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:

  • 3.6% increase in comparable store sales at company-owned restaurants.
  • 14th consecutive quarter of positive comparable store sales growth.
  • Average unit volume for company-owned restaurants increased $10,000 to
    $919,000 for the trailing four quarters.
  • 7.3% revenue growth to $103.3 million from $96.3 million in the first
    quarter of 2007.
  • 239% net income growth to $3.8 million, compared with $1.1 million the
    first quarter of 2007.
  • Diluted EPS of $0.23.
  • Opened our first Einstein Bros. franchised location, three new
    company-owned restaurants and four new licensed locations.[/ul

    LAKEWOOD, Colo., May 7 // PRNewswire-FirstCall // -- Despite the difficult operating environment characterized by heavy cost pressure from agricultural commodities and soft consumer spending, Einstein Noah Restaurant Group (Nasdaq: BAGL) today posted strong results for the first quarter ended April 1, 2008. The Company posted its 14th consecutive quarter of positive comparable store sales, an overall increase of 7% in revenue and a 239% improvement in net income compared with the same period a year ago.

    "Thanks in large part to our increased same store sales and our efforts in 2007 and early 2008 to lock in the cost of wheat, implement a well-timed price increase and introduce a revamped menu, our results for the first quarter of 2008 reflect impressive financial performance. We are in a growth mode during a time when most companies are pulling back," said Paul Murphy, President and Chief Executive Officer of Einstein Noah Restaurant Group. "I'm pleased with our ability to execute and deliver on the objective we set for the first quarter of 2008."

    During the quarter, and in spite of heavy cost pressure from agricultural commodities, increased compensation costs for bonuses in the quarter, and certain one-time charges equaling about $250,000 in the quarter, the Company held gross profit and income from operations relatively flat. Furthermore, we have begun to enter into wheat purchases for the first quarter of 2009 at or below the cost we experienced in the current quarter.

    At the same time, revenues increased to $103.3 million from $96.3 million last year, net income grew 239% to $3.8 million from $1.1 million in the same period a year ago and average unit volume increased $10,000 to $919,000 from $909,000 for the trailing four quarters.

    In addition, the company opened three new company-owned restaurants, four license locations and the first Einstein Bros. franchise restaurant in Jacksonville, Fla.

    "The entire organization has been focused on keeping costs down during difficult economic times, while at the same time investing in areas that are designed to continue to grow the business," said Rick Dutkiewicz, Chief Financial Officer of Einstein Noah Restaurant Group. "In addition to the efforts from our operational personnel to greatly enhance our profitability, we recently entered into an interest rate swap to fix $60 million of our floating rate debt through August 2010 at a LIBOR rate of 3.52% plus an applicable margin. This will provide us a measure of cost certainty on our interest expense for the next couple of years."

    During the first quarter of 2008, Einstein Noah Restaurant Group generated $11.3 million in cash from operating activities, which was 77% more than the $6.4 million generated in the same period a year ago.

    "Our financial performance in the first quarter has prepared us to invest in our growth strategy for the remainder of 2008," Mr. Murphy said. "I look forward to the investments we plan on making in the right areas to continue to grow the business."


    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 1-866-225-8754 for domestic toll free and 1-480-629-9562 for international. No conference ID is necessary to join the call. A telephone replay will be available through May 21, 2008, and may be accessed by calling 1-800-406-7325 for domestic toll free or 1-303-590-3030 for international. The conference access code is 3872303.

    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 for at least four weeks.

    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 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 2008 first quarter 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 optimism about our prospects, including our belief that proactive measures to minimize our exposure to price fluctuations in commodities 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.

    (In thousands, except earnings per share and related share information)

    First quarter ended:
    First quarter ended: Increase/ (percent of total
    (in thousands of dollars) (Decrease) revenue)
    ------------------------ --------- -------------------
    April 3, April 1, 2008 April 3, April 1,
    2007 2008 vs. 2007 2007 2008
    --------- --------- --------- --------- ---------
    sales $89,115 $93,610 5.0% 92.6% 90.7%
    and commissary
    revenues 5,818 8,088 39.0% 6.0% 7.8%
    Franchise and
    license related
    revenues 1,322 1,566 18.5% 1.4% 1.5%
    --------- --------- --------- --------- ---------
    Total revenues 96,255 103,264 7.3% 100.0% 100.0%

    Cost of sales:
    Company-owned restaurant costs
    Cost of goods
    sold 26,274 27,985 6.5% 27.3% 27.1%
    Labor costs 26,606 28,950 8.8% 27.6% 28.0%
    Other operating
    costs 8,771 8,878 1.2% 9.1% 8.6%
    Rent and related,
    and marketing
    costs 9,681 10,012 3.4% 10.1% 9.7%
    --------- --------- --------- --------- ---------
    Total company-owned
    restaurant costs 71,332 75,825 6.3% 74.1% 73.4%

    and commissary
    costs 5,422 7,860 45.0% 5.6% 7.6%
    --------- --------- --------- --------- ---------
    Total cost of sales 76,754 83,685 9.0% 79.7% 81.0%

    Gross profit:
    restaurant 17,783 17,785 0.0% 18.5% 17.2%
    Manufacturing and
    commissary 396 228 (42.4%) 0.4% 0.2%
    Franchise and license 1,322 1,566 18.5% 1.4% 1.5%
    --------- --------- --------- --------- ---------
    Total gross profit 19,501 19,579 0.4% 20.3% 18.9%

    Gross profit percentages:
    restaurant 20.0% 19.0% (4.8%) * *
    Manufacturing and
    commissary 6.8% 2.8% (58.6%) * *
    Franchise and
    license 100.0% 100.0% * * *

    Operating expenses:
    General and
    expenses 10,731 10,743 0.1% 11.1% 10.4%
    Depreciation and
    amortization 2,419 3,204 32.5% 2.5% 3.1%
    Loss on sale, disposal
    or abandonment of
    assets, net 374 69 (81.6%) 0.4% 0.1%
    Impairment charges and
    other related costs 19 - * 0.0% 0.0%
    --------- --------- --------- --------- ---------
    Income from operations 5,958 5,563 (6.6%) 6.2% 5.4%
    Other expense:
    Interest expense,
    net 4,789 1,579 (67.0%) 5.0% 1.5%
    --------- --------- --------- --------- ---------
    Income before taxes 1,169 3,984 240.8% 1.2% 3.9%
    Provision for income
    taxes 37 142 283.8% 0.0% 0.1%
    --------- --------- --------- --------- ---------
    Net income $1,132 $3,842 239.4% 1.2% 3.7%
    ========= ========= ========= ========= =========

    Net income per
    common share - Basic $0.11 $0.24 118.2% * *
    Net income per common
    share - Diluted $0.10 $0.23 130.0% * *

    Weighted average number of common shares outstanding:

    Basic 10,605,626 15,890,879 49.8% * *
    Diluted 11,136,699 16,451,556 47.7% * *

    * not meaningful

    AS OF JANUARY 1, 2008 AND APRIL 1, 2008
    (in thousands, except share information)

    January 1, April 1,
    2008 2008
    ---------- ----------
    Current assets:
    Cash and cash equivalents $9,436 $13,945
    Restricted cash 1,203 1,170
    Franchise and other receivables, net of
    allowance of $606 and $582, respectively 7,807 7,808
    Inventories 5,313 5,042
    Prepaid expenses and other current assets 5,281 4,791
    ---------- ----------
    Total current assets 29,040 32,756

    Property, plant and equipment, net 47,714 49,599
    Trademarks and other intangibles, net 63,831 63,831
    Goodwill 4,981 4,981
    Debt issuance costs and other assets, net 2,996 2,992
    ---------- ----------
    Total assets $148,562 $154,159
    ========== ==========
    Current liabilities:
    Accounts payable $5,072 $4,481
    Accrued expenses and other current
    liabilities 19,279 22,068
    Short term debt and current portion of
    long-term debt 955 1,180
    Current portion of obligations under capital
    leases 80 79
    ---------- ----------
    Total current liabilities 25,386 27,808

    Senior notes and other long-term debt 88,875 87,425
    Long-term obligations under capital leases 67 48
    Other liabilities 10,841 10,953
    Mandatorily redeemable, Series Z Preferred
    Stock, $.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 182,169 183,234
    ---------- ----------
    Commitments and contingencies

    Stockholders' deficit:
    Series A junior participating preferred stock,
    700,000 shares authorized; no shares issued
    and outstanding
    Common stock, $.001 par value; 25,000,000 shares
    authorized; 15,878,811 and 15,923,227 shares
    issued and outstanding 16 16
    Additional paid-in capital 262,830 263,520
    Accumulated deficit (296,453) (292,611)
    ---------- ----------
    Total stockholders' deficit (33,607) (29,075)
    ---------- ----------
    Total liabilities and stockholders'
    deficit $148,562 $154,159
    ========== ==========

    APRIL 3, 2007 AND APRIL 1, 2008
    (in thousands)

    April 3, April 1,
    2007 2008
    ---------- ----------
    Net income $1,132 $3,842
    Adjustments to reconcile net income
    to net cash provided by operating
    Depreciation and amortization 2,419 3,204
    Stock based compensation expense 331 506
    Loss, net of gains, on disposal of assets 374 69
    Impairment charges and other related costs 19 -
    Provision for losses on accounts receivable,
    net 26 (24)
    Amortization of debt issuance and debt
    discount costs 201 113
    Paid-in-kind interest 487 -
    Changes in operating assets and liabilities:
    Restricted cash - 33
    Franchise and other receivables 540 23
    Accounts payable and accrued expenses 2,358 2,890
    Other assets and liabilities (1,450) 659
    ---------- ----------

    Net cash provided by operating
    activities 6,437 11,315

    Purchase of property and equipment (6,228) (5,742)
    Proceeds from the sale of equipment 32 4
    Acquisition of restaurant assets - (7)
    ---------- ----------

    Net cash used in investing
    activities (6,196) (5,745)

    Costs incurred with offering of our common
    stock (166) -
    Payments under capital lease obligations (17) (20)
    Repayments under First Lien (475) (1,225)
    Proceeds upon stock option exercises 62 184
    ---------- ----------

    Net cash used in financing
    activities (596) (1,061)

    Net (decrease) increase in cash and cash
    equivalents (355) 4,509
    Cash and cash equivalents, beginning of
    period 5,477 9,436
    ---------- ----------
    Cash and cash equivalents, end of period $5,122 $13,945

    ========== ==========

    SOURCE Einstein Noah Restaurant Group



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