit margin of 17.0%. Labor costs, other operating costs, rent and related costs, and marketing costs on a combined basis held steady compared to the third quarter of 2010 as a percentage of Company-owned restaurant sales.
Manufacturing and commissary gross profit decreased to $0.8 million from $1.0 million in the third quarter of 2010. The decline in gross profit was primarily due to higher commodity costs and an unfavorable shift in product mix to third party customers.
Overall, gross profit was $18.9 million, or 18.2% of total revenues, in the third quarter of 2011 compared to $20.1 million, or 19.8% of total revenues, in the third quarter of 2010.
General and administrative expenses decreased to $8.6 million from $9.2 million due to lower variable incentive compensation, recruiting and relocation expenses.
Adjusted EBITDA was $10.3 million in the third quarter of 2011 compared to $10.9 million in the third quarter of 2010. Income before income taxes decreased $1.3 million to $4.5 million from $5.8 million.
Restructuring Expenses
During the third quarter of 2011, the Company determined that it could streamline its supply chain and reduce costs by closing its five food commissaries. As a result, the Company incurred $0.1 million in restructuring expenses including termination benefits for the employees at its Columbus, Ohio commissary, which is expected to close by the end of the year. The closure of its remaining four commissaries should occur in the first quarter of 2012. The Company estimates it will incur additional restructuring expenses between $1.0 million and $1.2 million, which will consist of employee termination benefits, lease contract terminations, and other associated costs, and be equally split between 2011 and 2012.
2011 Outlook
The Company has updated its outlook for 2011. The Company now expects to open between 60 and 65 total restaurants (compared to between 75 and 90 total restaurants previously). The change to previously disclosed estimates relates primarily to campus license units which are expected to open after the holiday season to coincide with the return of students in January.
Total 2011 capital expenditures are projected to be approximately $30 million.
The Company has secured 100% of its wheat and coffee needs for 2011, and 44% of its wheat and 70% of its coffee needs for 2012.
The Company currently estimates a 2011 annual effective tax rate of 39.3% down slightly from its previous estimate of 41.0% as a result of higher than previously expected employment tax credits; however, the Company will continue to only pay minimal cash-taxes for the next several years.
Einstein Noah Restaurant Group, Inc. is a leading company in the quick casual restaurant industry that operates and licenses locations primarily under the Einstein Bros. and Noah’s New York Bagels brands and primarily franchises locations under the Manhattan Bagel brand. The company’s retail system consists of over 750 restaurants in 39 states and the District of Columbia. It also operates a dough production facility.
