Einstein Noah Restaurant Group Reports Solid Growth in Revenue, Comparable Store Sales and Net Income

Einstein Noah Restaurant Group Reports Solid Growth in Revenue, Comparable Store Sales and Net Income

Selected Highlights for the Quarter:

- 3.2% increase in comparable store sales at company-owned restaurants.

- 13th consecutive quarter of positive comparable store sales growth.

- Average unit volume for company-owned restaurants increased $43,000 to
$909,000 for the year.

- 6.1% revenue growth to $105.2 million, compared to the fourth quarter of

- 12.4% net income growth to $6.8 million, compared to the fourth quarter
of 2006.

- Diluted EPS of $0.41.

- Opened 7 new company-owned restaurants and 14 new licensed locations.

LAKEWOOD, Colo., Feb. 27 // PRNewswire-FirstCall // -- Einstein Noah Restaurant Group, Inc. (Nasdaq: BAGL) today announced strong results for the fourth quarter and year ended January 1, 2008. The Company posted strong profits during a difficult operating environment for the restaurant industry. Total revenues for the fourth quarter increased 6.1% to $105.2 million from $99.2 million in the fourth quarter of the prior year.

"Our focus in the fourth quarter of 2007 was to set the foundation for continued growth and solid financial performance for 2008," said Paul Murphy, President and Chief Executive Officer. Mr. Murphy added that the Company:

-- Locked in the cost of wheat for 2008, providing cost visibility and
allowing the Company to implement a tactical price increase in early
-- Realigned its operational leadership team to ensure that the
restaurants deliver superior guest experience and strong financial
-- Adjusted the compensation program for the field operational team with
bonuses being based on their abilities to meet restaurant budgets.
-- Reduced the Support Center workforce and eliminated certain other costs
to position the Company for strong performance in 2008 and beyond.
-- Completed the development of a broader new menu that encourages
visitation by more guests during more dayparts.

"We are very encouraged by the results of these changes, which began late in the fourth quarter and have continued to date," Mr. Murphy said. "For 2008, we have limited our exposure to wheat price increases to approximately $6.6 million when compared to our actual costs in 2007. With a measure of cost certainty in place, we have the flexibility to strategically improve our margins through pricing and new menu offerings."


Comparable store sales grew by 3.2% in the fourth quarter, the 13th consecutive quarter of sales growth in company-owned restaurants. The strong comparable store sales demonstrated the appeal of the Einstein Bros., Noah's and Manhattan Bagel brands as well as their product offerings.

Fourth quarter revenue from company-owned restaurants increased 4.7% to $96.7 million from $92.4 million. The 2007 figure includes $1.3 million of gift-card breakage. The Company opened seven new company-owned restaurants in the quarter, six of which were opened in December. In addition, the Company completed the planned closure of four underperforming company-owned restaurants.

Cost of sales for company-owned restaurants increased 7.9% to $76.1 million from $70.5 million in the same quarter a year ago. While wheat was a contributor to the increased cost of sales, agricultural commodities in general caused costs to increase.

Income from operations decreased to $8.8 million compared with $10.9 million in the same quarter last year, due to an increase in the cost of commodities and one-time charges that increased general and administrative expenses. In addition, the fourth quarter of 2006 benefited from an approximate $1.0 million reduction in workers compensation expense.

"Our results in the fourth quarter were impacted by certain one-time, pre-tax items," said Rick Dutkiewicz, Chief Financial Officer. "We incurred approximately $0.5 million of manufacturing systems and distribution conversion charges, $0.3 million of facility and sales tax adjustments and $0.3 million of other charges. These charges were partially offset by a one-time $0.8 million benefit related to our gift card breakage. The reorganization and realignment of our operations' supervisory and support personnel resulted in approximately $1.2 million of additional costs and margin impact that occur naturally in a transition period."

Reported net income was $6.8 million, up 12.4% from $6 million in the same quarter last year. Diluted earnings per share was $0.41 in the fourth quarter, compared with $0.54 per share in the fourth quarter of 2006, due in part to an increase in common shares outstanding from our secondary offering in June 2007.

"We're pleased with the fourth quarter results, given the difficult environment for the restaurant industry," Mr. Murphy said. "Furthermore, as Rick noted, our fourth quarter results include substantial costs associated with a dramatic reorganization of our field operations to provide sharper focus and accountability around both the financial performance and the guest experience."

"The good news is the field reorganization clearly gained traction by mid-December and, as of the end of February, we have seen 10 weeks of significantly improved margin performance. As such, we are optimistic about the Company's prospects in 2008 and beyond."


Despite the challenges facing the industry in the last half of 2007, the Company posted net income of $12.6 million for the year ended January 1, 2008, compared with a net loss of $6.9 million for the year ended January 2, 2007, an improvement of $19.5 million.

The Company achieved a 3.3% increase in revenues for the year to $402.9 million from $390.0 million in the previous year. The increase in revenues can be primarily attributed to growth in comparable store sales of 3.7% for the year. The Company's average unit volume in company-owned restaurants increased $43,000 to $909,000 for the year. During the year, it closed 13 underperforming company-owned restaurants and opened 12 new company-owned locations.

The Company's gross profit increased 2.9% to $80.9 million. Restaurant gross profit as a percentage of company-owned restaurant sales was 20.3% compared with 20.2% in the prior year.

Income from operations grew to $28.3 million in 2007 compared with $21.4 million in the prior year. While general and administrative expenses increased 8.4% or $3.2 million, the Company experienced a $1.9 million decrease in depreciation expense, a $3.9 million decrease in intangible amortization expense and a $2.0 million decrease in impairment charges.

Net interest expense also declined significantly to $12.4 million for the year from $19.6 million in 2006, as a result of the Company's equity offering, debt redemption and refinancing. In June 2007, the Company reset its capital structure to include a reduction in debt from $170.5 million to $90.6 million.

The Company increased its number of restaurant locations to 612 compared with 598 at the end of 2006. During 2007, the Company opened 31 licensed restaurants and 12 company-owned locations.

"In the face of the difficult environment, Einstein Noah Restaurant Group continues to strengthen its financial position," Mr. Dutkiewicz said. "Comparable store sales continue to increase on a quarter-over-quarter and year-over-year basis. Our net income continues to improve each year. We've posted net income growth in the fourth quarter and year to date. In addition, we believe our proactive measures taken in 2007 and early 2008 in terms of minimizing our exposure to agricultural commodities, delivering on our strategic initiatives, as well as reshaping our restaurant operational structure, will put us in position to deliver strong financial performance for 2008 and beyond."


The Company will conduct a conference call and Webcast today at 3 p.m. Mountain Time (5 p.m. Eastern Time).

The call-in numbers for the conference call are 877-381-6509 for domestic toll free and 706-679-7388 for international. The conference ID number is 36239437. A telephone replay will be available through March 12, 2008, and may be accessed by calling 800-642-1687 for domestic toll free or 706-645-9291 for international. The conference ID number is 36239437.

To access a live Webcast of the call, please visit Einstein Noah's Website at http://www.einsteinnoah.com. A replay of the Webcast will be available on the Website.

About Einstein Noah Restaurant Group

Einstein Noah Restaurant Group Inc. is a leading company in the quick casual restaurant industry that operates locations primarily under the Einstein Bros.(R) Bagels and Noah's New York Bagels(R) brands and primarily franchises locations under the Manhattan Bagel(R) brand. The company's retail system consists of more than 600 restaurants, including more than 100 license locations, in 35 states plus the District of Columbia. It also operates a dough production facility. The company's stock is traded under the symbol BAGL. Visit http://www.einsteinnoah.com for additional information.

Certain statements in this press release constitute forward-looking statements or statements which may be deemed or construed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words "forecast," "estimate," "project," "plan to," "is designed to," "expectations," "prospects," "intend," "indications," "expect," "should," "would," "believe," "target," "trend," "contemplate," "set the foundation for" and similar expressions and all statements which are not historical facts are intended to identify forward-looking statements. These forward-looking statements involve and are subject to known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance (financial or operating), or achievements to differ from the future results, performance (financial or operating), or achievements expressed or implied by such forward-looking statements. These factors include but are not limited to (i) the results for period over period revenue, gross profit, operating income, net income, depreciation and amortization, comparable store sales and recent improved margin performance are not necessarily indicative of future results and are subject to shifting consumer preferences, economic conditions, weather, and competition, among other factors; (ii) the results for the 2007 fourth quarter and the past 10 weeks are not necessarily indicative of future results, which are subject to a variety of factors, including consumer preferences and the economy and increasing utility and other costs, and other seasonal effects; (iii) the ability to develop and open new company-owned, licensed and franchise restaurants and continue our development program for company-owned restaurants and opportunities for franchise and licensed locations are dependent upon the availability of capital, the availability of desirable locations, reaching favorable lease terms, as well as the availability of contractors and materials, and ability to obtain necessary permits and licenses; (iv) our ability to grow is dependent on many factors including our ability to train personnel, the availability of products, our ability to develop new menu items and to produce those items in the restaurants, and the availability of capital and consumer acceptance; (v) our estimates of the impact of commodity prices are subject to the volume of purchases, among other factors; (vi) our ability to improve our margins and to manage costs is subject to a variety of factors mentioned herein including the cost of labor and raw materials and the results of our field reorganization; (vii) our ability to implement and maintain price increases, among other factors, is subject to consumer acceptance; (viii) our ability to deliver an exceptional guest experience is dependent on several factors including our hospitality initiatives; (ix) our optimism about our prospects, including our belief that proactive measures to minimize our exposure to price fluctuations in commodities and reshaping our operational structure will allow us to deliver strong performance in 2008 and beyond is subject to all of the factors in this paragraph and the ability to execute our strategy and deliver exceptional food and service, the ability to continue expanding operations and improving the Company's revenue and profitability, and other performance factors. These and other risks are more fully discussed in the Company's SEC filings.

Peter Jakel
Communications Manager

Rick Dutkiewicz
Chief Financial Officer

JANUARY 2, 2007 AND JANUARY 1, 2008
(in thousands, except earnings per share and related share information)

Fourth quarter ended: Year to date ended:
----------------------- -----------------------
January 2, January 1, January 2, January 1,
2007 2008 2007 2008
---------- ---------- ---------- ----------
restaurant sales $92,399 $96,714 $363,699 $372,997
Manufacturing and
commissary revenues 5,351 6,795 21,076 24,204
Franchise and license
related revenues 1,428 1,705 5,187 5,701
---------- ---------- ---------- ----------
Total revenues 99,178 105,214 389,962 402,902

Cost of sales:
restaurant costs 70,499 76,064 290,176 297,180
Manufacturing and
commissary costs 5,202 7,660 21,154 24,792
---------- ---------- ---------- ----------
Total cost of sales 75,701 83,724 311,330 321,972

Gross profit:
21,900 20,650 73,523 75,817
Manufacturing and
commissary 149 (865) (78) (588)
Franchise and license 1,428 1,705 5,187 5,701
---------- ---------- ---------- ----------
Gross Profit 23,477 21,490 78,632 80,930

Operating expenses:
General and
expenses 7,446 9,254 37,484 40,635
Depreciation and
amortization 2,711 3,282 16,949 11,192
Loss on sale, disposal
or abandonment of
assets, net 287 172 493 601
Impairment charges
and other related
costs 2,134 23 2,268 236
---------- ---------- ---------- ----------
Income from operations 10,899 8,759 21,438 28,266
Other expense:
Interest expense, net 4,885 1,702 19,555 12,387
Write-off of debt
discount upon
redemption of
senior notes - - - 528
Prepayment penalty
upon redemption of
senior notes - - 4,800 240
Write-off of debt
issuance costs upon
redemption of
senior notes - - 3,956 2,071
Other, net - - (5) -
---------- ---------- ---------- ----------
Income (loss) before
taxes 6,014 7,057 (6,868) 13,040
Provision for income
taxes - 296 - 454
---------- ---------- ---------- ----------
Net income (loss) $6,014 $6,761 $(6,868) $12,586
========== ========== ========== ==========
Net income (loss) per
common share
- Basic $0.57 $0.43 $(0.66) $0.93
========== ========== ========== ==========
Net income (loss) per
common share
- Diluted $0.54 $0.41 $(0.66) $0.88
========== ========== ========== ==========

Weighted average number
of common shares
Basic 10,596,266 15,837,211 10,356,415 13,497,841
========== ========== ========== ==========
Diluted 11,110,643 16,623,629 10,356,415 14,235,625
========== ========== ========== ==========

(in thousands, except share information)

January 2, January 1,
2007 2008
---------- ----------
Current assets:
Cash and cash equivalents $5,477 $9,436
Restricted cash 2,403 1,203
Franchise and other receivables, net of
allowance of $505 and $606, respectively 6,393 7,807
Inventories 4,948 5,313
Prepaid expenses and other current assets 4,529 5,281
Assets held for sale 1,144 -
---------- ----------
Total current assets 24,894 29,040

Restricted cash long-term 284 -
Property, plant and equipment, net 33,889 47,714
Trademarks and other intangibles, net 63,806 63,831
Goodwill 4,875 4,981
Debt issuance costs and other assets, net 5,406 2,996
---------- ----------
Total assets $133,154 $148,562
========== ==========

Current liabilities:
Accounts payable $3,347 $5,072
Accrued expenses and other current
liabilities 25,855 19,279
Short term debt and current portion
of long-term debt 3,605 955
Current portion of obligations under
capital leases 76 80
---------- ----------
Total current liabilities 32,883 25,386

Senior notes and other long-term debt,
net of discount 166,556 88,875
Long-term obligations under capital leases 124 67
Other liabilities 8,822 10,841
Mandatorily redeemable, Series Z Preferred
Stock, $0.001 par value, $1,000 per share
liquidation value; 57,000 shares authorized;
57,000 shares issued and outstanding 57,000 57,000
---------- ----------
Total liabilities 265,385 182,169
---------- ----------
Commitments and contingencies

Stockholders' deficit:
Series A junior participating preferred
stock, 700,000 shares authorized; no shares
issued and outstanding
Common stock, $0.001 par value; 25,000,000
shares authorized; 10,596,419 and 15,878,811
shares issued and outstanding 11 16
Additional paid-in capital 176,797 262,830
Accumulated deficit (309,039) (296,453)
---------- ----------
Total stockholders' deficit (132,231) (33,607)
---------- ----------
Total liabilities and stockholders'
deficit $133,154 $148,562
========== ==========

JANUARY 3, 2006, JANUARY 2, 2007 AND JANUARY 1, 2008
(in thousands)

January 3, January 2, January 1,
2006 2007 2008
---------- ---------- ---------
Net income (loss) $(14,018) $(6,868) $12,586
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 26,316 16,949 11,192
Stock based compensation expense 69 654 1,688
Loss, net of gains, on disposal of
assets 314 493 601
Impairment charges and other
related costs 1,603 2,268 236
Charges of integration and
reorganization costs 5 - -
Provision for losses on accounts
receivable, net (158) 133 101
Amortization of debt issuance and
debt discount costs 1,848 817 651
Write-off of debt issuance costs - 3,956 2,071
Write-off of debt discount - - 528
Paid-in-kind interest - 1,591 904
Changes in operating assets and
Restricted cash 646 462 1,484
Franchise and other receivables 1,775 (1,020) (1,515)
Accounts payable and accrued
expenses (12,565) (5,706) (2,387)
Other assets and liabilities (3,760) 267 (3,254)
---------- ---------- ---------
Net cash provided by operating
activities 2,075 13,996 24,886

Purchase of property and equipment (10,264) (13,172) (25,869)
Proceeds from the sale of equipment 180 209 1,168
Acquisition of restaurant assets - - (375)
---------- ---------- ---------
Net cash used in investing
activities (10,084) (12,963) (25,076)

Proceeds from secondary common stock
offering - - 90,000
Costs incurred with offering of our
common stock - - (6,667)
Proceeds from line of credit 5,455 24 -
Repayments of line of credit (5,470) (24) -
Repayments of other borrowings (312) (280) (280)
Payments under capital lease obligations - (53) (53)
Repayment of notes payable - (160,000) -
Borrowings under First Lien - 80,000 11,900
Repayments under First Lien - (1,425) (925)
Borrowing under Second Lien - 65,000 -
Repayments under Second Lien - - (65,000)
Borrowings under Subordinated Note - 24,375 -
Repayments under Subordinated Note - - (25,000)
Debt issuance costs (81) (4,923) (843)
Proceeds upon stock option and
warrant exercises 221 194 1,017
---------- ---------- ---------
Net cash provided by (used in)
financing activities (187) 2,888 4,149

Net increase (decrease) in cash and
cash equivalents (8,196) 3,921 3,959
Cash and cash equivalents, beginning
of period 9,752 1,556 5,477
---------- ---------- ---------
Cash and cash equivalents, end of
period $1,556 $5,477 $9,436
========== ========== =========

SOURCE Einstein Noah Restaurant Group, Inc.



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