NASHVILLE, Tenn.--(BUSINESS WIRE)--Aug. 7, 2008--O'Charley's Inc.
(Nasdaq: CHUX), a leading casual-dining restaurant company, today
reported revenues and earnings per share for the 12-week period ended
July 13, 2008. The Company also revised its outlook for the current
fiscal year.
Financial and Operating Highlights
- Revenue for the second quarter of fiscal 2008 decreased 3.3
percent to $221.1 million from $228.8 million in the second
quarter of fiscal 2007. Same-store sales for the second
quarter of 2008 declined 1.4 percent at O'Charley's
company-operated restaurants, 3.1 percent at Ninety Nine
Restaurants, and 6.4 percent at Stoney River Legendary Steaks.
- Restaurant-level margins, which the Company defines as
restaurant sales less cost of food and beverage, payroll and
benefits costs, and restaurant operating costs declined to
15.0 percent of restaurant sales from 17.5 percent in the
prior year quarter. A number of factors contributed to this
decline, including the impact of reduced guest counts on
hourly labor productivity; higher employee benefits, workers
compensation and management labor expenses; increases in
utility costs; and the deleveraging impact of reduced sales on
rent and other fixed costs.
- Results for the quarter include impairment charges for two
O'Charley's restaurants and one Ninety Nine restaurant, all of
which will remain open. These asset impairments, which were
not included in the Company's previously-issued guidance,
reduced second quarter income from operations by $1.9 million,
or 0.9 percent of revenue, and reduced net earnings by $0.06
per diluted share (calculated at estimated marginal tax rate).
- Expenses relating to the Company's re-branding initiatives
reduced income from operations in the second quarter by $2.5
million, or 1.1 percent of revenue, and reduced net earnings
by $0.07 per diluted share (calculated at estimated marginal
tax rate). Such expenses include depreciation of the new
investments, accelerated depreciation of assets removed from
service, preopening and advertising costs. In the second
quarter of 2007, expenses for these initiatives reduced income
from operations by $1.3 million, and reduced net earnings by
$0.03 per diluted share.
- Including the impairment charges and the expenses relating to
the re-branding initiatives, income from operations in the
quarter was $0.4 million, or 0.2 percent of revenues, and the
loss before income taxes was $2.3 million. In comparison,
income from operations in the prior year quarter was $0.4
million, and the loss before income taxes was $2.3 million.
Results for the second quarter of 2007 included charges of
$7.6 million relating to the sale of the commissary and other
supply chain changes.
- Year-to-date earnings before income taxes were $2.5 million.
The value of tax credits on a year-to-date basis offsets the
tax liability at the statutory rate, resulting in a
year-to-date income tax benefit of $0.1 million. In order to
adjust the year-to-date tax provision, the Company reversed
substantially all of the tax benefit that was recognized in
the first quarter of 2008, resulting in a tax expense in the
second quarter of $5.6 million. This treatment is in
accordance with FASB Interpretation Number 18, "Accounting for
Income Taxes in Interim Periods." The Company reported an
after-tax loss of $7.8 million, or $0.38 per diluted share,
compared with a net loss in the prior year quarter of $1.1
million, or $0.05 per diluted share.
- During the second quarter of 2008, the Company repurchased 0.7
million shares of its common stock under its previously
announced share repurchase authorization, bringing the
Company's year-to-date stock repurchases to 2.2 million
shares.
- Given current conditions in the general economy and casual
dining industry, the Company announced that it would defer the
restaurant re-brandings scheduled for the remainder of 2008.
"These continue to be challenging times for most casual dining
companies, including O'Charley's Inc.," said Gregory L. Burns,
chairman and chief executive officer of O'Charley's Inc. "Higher
energy and food prices, lower home values, and generally negative
economic news have made consumers more cautious about their spending,
which we believe contributed significantly to our same-store sales
performance. While these factors are beyond our control, I am
disappointed by our performance in the quarter, particularly our
restaurant-level margins. Our number one focus remains driving
profitable sales in this tough environment. At the same time we are
taking additional actions to improve our product and labor costs, and
we will be making further reductions in our general and administrative
expenses."
"We believe that the challenges affecting the restaurant business
will continue at least through the remainder of 2008. In this
uncertain environment, we have decided to defer our re-branding
initiatives for the balance of the year. While we continue to be
pleased with the performance of the restaurants that we re-branded
during the past two years, and continue to believe that these
initiatives are vital to the long term success of both concepts, our
focus for the balance of the year must be on driving sales at all
restaurants, and improving the Company's profitability."
O'Charley's Restaurants
Restaurant sales for company-operated O'Charley's restaurants
decreased 2.3 percent to $138.9 million for the second quarter,
reflecting the decline in same-store sales, the addition of two new
company-operated restaurants and the closing of two company-operated
restaurants since the second quarter of 2007. The same-store sales
decrease of 1.4 percent was comprised of a 3.2 percent increase in
average check offset by a 4.5 percent decrease in guest counts.
Average check for company-operated restaurants in the second quarter
was $12.91. One company-operated O'Charley's restaurant opened during
the second quarter, bringing the total number of company-operated
restaurants to 229 at the end of the quarter.
"While we will never be satisfied with negative same-store sales,
we take some satisfaction that the same-store sales performance of the
O'Charley's concept in the second quarter was better than in any
quarter since the third quarter of 2006," Burns said. "A number of
factors contributed to this same-store sales performance. As of the
end of the second quarter, we have completed 62 'Project RevO'lution'
re-brandings, including the Nashville, Indianapolis and Atlanta
markets. In the aggregate, sales at these re-branded restaurants
continue to outperform the rest of the concept, while the 44
restaurants re-branded during the past four quarters had positive
same-store sales in the second quarter. Our new 'Twisted Chips'
appetizer was one of our most successful new product introductions
ever. Thanks to exciting new beverage products, alcoholic beverage
sales at O'Charley's increased both in absolute dollars and as a
percentage of total sales. Year-over-year sales comparisons also
benefited from the fact that the phase out of Kids Eat Free at most
O'Charley's restaurants occurred more than one year ago. We began the
gradual phase out of Kids Eat Free during the second quarter of 2006,
and by the end of the second quarter of 2007 we had reduced its
availability by approximately 80 percent. O'Charley's same-store sales
continue to be negatively impacted by a smoking ban in Tennessee,
where we have our largest concentration of restaurants. We estimate
that this smoking ban, which was implemented on October 1, 2007 and
does not apply uniformly to all eating and drinking establishments,
reduced O'Charley's same-store sales by 0.7 percent in the second
quarter."
"We understand the need to drive sales, and plan to sharpen our
value message as we continue our focus on the great food and beverage
offerings at O'Charley's, which we believe are the best in our
segment. During the second quarter, we offered two limited time
promotions, including our 'Better Together' platters and our 'Summer
Time' celebration. Both featured flavorful new menu items and were
supported with television and print advertising focusing on the
quality of the food and the great values offered. We continue to offer
our early week dinner special featuring two meals and two beverages
for $20, and our 'Make Every Meal Count' loyalty program. Within the
next two weeks, we plan to introduce a new menu with a new design, and
to launch our 'O'Charley's All Stars' limited time offer. This
promotion will include some of our famous and soon to be famous
entrees, and will include our first ever instant win scratch-off
game."
Ninety Nine Restaurants
Restaurant sales for Ninety Nine decreased 1.7 percent to $71.8
million in the second quarter, reflecting the decline in same store
sales, the addition of four new restaurants and the closing of one
restaurant since the second quarter of 2007. The same-store sales
decrease of 3.1 percent was comprised of a 2.9 percent increase in
average check offset by a 5.8 percent decrease in guest counts.
Average check in the second quarter was $14.95. Two Ninety Nine
restaurants opened in the second quarter, bringing the total number to
116 at the end of the quarter.
"The consumer and competitive environment in New England continued
to be challenging during the second quarter of 2008," Burns said. "As
of the end of the second quarter, we have completed 62 Project Dressed
to the Nines re-brandings, including our core markets in Eastern
Massachusetts and Southern New Hampshire. In the aggregate, sales at
these re-branded restaurants continue to outperform the rest of the
concept, while the 37 restaurants re-branded during the past four
quarters had positive same store-sales in the second quarter."
"Our 'Amazingly Adventurous Flavors' promotion ended on August 3.
This promotion featured new menu items such as cedar plank scallops,
'Fiesta Grilled Chicken,' 'Seared Ahi Tuna Chopstick Salad,' and the
return of our popular lobster roll and 'Imperial Casserole.' During
the third quarter, we will offer our 'Creatively Comforting Flavors'
promotion, which will feature comfort food with a creative twist. Menu
items will include 'Chianti Braised Beef,' 'Fire Grilled Ribeye,'
chicken marsala, and an 'Ultimate Steakburger' with a wild mushroom
sauce. This promotion will be supported by radio and on-line
advertising. We also plan to offer a number of sports-themed
promotions for the baseball and football fans in the Boston and
Philadelphia markets."
Stoney River Legendary Steaks Restaurants
Restaurant sales for Stoney River Legendary Steaks decreased 6.6
percent to $8.3 million in the second quarter. The same-store sales
decrease of 6.4 percent was comprised of an 8.4 percent increase in
average check offset by a 13.7 percent decrease in guest counts.
Average check for Stoney River in the second quarter was $46.25. At
the end of the second quarter, all of the 10 Stoney River restaurants
were included in the same store sales base.
"Upscale and polished casual restaurants have not been immune to
the effects of the slowing economy, as reflected in the second quarter
sales of Stoney River," Burns said. "In order to continue
strengthening the Stoney River brand we have launched a newly enhanced
web site that allows our guests to experience the Stoney River
lifestyle on-line. We expect the web site to attract additional
members to our loyalty program, 'The Red Canoe Society.' We continue
to offer our 'Summer Sunday Fare' menu, which offers the Stoney River
experience at a reduced price point. This fall we will offer new
seasonal menu items, including shrimp and corn chowder, a classic New
York Strip Diane and a spicy beef stroganoff. Recently, we were
pleased that Nashville's 'Toast of Music City' poll named Stoney River
the best place for steak."
Outlook for 2008 Fiscal Year
Given its year-to-date financial results, current economic
conditions, and the decision to defer the re-branding initiatives, the
Company revised its previously-issued guidance and stated that it now
expects to report net earnings per diluted share of between $0.08 and
$0.16 for the fiscal year ending December 28, 2008. Projected results
for the full year include a full-year tax benefit between $2.5 million
and $3.5 million, or between $0.12 and $0.17 per diluted share, and
expenses of approximately $0.26 per diluted share (calculated at
estimated marginal rate) related to the re-brandings completed by the
end of the second quarter. The Company expects same store sales
declines in all three concepts for the balance of the year. In 2008,
the Company expects to open four new O'Charley's company-operated
restaurants, two new Ninety Nine restaurants, and one new Stoney River
restaurant, and to spend between $50 million and $55 million for
capital investments. The Company's guidance for the 2008 fiscal year
does not reflect any impact for additional share repurchases, or
organizational changes that the Company may make in the second half of
the year.
Investor Conference Call and Web Simulcast
O'Charley's Inc. will conduct a conference call on its 2008 second
quarter earnings release on August 7, 2008, at 11:00 a.m. Eastern. The
number to call for this interactive teleconference is (800) 762-8779,
and the confirmation passcode is 3904825. A replay of the conference
call will be available through August 21, 2008, by dialing (800)
406-7325 and entering passcode 3904825.
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=1907661
(Due to its length, this URL may need to be copied/pasted into
your Internet browser's address field. Remove the extra space if one
exists.)
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 August 21, 2008.
About O'Charley's Inc.
O'Charley's Inc., headquartered in Nashville, Tenn., is a
multi-concept restaurant company that operates or franchises a total
of 368 restaurants under three brands: O'Charley's, Ninety Nine
Restaurant, and Stoney River Legendary Steaks. The O'Charley's concept
includes 242 restaurants in 20 states in the Southeast and Midwest,
including 230 company-owned and operated O'Charley's restaurants, and
12 restaurants operated by franchisees and joint venture partners. 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 116 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 10 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 "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, including our guidance for
future periods, are subject to the finalization of the Company's
second quarter financial and accounting procedures, and may be
affected by certain risks and uncertainties, including, but not
limited to, the adverse effect on our sales of decreases in consumer
spending; the Company's ability to successfully implement and realize
projected returns on investment from its re-branding efforts; the
Company's ability to increase operating margins and increase
same-store sales at its restaurants; the effect that increases in
food, labor, energy, interest costs and other expenses have on our
results of operations; the effect that the phase out of Kids Eat Free
has on our results of operations; the Company's ability to
successfully implement and realize projected savings from changes to
its supply chain; 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.
(Tables to Follow)
O'Charley's Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
12 Weeks Ended July 13, 2008 and July 15, 2007
All percentages shown as a percentage of total revenue unless
indicated otherwise
2008 2007
--------------- ---------------
(in thousands, except per
share data)
Revenues:
Restaurant sales $220,955 99.9% $226,377 99.0%
Commissary sales 0 0.0% 2,249 1.0%
Franchise and other revenue 188 0.1% 129 0.1%
-------- ------ -------- ------
221,143 100.0% 228,755 100.0%
Costs and Expenses:
Cost of food and beverage 64,817 29.3% 66,362 29.3%
Payroll and benefits 78,651 35.6% 77,330 34.2%
Restaurant operating costs 44,258 20.0% 43,120 19.0%
-------- ------ -------- ------
Cost of restaurant sales(1) 187,726 85.0% 186,812 82.5%
Cost of commissary sales 0 0.0% 2,115 0.9%
Advertising and marketing expenses 7,751 3.5% 8,062 3.5%
General and administrative expenses 10,346 4.7% 11,263 4.9%
Depreciation and amortization 11,605 5.2% 11,664 5.1%
Impairment, disposal and
restructuring charges 1,728 0.8% 7,873 3.4%
Pre-opening costs 1,593 0.7% 597 0.3%
-------- --------
220,749 99.8% 228,386 99.8%
-------- ------ -------- ------
Income from Operations 394 0.2% 369 0.2%
Other Expense (Income):
Interest expense, net 2,660 1.2% 2,681 1.3%
Other, net (1) 0.0% (6) 0.0%
-------- ------ -------- ------
2,659 1.2% 2,675 1.3%
-------- ------ -------- ------
Loss before Income Taxes (2,265) -1.0% (2,306) -1.0%
Income Tax Expense (Benefit) 5,569 2.5% (1,161) -0.5%
-------- ------ -------- ------
Net Loss $(7,834) -3.5% $(1,145) -0.6%
======== ========
Basic Loss per Share:
--------------------------------------
Net Loss $ (0.38) $ (0.05)
======== ========
Weighted Average Common Shares
Outstanding 20,768 24,002
======== ========
Diluted Loss per Share:
--------------------------------------
Net Loss $ (0.38) $ (0.05)
======== ========
Weighted Average Common Shares
Outstanding 20,768 24,002
======== ========
(1) Percentages calculated as a
percentage of restaurant sales
O'Charley's Inc. and Subsidiaries
Consolidated Statements of Earnings (unaudited)
28 Weeks Ended July 13, 2008 and July 15, 2007
All percentages shown as a percentage of total revenue unless
indicated otherwise
2008 2007
--------------- ---------------
(in thousands, except per
share data)
Revenues:
Restaurant sales $518,131 99.9% $535,493 98.9%
Commissary sales 0 0.0% 5,978 1.2%
Franchise revenue 507 0.1% 173 0.0%
-------- ------ -------- ------
518,638 100.0% 541,644 100.0%
Costs and Expenses:
Cost of food and beverage 152,499 29.4% 156,282 29.2%
Payroll and benefits 180,269 34.8% 182,180 34.0%
Restaurant operating costs 102,744 19.8% 99,978 18.7%
-------- ------ -------- ------
Cost of restaurant sales(1) 435,512 84.1% 438,440 81.9%
Cost of commissary sales 0 0.0% 5,506 1.0%
Advertising expenses 19,086 3.7% 18,113 3.3%
General and administrative expenses 23,937 4.6% 27,180 5.0%
Depreciation and amortization 27,188 5.2% 26,922 5.0%
Impairment, disposal and
restructuring charges 1,531 0.3% 8,786 1.6%
Pre-opening costs 2,412 0.5% 1,712 0.3%
-------- --------
509,666 98.3% 526,659 97.2%
-------- ------ -------- ------
Income from Operations 8,972 1.7% 14,985 2.8%
Other Expense (Income):
Interest expense, net 6,503 1.3% 6,577 1.2%
Other, net (1) 0.0% (11) 0.0%
-------- ------ -------- ------
6,502 1.3% 6,566 1.2%
-------- ------ -------- ------
Earnings before Income Taxes 2,470 0.5% 8,419 1.6%
Income Tax (Benefit)/Expense (73) 0.0% 1,557 0.3%
-------- ------ -------- ------
Net Earnings $ 2,543 0.5% $ 6,862 1.3%
======== ========
Basic Earnings per Share:
--------------------------------------
Net Earnings $ 0.12 $ 0.29
======== ========
Weighted Average Common
Shares Outstanding 21,287 23,867
======== ========
Diluted Earnings per Share:
--------------------------------------
Net Earnings $ 0.12 $ 0.28
======== ========
Weighted Average Common
Shares Outstanding 21,395 24,239
======== ========
(1) Percentages calculated as a
percentage of restaurant sales
O'Charley's Inc.
Condensed Consolidated Balance Sheets (unaudited)
At July 13, 2008 and December 30, 2007
2008 2007
------------- --------------
(in thousands)
Cash $ 5,540 $ 9,982
Other current assets 58,258 55,860
Property and equipment, net 440,415 435,752
Goodwill and other intangible assets 119,602 119,407
Other assets 28,628 27,982
------------- --------------
Total assets $ 652,443 $ 648,983
============= ==============
Current portion of long-term debt and
capital leases $ 9,425 $ 8,597
Other current liabilities 87,628 78,390
Long-term debt, net of current portion 148,213 127,654
Capitalized lease obligations 4,663 8,984
Other liabilities 59,188 59,832
Shareholders' equity 343,326 365,526
------------- --------------
Total liabilities and shareholders'
equity $ 652,443 $ 648,983
============= ==============
CONTACT: O'Charley's Inc.
Lawrence E. Hyatt, 615-782-8818
Chief Financial Officer
or
Investor Relations
Makovsky + Company
Gene Marbach, 212-508-9600
SOURCE: O'Charley's Inc.
