Einstein Noah Restaurant Group Reports Third Quarter Financial Results

Generated $33.7 million of cash flow from operations through September 30, 2008, resulting in an unrestricted cash balance of $22.2 million

Lakewood, Colo., // PRNewswire-FirstCall // -- Einstein Noah Restaurant Group (Nasdaq: BAGL), a leader in the quick-casual segment of the restaurant industry operating primarily under the Einstein Bros.(R) Bagels, Noah's New York Bagels(R), and Manhattan Bagel(R) brands, today reported financial results for the third quarter ended September 30, 2008.

Selected Highlights for the Third Quarter Compared to the Year-Ago Period:

  • Total revenue growth of 0.5% to $100.9 million from $100.4 million
  • Comparable store sales decrease of 1.7%, primarily due to reduced hours of operation
  • Gross profit of $19.2 million vs. $19.5 million
  • Income from operations of $6.0 million, including a $1.9 million charge related to two California wage and hour settlements vs. $6.8 million
  • Net income and diluted EPS of $4.5 million and $0.28, respectively, vs. net income and diluted EPS of $4.9 million and $0.30
  • Diluted EPS of $0.28 also included the two aforementioned California wage and hour settlement charges of approximately $0.11 per diluted share
  • Generated $11.0 million of cash flow from operations in the current and prior year quarters and have an unrestricted cash balance of $22.2 million on September 30, 2008

As of September 30, 2008, we owned and operated a total of 418 locations, including 339 Einstein Bros.(R) Bagels, 77 Noah's New York Bagels(R), and one Manhattan Bagel(R). We franchise two Einstein Bros. restaurants and 69 Manhattan Bagel restaurants, as well as license 140 Einstein Bros. restaurants and three Noah's restaurants. In addition, we have one restaurant operated under New World Coffee, our non-core brand.

Paul Murphy, chief executive officer and president of Einstein Noah, said, "Overall, our third quarter performance underscores our ability to successfully operate in a very tough consumer environment. We were especially satisfied with our income from operations in the quarter, in light of the $1.9 million charge for the two California wage and hour legal settlements. Additionally, free cash flow generated during the quarter exceeded $3.8 million, which is a testament to the inherent soundness of our business model."

Murphy continued, "Quarterly results aside, we continue to focus on what's best for the long term health of the business. This means terrific food and service and making our fast-casual, morning offering unique relative to our peers. I strongly believe we're succeeding on that point and look forward to continued strategic progress in 2009. Ultimately, we understand the severity of the current macro economic climate, but believe we're in a defensive day part with a solid pricing strategy. These attributes position us well to build our brand and cash balance as we move forward."

For the third quarter of 2008, total revenues increased 0.5% to $100.9 million from $100.4 million in the third quarter last year. Company-owned restaurant sales fell 0.7% to $92.4 million from $93.0 million, including a 1.7% decrease in comparable store sales. The decline was the result of a 10.7% decrease in the volume of units sold, which was mostly due to a decrease in hours of operation and from the economic climate and its negative impact on consumer discretionary spending. However, this was partially offset by system-wide price increases of 5.8% since October 2, 2007 and a 4.3% shift in product mix to higher priced items.

As outlined in the Company's second quarter 2008 earnings release, management deliberately reduced hours of operation, resulting in a decrease in comparable stores sales. In addition, states most affected by the subprime mortgage crises, particularly Southern California, Arizona, Nevada and Florida, collectively generated comparable store sales below the quarterly average at negative 3.4%.

Our upgraded restaurants experienced stronger comparable store sales again in the third quarter of 2008, which included some units that were affected by the housing downturn, and outperformed all other Einstein Bros. stores by 3.2%.

Company-owned restaurant gross profit was $17.2 million in the third quarter of 2008, compared to $18.5 million in the same period last year.

Manufacturing and commissary revenues increased 18.3% to $7.0 million in the third quarter of 2008, compared to $5.9 million in the same period last year. Manufacturing and commissary gross profit was $0.5 million, compared to a $0.4 million loss in the same period last year.

We benefited from a significant reduction in general and administrative expenses, to $7.7 million in the third quarter of 2008 from $9.8 million in the year-ago period.

Net income was $4.5 million in the third quarter of 2008, or $0.28 per diluted share, compared to net income of $4.9 million, or $0.30 per diluted share, in the same period last year. We were negatively impacted by higher depreciation and amortization expenses, in addition to the $1.9 million charge related to two California legal settlements, for which there was no comparable charge in the same period last year.

Rick Dutkiewicz, chief financial officer of Einstein Noah, said, "Looking to 2009, we are focused on cash generation and balance sheet strength and we're confident in our plan to maintain long term flexibility. As of the end of the third quarter, we had generated more than $14.0 million in free cash flow for the year, and continue to add to our balance of $22.2 million in unrestricted cash. If necessary, we also have levers at our disposal to adjust spending should that be necessary, although we are confident that our cost structure and price points will help protect margins. We look forward to the new year and updating the markets on our progress."

2008 Update

In 2008, we plan to open at least 17 new company-owned restaurants, nine of which had been opened by September 30, 2008.

We have opened two franchise restaurants in 2008, and have three locations in various stages of development during the fourth quarter of 2008, with openings scheduled for the first half of 2009.

Through September 30, 2008, we opened 22 Einstein Bros. license restaurants. We plan to open an additional 10 to 13 license restaurants in the fourth quarter of 2008. The license restaurants are located primarily in airports, colleges and universities, office buildings, hospitals and military bases and on turnpikes.

Conference Call Today

We will host a conference call to discuss third quarter 2008 financial results today at 3:00 p.m. Mountain Time (5:00 p.m. Eastern Time). Hosting the call will be Paul Murphy, chief executive officer and president, and Richard Dutkiewicz, chief financial officer.

The dial-in numbers for the conference call are 1-800-762-8973 for domestic toll-free calls and 1-480-248-5085 for international. The conference ID is 3934899. A telephone replay will be available through December 6, 2008, and may be accessed by dialing 1-800-406-7325 for domestic toll-free calls or 1-303-590-3030 for international. The conference replay access code is 3902939.

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

About Einstein Noah Restaurant Group

Einstein Noah Restaurant Group 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 36 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 our expectations for fourth quarter 2008 and 2009 results, are subject to shifting consumer preferences, economic conditions, weather, and competition, among other factors; (ii) the results for the 2008 third 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 franchised restaurants and continue our development program for company-owned restaurants and opportunities for franchised 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 attract and 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 success in keeping our morning offerings unique, our defensive position in that daypart and our pricing strategy are subject also to consumer preferences and economic conditions, among other factors; (vi) our ability to maintain long-term flexibility by cash generation and controlling costs and, in turn, to maintain margins is subject to a variety of factors mentioned above including the cost of labor and raw materials, consumer spending and general economic and market conditions. These and other risks are more fully discussed in the Company's SEC filings.


Contacts:
Investor Relations
Tom Ryan
203-682-8200
tryan@icrinc.com

Raphael Gross
203-682-8200
rgross@icrinc.com

Rick Dutkiewicz
Chief Financial Officer
303-568-8004
rdutkiewicz@einsteinnoah.com



EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
(unaudited)

13 weeks
Increase/ ended
13 weeks ended (Decrease) (percent of
(dollars in thousands) total revenue)
-------------------- -------- -------------
2008
Oct. 2, Sept. 30, vs. Oct. 2, Sept. 30,
2007 2008 2007 2007 2008
---- ---- ---- ---- ----
Revenues:
Company-owned restaurant
sales $93,026 $92,400 (0.7%) 92.7% 91.6%
Manufacturing and
commissary revenues 5,910 6,991 18.3% 5.9% 6.9%
Franchise and license
related revenues 1,442 1,504 4.3% 1.4% 1.5%
------- ------- ------- ------- -------
Total revenues 100,378 100,895 0.5% 100.0% 100.0%

Cost of sales:
Company-owned restaurant
costs
Cost of goods sold 27,504 27,602 0.4% 27.4% 27.4%
Labor costs 27,490 27,313 (0.6%) 27.4% 27.1%
Other operating costs 9,556 9,934 4.0% 9.5% 9.8%
Rent and related, and
marketing costs 9,977 10,340 3.6% 9.9% 10.2%
------- ------- ------- ------- -------
Total company-owned
restaurant costs 74,527 75,189 0.9% 74.2% 74.5%

Manufacturing and
commissary costs 6,330 6,523 3.0% 6.3% 6.5%
------- ------- ------- ------- -------
Total cost of sales 80,857 81,712 1.1% 80.6% 81.0%

Gross profit:
Company-owned restaurant 18,499 17,211 (7.0%) 18.4% 17.0%
Manufacturing and
commissary (420) 468 ** (0.4%) 0.5%
Franchise and license 1,442 1,504 4.3% 1.4% 1.5%
------- ------- ------- ------- -------
Total gross profit 19,521 19,183 (1.7%) 19.4% 19.0%

Gross profit percentages:
Company-owned restaurant 19.9% 18.6% (6.5%) * *
Manufacturing and
commissary (7.1%) 6.7% ** * *
Franchise and license 100.0% 100.0% 0.0% * *

Operating expenses:
General and
administrative expenses 9,794 7,652 (21.9%) 9.8% 7.6%
California wage and hour
settlements - 1,900 ** 0.0% 1.9%
Depreciation and
amortization 2,868 3,644 27.1% 2.9% 3.6%
Loss on sale, disposal
or abandonment of
assets, net 25 (10) ** 0.0% (0.0%)
Impairment charges and
other related costs 28 - ** 0.0% 0.0%
------- ------- ------- ------- -------
Income from operations 6,806 5,997 (11.9%) 6.8% 5.9%
Other expense:
Interest expense, net 1,752 1,250 (28.7%) 1.7% 1.2%
------- ------- ------- ------- -------
Income before income taxes 5,054 4,747 (6.1%) 5.0% 4.7%
Provision for income
taxes 111 210 89.2% 0.1% 0.2%
------- ------- ------- ------- -------
Net income $4,943 $4,537 (8.2%) 4.9% 4.5%
======= ======= ======= ======= =======
Net income per common
share - Basic $0.31 $0.28 (9.7%) * *
Net income per common
share - Diluted $0.30 $0.28 (6.7%) * *

Weighted average number of
common shares
outstanding:
Basic 15,772,931 15,948,180 1.1% * *
Diluted 16,572,486 16,412,748 (1.0%) * *


* not applicable
** not meaningful



EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share and related share information)
(unaudited)

39 weeks
Increase/ ended
39 weeks ended (Decrease) (percent of
(dollars in thousands) total revenue)
-------------------- -------- -------------
2008
Oct. 2, Sept. 30, vs. Oct. 2, Sept. 30,
2007 2008 2007 2007 2008
---- ---- ---- ---- ----
Revenues:
Company-owned restaurant
sales $276,283 $282,331 2.2% 92.8% 91.2%
Manufacturing and
commissary revenues 17,409 22,719 30.5% 5.8% 7.3%
Franchise and license
related revenues 3,996 4,523 13.2% 1.3% 1.5%
------- ------- ------- ------- -------
Total revenues 297,688 309,573 4.0% 100.0% 100.0%

Cost of sales:
Company-owned restaurant
costs
Cost of goods sold 81,653 84,520 3.5% 27.4% 27.3%
Labor costs 82,663 84,464 2.2% 27.8% 27.3%
Other operating costs 27,055 28,111 3.9% 9.1% 9.1%
Rent and related, and
marketing costs 29,745 30,567 2.8% 10.0% 9.9%
------- ------- ------- ------- -------
Total company-owned
restaurant costs 221,116 227,662 3.0% 74.3% 73.5%

Manufacturing and
commissary costs 17,132 21,607 26.1% 5.8% 7.0%
------- ------- ------- ------- -------
Total cost of sales 238,248 249,269 4.6% 80.0% 80.5%

Gross profit:
Company-owned restaurant 55,167 54,669 (0.9%) 18.5% 17.6%
Manufacturing and
commissary 277 1,112 301.4% 0.1% 0.4%
Franchise and license 3,996 4,523 13.2% 1.3% 1.5%
------- ------- ------- ------- -------
Total gross profit 59,440 60,304 1.5% 20.0% 19.5%

Gross profit percentages:
Company-owned restaurant 20.0% 19.4% (3.0%) * *
Manufacturing and
commissary 1.6% 4.9% 206.3% * *
Franchise and license 100.0% 100.0% 0.0% * *

Operating expenses:
General and
administrative expenses 31,381 27,935 (11.0%) 10.5% 9.0%
California wage and hour
settlements - 1,900 ** 0.0% 0.6%
Depreciation and
amortization 7,910 10,193 28.9% 2.7% 3.3%
Loss (gain) on sale,
disposal or abandonment of
assets, net 429 122 (71.6%) 0.1% 0.0%
Impairment charges and
other related costs 213 54 (74.6%) 0.1% 0.0%
------- ------- ------- ------- -------
Income from operations 19,507 20,100 3.0% 6.6% 6.5%
Other expense:
Interest expense, net 10,685 4,157 (61.1%) 3.6% 1.3%
Write-off of debt
discount upon redemption of
senior notes 528 - ** 0.2% 0.0%
Prepayment penalty upon
redemption of
senior notes 240 - ** 0.1% 0.0%
Write-off of debt issuance
costs upon redemption of
senior notes 2,071 - ** 0.7% 0.0%
------- ------- ------- ------- -------
Income before income taxes 5,983 15,943 166.5% 2.0% 5.1%
Provision for income
taxes 158 650 311.4% 0.1% 0.2%
------- ------- ------- ------- -------
Net income $5,825 $15,293 162.5% 2.0% 4.9%
======= ======= ======= ======= =======
Net income per common
share - Basic $0.46 $0.96 108.7% * *
Net income per common
share - Diluted $0.43 $0.93 116.3% * *

Weighted average number of
common shares
outstanding:
Basic 12,718,051 15,921,645 25.2% * *
Diluted 13,436,884 16,425,235 22.2% * *

* not applicable
** not meaningful



EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

39 weeks ended
--------------
October 2, September 30,
2007 2008
---- ----
OPERATING ACTIVITIES:
Net income $5,825 $15,293
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 7,910 10,193
Stock-based compensation expense 1,588 877
Loss, net of gains, on disposal of
assets 429 122
Impairment charges and other
related costs 213 54
Provision for losses on accounts
receivable 25 98
Amortization of debt issuance and
debt discount costs 545 366
Write-off of debt issuance costs 2,071 -
Write-off of debt discount 528 -
Paid-in-kind interest 904 -
Changes in operating assets and
liabilities:
Restricted cash - 316
Franchise and other receivables 87 502
Accounts payable and accrued
expenses 1,973 4,873
Other assets and liabilities (2,829) 1,001
-------- --------
Net cash provided by operating
activities 19,269 33,695

INVESTING ACTIVITIES:
Purchase of property and equipment (18,255) (19,649)
Proceeds from the sale of equipment 1,166 17
Acquisition of restaurant assets - (7)
-------- --------
Net cash used in investing activities (17,089) (19,639)

FINANCING ACTIVITIES:
Proceeds from secondary common stock
offering 90,000 -
Costs incurred with offering of our
common stock (6,666) -
Payments under capital lease
obligations (58) (65)
Borrowings under First Lien Term Loan 11,900 -
Repayments under First Lien Term Loan (700) (1,675)
Repayments under Second Lien Term
Loan (65,000) -
Repayments under Subordinated Note (25,000) -
Debt issuance costs (921) -
Proceeds upon stock option exercises 779 398
-------- --------
Net cash provided by (used in)
financing activities 4,334 (1,342)

Net increase in cash and cash
equivalents 6,514 12,714
Cash and cash equivalents, beginning
of period 5,477 9,436
-------- --------
Cash and cash equivalents, end of
period $11,991 $22,150
======== ========



EINSTEIN NOAH RESTAURANT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
(Unaudited)

January 1, September 30,
2008 2008
ASSETS
Current assets:
Cash and cash equivalents $9,436 $22,150
Restricted cash 1,203 887
Franchise and other receivables, net
of allowance of $606 and $278,
respectively 7,807 7,207
Inventories 5,313 5,033
Prepaid expenses and other current
assets 5,281 4,684
--------- ---------
Total current assets 29,040 39,961

Property, plant and equipment, net 47,714 56,180
Trademarks and other intangibles, net 63,831 63,831
Goodwill 4,981 4,981
Debt issuance costs and other assets, net 2,996 2,769
--------- ---------
Total assets $148,562 $167,722
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $5,072 $4,976
Accrued expenses and other current
liabilities 19,279 23,375
Short-term debt and current portion
of long-term debt 955 9,180
Current portion of obligations under
capital leases 80 86
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
--------- ---------
Total current liabilities 25,386 94,617

Senior notes and other long-term debt 88,875 78,975
Long-term obligations under capital
leases 67 72
Other liabilities 10,841 11,386
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 -
--------- ---------
Total liabilities 182,169 185,050
--------- ---------
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
15,975,251 shares issued and outstanding 16 16
Additional paid-in capital 262,830 264,105
Accumulated other comprehensive loss - (289)
Accumulated deficit (296,453) (281,160)
--------- ---------
Total stockholders' deficit (33,607) (17,328)
--------- ---------
Total liabilities and
stockholders' deficit $148,562 $167,722
========= =========



SOURCE Einstein Noah Restaurant Group

###

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