O’Charley’s Inc. (Nasdaq: CHUX) today reported operating results for the 12-week period ended October 3, 2010, and filed its Form 10-Q for the third quarter of 2010.
Financial and Operating Highlights
- Revenue for the third quarter of fiscal 2010 decreased by 1.2 percent to $191.7 million from $194.1 million in the third quarter of fiscal 2009. Third quarter same-store sales at O’Charley’s company-operated restaurants declined by 2.2 percent, as a 2.7 percent increase in guest counts was offset by a 4.8 percent decline in average check. Same-store sales at Ninety Nine increased by 1.2 percent, as a 1.8 percent increase in average check was partially offset by a 0.6 percent decline in guest counts. Same-store sales at Stoney River Legendary Steaks increased by 1.7 percent, as a 15.4 percent increase in guest counts was partially offset by an 11.9 percent decline in average check.
- Restaurant-level margins, which the Company defines as restaurant sales less cost of food and beverage, payroll and benefits costs, and restaurant operating costs, decreased to 11.8 percent of restaurant sales from 14.2 percent in the prior year quarter. Year-over-year margin improvement at Stoney River was offset by margin declines at O’Charley’s and Ninety Nine.
- Advertising and marketing expenses for the quarter were $8.0 million, or 4.2 percent of revenue, compared to $7.6 million, or 3.9 percent of revenue in the prior year quarter. General and administrative expenses for the quarter were $8.3 million, or 4.3 percent of revenue, compared to $8.7 million, or 4.5 percent of revenue in the prior year quarter.
- Loss from operations in the quarter was $5.6 million, or 2.9 percent of revenues, compared to income from operations of $0.3 million, or 0.1 percent of revenues in the prior year quarter. Results for the quarter include impairment and disposal charges of $2.5 million, compared with $0.3 million in the prior year quarter.
- Adjusted EBITDA in the quarter was $7.6 million, or 4.0 percent of revenues, compared to $13.0 million, or 6.7 percent of revenues in the prior year quarter. Adjusted EBITDA is a non-GAAP supplemental financial measure that the Company believes may be useful for understanding its financial performance. A reconciliation of adjusted EBITDA to income from operations is provided later in this release.
- Results for the quarter include interest expense of $2.5 million, and an income tax benefit of $0.6 million, resulting in a net loss attributable to common shareholders of $7.4 million, or $0.35 per diluted share. In comparison, net loss attributable to common shareholders in the prior year quarter was $2.1 million, or $0.10 per diluted share.
- Capital investment during the quarter was $3.2 million, compared to $4.5 million in the prior year quarter. At quarter end, the Company had a cash balance of $22.7 million, and $32.4 million available under its revolving line of credit.
“During the third quarter, the positive shift in momentum continued at Ninety Nine and Stoney River, as both concepts reported same store sales increases for the first time in three years,” said David W. Head, president and chief executive officer of O’Charley’s Inc. “This positive momentum extended to the O’Charley’s concept, where guest counts increased for the first time this year and same store sales showed substantial improvement versus recent trends. As part of our effort to induce trial by new and lapsed O’Charley’s guests, in early August we re-introduced ‘2 Meals for $14.99,’ featuring our proven favorites combined with value-priced appetizer, beverage, and full-meal offerings. We saw an immediate improvement in sales and guest counts, and as expected we also saw some decline in O’Charley’s margins. While we expect to continue to offer ‘2 Meals for $14.99’ for our value-oriented guests, we recently introduced ‘Classic Combos,’ offering enhanced combinations of steak, seafood and chicken at menu prices between $12.99 and $15.99.”
Outlook for the Fourth Quarter of 2010
For the fourth quarter of 2010, the Company is forecasting total revenue of between $184 million and $190 million, a loss from operations of between $3 million and $6 million, and adjusted EBITDA of between $5 million and $8 million. This forecast reflects the impact from closing two restaurants since the end of the third quarter, but does not reflect the impact of any impairment or severance charges that the Company may recognize in the fourth quarter.
Investor Conference Call and Web Simulcast
O’Charley’s Inc. will conduct a conference call on its 2010 third quarter results on November 5, 2010, at 11:00 a.m. Eastern. The number to call for this interactive teleconference is (877) 941-2927, and the confirmation passcode is 4374099. Please dial in 10 minutes prior to the beginning of the call. A replay of the conference call will be available through November 19, 2010, by dialing (800) 406-7325 and entering passcode 4374099.
The live broadcast of O’Charley’s conference call will be available online:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82565&eventID=3455082.
If you are unable to participate during the live Webcast, the call will be archived on the Company’s Web site at www.ocharleysinc.com, as well as www.streetevents.com and www.earnings.com, and be available through November 19, 2010.
About O’Charley’s Inc.
O’Charley’s Inc., (NASDAQ: CHUX), headquartered in Nashville, Tenn., is a multi-concept restaurant company that operates or franchises a total of 364 restaurants under three brands: O’Charley’s, Ninety Nine Restaurants, and Stoney River Legendary Steaks. The O’Charley’s concept includes 241 restaurants in 19 states in the Southeast and Midwest, including 232 company-owned and operated O’Charley’s restaurants, and 9 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 company operates Ninety Nine Restaurants in 112 locations throughout New England and the Mid-Atlantic states. 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 company operates 11 Stoney River Legendary Steaks restaurants in six states in the Southeast and Midwest. The 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.
Forward Looking Statement
The forward looking statements in this press release and statements made by or on behalf of the Company relating hereto, including those containing words like “forecast,” “expect,” “project,” “believe,” “may,” “could,” “anticipate,” and “estimate,” are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be affected by certain risks and uncertainties, including, but not limited to, the deterioration in the United States economy and the related adverse effect on our sales of reduced consumer spending; the Company’s ability to comply with the terms and conditions of its financing agreements; the Company’s ability to maintain or increase operating margins and same-store sales at its restaurants; the effect that increases in food, labor, energy, interest costs and other expenses have on our results; the effect of increased competition; the Company’s ability to sell closed restaurants and other surplus assets; and the other risks described in the Company’s filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by us that our objectives, plans and projected results of operations will be achieved and the Company’s actual results could differ materially from such forward-looking statements. The Company does not undertake any obligation to publicly release any revisions to the forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.
| O’Charley’s Inc. and Subsidiaries | |||||||||||||
| Consolidated Statements of Operations (unaudited) | |||||||||||||
| 12 Weeks Ended October 3, 2010 and October 4, 2009 | |||||||||||||
| All percentages shown as a percentage of total revenue unless indicated otherwise | |||||||||||||
| 2010 | 2009 | ||||||||||||
| (in thousands, except per share data) | |||||||||||||
| Revenues: | |||||||||||||
| Restaurant sales | $ | 191,397 | 99.8% | $ | 193,914 | 99.9% | |||||||
| Franchise and other revenue | 351 | 0.2% | 182 | 0.1% | |||||||||
| 191,748 | 100.0% | 194,096 | 100.0% | ||||||||||
| Costs and Expenses: | |||||||||||||
| Cost of food and beverage | 57,973 | 30.3% | 56,467 | 29.1% | |||||||||
| Payroll and benefits | 68,464 | 35.8% | 70,477 | 36.3% | |||||||||
| Restaurant operating costs | 42,373 | 22.1% | 39,469 | 20.4% | |||||||||
| Cost of restaurant sales (1), excluding depreciation and | |||||||||||||
| amortization shown below | 168,810 | 88.2% | 166,413 | 85.8% | |||||||||
| Advertising and marketing expenses | 8,005 | 4.2% | 7,607 | 3.9% | |||||||||
| General and administrative expenses | 8,282 | 4.3% | 8,728 | 4.5% | |||||||||
| Depreciation and amortization of property & equipment | 9,712 | 5.1% | 10,691 | 5.5% | |||||||||
| Impairment and disposal charges, net | 2,499 | 1.3% | 325 | 0.2% | |||||||||
| Pre-opening costs | 0 | 0.0% | 71 | 0.0% | |||||||||
| 197,308 | 102.9% | 193,835 | 99.9% | ||||||||||
| (Loss) Income from Operations | (5,560) | -2.9% | 261 | 0.1% | |||||||||
| Other Expense (Income): | |||||||||||||
| Interest expense, net | 2,488 | 1.3% | 2,328 | 1.2% | |||||||||
| Other, net | (6) | 0.0% | 1 | 0.0% | |||||||||
| 2,482 | 1.3% | 2,329 | 1.2% | ||||||||||
| Loss Before Income Taxes | (8,042) | -4.2% | (2,068) | -1.1% | |||||||||
| Income Tax (Benefit) Expense | (604) | -0.3% | 78 | 0.0% | |||||||||
| Net Loss | $ | (7,438) | -3.9% | $ | (2,146) | -1.1% | |||||||
| Basic and diluted loss per common share: | |||||||||||||
| Net Loss | $ | (0.35) | $ | (0.10) | |||||||||
| Weighted Average Common Shares Outstanding | 21,267 | 20,906 | |||||||||||
| (1) Percentages calculated as a percentage of restaurant sales. | |||||||||||||
| O’Charley’s Inc. and Subsidiaries | ||||||||||||||
| Consolidated Statements of Operations (unaudited) | ||||||||||||||
| 40 Weeks Ended October 3, 2010 and October 4, 2009 | ||||||||||||||
| All percentages shown as a percentage of total revenue unless indicated otherwise | ||||||||||||||
| 2010 | 2009 | |||||||||||||
| (in thousands, except per share data) | ||||||||||||||
| Revenues: | ||||||||||||||
| Restaurant sales | $ | 656,399 | 99.9% | $ | 691,306 | 99.9% | ||||||||
| Franchise and other revenue | 922 | 0.1% | 665 | 0.1% | ||||||||||
| 657,321 | 100.0% | 691,971 | 100.0% | |||||||||||
| Costs and Expenses: | ||||||||||||||
| Cost of food and beverage | 195,122 | 29.7% | 201,287 | 29.1% | ||||||||||
| Payroll and benefits | 231,753 | 35.3% | 242,280 | 35.0% | ||||||||||
| Restaurant operating costs | 137,513 | 20.9% | 136,006 | 19.7% | ||||||||||
| Cost of restaurant sales (1), excluding depreciation | ||||||||||||||
| and amortization shown below | 564,388 | 86.0% | 579,573 | 83.8% | ||||||||||
| Advertising and marketing expenses | 27,694 | 4.2% | 26,165 | 3.8% | ||||||||||
| General and administrative expenses | 29,420 | 4.5% | 29,511 | 4.3% | ||||||||||
| Depreciation and amortization of property & equipment | 33,278 | 5.1% | 36,669 | 5.3% | ||||||||||
| Impairment, disposal and restructuring charges, net | 8,177 | 1.2% | 2,160 | 0.3% | ||||||||||
| Pre-opening costs | 7 | 0.0% | 416 | 0.1% | ||||||||||
| 662,964 | 100.9% | 674,494 | 97.5% | |||||||||||
| (Loss) Income from Operations | (5,643) | -0.9% | 17,477 | 2.5% | ||||||||||
| Other Expense (Income): | ||||||||||||||
| Interest expense, net | 9,405 | 1.4% | 9,112 | 1.3% | ||||||||||
| Other, net | (5) | 0.0% | (72) | 0.0% | ||||||||||
| 9,400 | 1.4% | 9,040 | 1.3% | |||||||||||
| (Loss) Income Before Income Taxes | (15,043) | -2.3% | 8,437 | 1.2% | ||||||||||
| Income Tax (Benefit) Expense | (738) | -0.1% | 546 | 0.1% | ||||||||||
| Net (Loss) Earnings | $ | (14,305) | -2.2% | $ | 7,891 | 1.1% | ||||||||
| Net (Loss) Attributable/Earnings Available to Common Shareholders | $ | (14,305) | -2.2% | $ | 7,677 | 1.1% | ||||||||
| Basic (loss) earnings per common share: | ||||||||||||||
| Net (Loss) Earnings | $ | (0.68) | $ | 0.37 | ||||||||||
| Weighted Average Common Shares Outstanding | 21,175 | 20,777 | ||||||||||||
| Diluted (loss) earnings per common share: | ||||||||||||||
| Net (Loss) Earnings | $ | (0.68) | $ | 0.36 | ||||||||||
| Weighted Average Common Shares Outstanding | 21,175 | 21,095 | ||||||||||||
| (1) Percentages calculated as a percentage of restaurant sales | ||||||||||||||
| O’Charley’s Inc. | |||||||||||||
| Condensed Consolidated Balance Sheets (unaudited) | |||||||||||||
| At October 3, 2010 and December 27, 2009 | |||||||||||||
| 2010 | 2009 | ||||||||||||
| (in thousands) | |||||||||||||
| Cash | $ | 22,739 | $ | 21,880 | |||||||||
| Other current assets | 31,907 | 34,174 | |||||||||||
| Property and equipment, net | 336,506 | 366,850 | |||||||||||
| Trade names and other intangible assets | 25,946 | 25,946 | |||||||||||
| Other assets | 15,297 | 13,405 | |||||||||||
| Total assets | $ | 432,395 | $ | 462,255 | |||||||||
| Current portion of long-term debt and capital leases | $ | 2,385 | $ | 1,979 | |||||||||
| Other current liabilities | 62,285 | 71,019 | |||||||||||
| Long-term debt, net of current portion | 117,367 | 128,121 | |||||||||||
| Capitalized lease obligations | 0 | 1,798 | |||||||||||
| Other liabilities | 51,987 | 50,219 | |||||||||||
| Shareholders’ equity | 198,371 | 209,119 | |||||||||||
| Total liabilities and shareholders’ equity | $ | 432,395 | $ | 462,255 | |||||||||
| O’Charley’s Inc. and Subsidiaries | ||||||||||||||||||
| Financial and Other Information (unaudited) | ||||||||||||||||||
| 12 and 40 Weeks Ended October 3, 2010 and October 4, 2009 | ||||||||||||||||||
| All percentages shown as percentage of restaurant sales | ||||||||||||||||||
| Quarter | Year to Date | |||||||||||||||||
| O’Charley’s Concept: (1) | 2010 | 2009 | 2010 | 2009 | ||||||||||||||
| Number of restaurants open | (1) | 233 | 235 | 233 | 235 | |||||||||||||
| Average check per guest | (1) | $ | 12.26 | $ | 12.86 | $ | 12.46 | $ | 13.03 | |||||||||
| Average weekly sales per restaurant | (1) | $ | 42,851 | $ | 43,627 | $ | 44,653 | $ | 47,312 | |||||||||
| Restaurant sales (millions) | $ | 120.2 | $ | 123.3 | $ | 417.7 | $ | 445.5 | ||||||||||
| Costs and expenses: | ||||||||||||||||||
| Cost of food and beverage | 30.3% | 29.0% | 29.7% | 28.9% | ||||||||||||||
| Payroll and benefits | 36.2% | 36.5% | 35.3% | 34.9% | ||||||||||||||
| Restaurant operating costs (2) | 22.1% | 19.5% | 20.4% | 18.8% | ||||||||||||||
| Cost of restaurant sales | 88.6% | 84.9% | 85.4% | 82.6% | ||||||||||||||
| Ninety Nine Concept: | ||||||||||||||||||
| Number of restaurants open at quarter end | 113 | 116 | 113 | 116 | ||||||||||||||
| Average check per guest | $ | 14.51 | $ | 14.25 | $ | 14.54 | $ | 14.64 | ||||||||||
| Average weekly sales per restaurant | $ | 47,133 | $ | 45,985 | $ | 47,093 | $ | 47,701 | ||||||||||
| Restaurant sales (millions) | $ | 63.9 | $ | 64.0 | $ | 213.4 | $ | 221.2 | ||||||||||
| Costs and expenses: | ||||||||||||||||||
| Cost of food and beverage | 29.6% | 28.6% | 29.1% | 28.7% | ||||||||||||||
| Payroll and benefits | 36.0% | 36.8% | 36.3% | 36.0% | ||||||||||||||
| Restaurant operating costs (2) | 22.4% | 22.2% | 22.0% | 21.2% | ||||||||||||||
| Cost of restaurant sales | 87.9% | 87.6% | 87.5% | 85.9% | ||||||||||||||
| Stoney River Concept: | ||||||||||||||||||
| Number of restaurants open at quarter end | 11 | 10 | 11 | 10 | ||||||||||||||
| Average check per guest | $ | 34.69 | $ | 39.76 | $ | 36.26 | $ | 42.07 | ||||||||||
| Average weekly sales per restaurant | $ | 55,544 | $ | 55,088 | $ | 57,377 | $ | 58,284 | ||||||||||
| Restaurant sales (millions) | $ | 7.3 | $ | 6.6 | $ | 25.2 | $ | 24.7 | ||||||||||
| Costs and expenses: | ||||||||||||||||||
| Cost of food and beverage | 36.5% | 35.9% | 35.9% | 36.6% | ||||||||||||||
| Payroll and benefits | 27.5% | 29.3% | 26.8% | 29.8% | ||||||||||||||
| Restaurant operating costs (2) | 19.2% | 19.7% | 20.2% | 21.3% | ||||||||||||||
| Cost of restaurant sales | 83.1% | 85.0% | 83.0% | 87.6% | ||||||||||||||
| (1) Excludes franchised restaurants and 2009 excludes restaurants operated by joint venture partners. | ||||||||||||||||||
| (2) Includes rent: 100% of the Ninety Nine restaurant locations are leased (land or land and building) as comparedto 58% for O’Charley’s and 73% for Stoney River. | ||||||||||||||||||
| O’Charley’s Inc. and Subsidiaries | ||||||||||||||||
| Calculation of Adjusted EBITDA (unaudited) (1) | ||||||||||||||||
| A Non-GAAP Financial Measure | ||||||||||||||||
| 12 and 40 Weeks Ended October 3, 2010 and October 4, 2009 | ||||||||||||||||
| Quarter | Year to Date | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (Loss) Income from Operations | $ | (5,560) | $ | 261 | $ | (5,643) | $ | 17,477 | ||||||||
| Add: | ||||||||||||||||
| Depreciation and amortization | 9,712 | 10,691 | 33,278 | 36,669 | ||||||||||||
| Impairment and disposal charges, net (2) | 2,499 | 325 | 8,177 | 2,160 | ||||||||||||
| Stock-based compensation expense (3) | 850 | 1,045 | 3,061 | 3,416 | ||||||||||||
| Severance, recruiting and relocation expense (4) | – | 145 | 2,395 | 435 | ||||||||||||
| Changes in deferred compensation balances (5) | 138 | 551 | 138 | 590 | ||||||||||||
| Adjusted EBITDA | $ | 7,639 | $ | 13,018 | $ | 41,406 | $ | 60,747 | ||||||||
| Notes: | ||
| (1) | We present Adjusted EBITDA as a supplemental measure which we believe is indicative of our ongoing performance. We define Adjusted EBITDA as (Loss) Income from Operations plus (i) depreciation and amortization, (ii) impairment and disposal charges, net, (iii) stock-based compensation expense, (iv) severance, recruiting and relocation costs for management changes and (v) changes in deferred compensation balances. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. | |
| We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Also, our credit agreement uses measures similar to Adjusted EBITDA to measure our compliance with certain covenants. | ||
| (2) | Long-lived assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Charges include the non-cash write-down of assets to their estimated recovery value as well as certain cash expenses related to the holding and disposition of assets no longer in service and, in fiscal 2009, various costs associated with restructuring our supply chain. | |
| (3) | Includes charges relating to the discount on the Company’s Employee Stock Purchase Plan and stock-based compensation plans. | |
| (4) | Cash and non-cash charges relating to significant organization changes. Charges in the 12 and 40 weeks ended October 3, 2010, relate primarily to the severance associated with the resignation of the Company’s former CEO and other operational changes. Charges in the 40 weeks ended October 4, 2009 related primarily to the retirement of the Company’s former CEO and the recruitment of a new CEO. | |
| (5) | The Company sponsors a deferred compensation plan for certain management employees, which is fully funded with a “Rabbi Trust.” Changes in the value of the employee’s self-directed balances are reported in compensation expense, with an offsetting amount in interest expense, net. |