Einstein Noah Restaurant Group reports third quarter 2013 financial results

Third Quarter 2013 Financial Results Total revenues increased 0.9% to $106.4 million from $105.5 mi…

Third Quarter 2013 Financial Results

Total revenues increased 0.9% to $106.4 million from $105.5 million, and consisted of a 0.2% increase in Company-owned restaurant sales, a 5.4% increase in manufacturing revenues, and an 11.7% increase in franchise and license related revenues, compared to the same period last year. For the third quarter ended October 1, 2013, system-wide comparable store sales decreased 1.4%, reflecting 1.5% growth in average check that was offset by a decrease in transactions.

Despite a decrease in comparable store sales at Company-owned restaurants, restaurant gross margin, in dollars and as a percentage of sales, was relatively flat on a year over year basis. Marketing costs were favorable to the third quarter of 2012 while rent and other operating expenses were higher than the year-ago period primarily due to 18 Company-operated openings over the last four quarters and sales deleveraging.

Manufacturing revenues increased $0.4 million, or 5.4%, to $7.9 million due to incremental sales to third-party customers. However, manufacturing gross margin as a percentage of manufacturing revenues decreased 130 basis points to 22.3% from 23.6% driven by short-term operating inefficiencies related to an increase in sales of partially-baked product, which is more labor-intensive than frozen dough.

Overall, total gross margin was $21.3 million in the third quarter of 2013 compared to $21.0 million in the third quarter of 2012, and as a percentage of total revenues, gross margin increased 10 basis points to 20.0% from 19.9% in the year-ago period.

General and administrative expenses increased to $9.8 million in the third quarter of 2013 from $9.1 million in the third quarter of 2012. This change largely reflects unfilled vacancies in the prior year during the strategic alternatives evaluation process that have now been filled.

Income from operations increased 2.8% to $6.5 million from $6.3 million.

Adjusted EBITDA* was $11.2 million in the third quarter of 2013 compared to $11.7 million in the third quarter of 2012.

Interest expense increased to $1.4 million in the third quarter of 2013 from $0.7 million in the third quarter of 2012 as a result of the higher level of debt resulting from the recapitalization of the Company in the fourth quarter of 2012.

Net income in the third quarter of 2013 was $4.0 million, or $0.22 per diluted share, compared to net income in the third quarter of 2012 of $3.4 million, or $0.20 per diluted share.

Highlights for the Third Quarter 2013 Compared to the Third Quarter 2012:

• Total revenues increased 0.9% to $106.4 million from $105.5 million while system-wide comparable store sales decreased 1.4%.

• Net income increased 17.8% to $4.0 million, or $0.22 per diluted share, compared to $3.4 million, or $0.20 per diluted share.

• Income from operations increased 2.8% to $6.5 million from $6.3 million.

• Adjusted EBITDA was $11.2 million, down from $11.7 million (*).

• The Company opened 24 units across its system in the third quarter resulting in a record 42 units year to date compared with 35 for the same period in the prior year.

The Company also reduced its outstanding indebtedness by $8.25 million during the third quarter of 2013 and is now less than 2.5 times levered on a trailing four quarter adjusted EBITDA basis.

Jeff O’Neill, President and Chief Executive Officer, stated, “While industry headwinds and a timing shift on pricing resulted in a comparable store sales decline in the third quarter, we were still able to hold restaurant gross margin steady and delivered an increase in diluted EPS compared to the year-ago period. We are confident that our ‘everyday value’ strategy coupled with our ongoing operational focus on guest experience is the right strategy to drive transactions and that we can build momentum as consumer restaurant spending improves. As always, we continue to accentuate those brand attributes that set us apart in a competitive landscape including fresh-baked goodness, real fruit smoothies, and our growing focus on specialty hot beverages as well as iced and frozen blended coffees and teas.”