Einstein Noah: net falls seven percent in Q2/2009

Lakewood / CO. (enr) Einstein Noah Restaurant Group, a leader in the quick-casual segment of the restaurant industry operating, reported financial results for the second quarter ended June 30, 2009. Selected Highlights for Q2/2009:

• Substantial improvement in company-owned restaurant operating margins of 19,2 percent drove overall corporate margins back to 20 percent in the second quarter;
• total revenues declined a modest 1,0 million USD to 104,4 million USD versus 105,4 million USD in the second quarter of 2008;
• system-wide comparable store sales decreased 2,2 percent, a 150 basis point improvement over the first quarter trend;
• Net income and diluted EPS of 6,5 million USD and 0,39 USD, respectively, versus net income and diluted EPS of 6,9 million USD and 0,42 USD in the second quarter of 2008;
• redeemed 20 million USD in Series Z Preferred Stock on June 30, 2009.

Jeff O´Neill, Chief Executive Officer and President of Einstein Noah: «Our comparable store sales and transaction performance continued to show improvement during the second quarter, despite the economic slowdown. We are encouraged by the early acceptance of our new marketing and merchandising initiatives. They are designed to build awareness, trial, and frequency of our core offerings and new product launches. In addition, the operational initiatives we put in place helped to drive margin improvement by 430 basis points compared to the first quarter which demonstrated strong progress toward our goal of returning margins back to historical levels through the balance of the year. While there is still much work ahead, we are confident that Einstein Noah has the brands, the people, and the value proposition to become a premier destination within the fast casual restaurant segment».

Second Quarter 2009 Financial Results

For the second quarter of 2009, system-wide comparable store sales decreased 2,2 percent while total revenues fell a modest 1,0 percent to 104,4 million USD from 105,4 million USD in the second quarter of 2008. Company-owned restaurant sales decreased 1,3 percent to 95,1 million USD, mostly as a result of a 3,2 percent decrease in comparable store sales, which was partially offset by a net increase of six additional company-owned restaurants since July 1, 2008. The Company continued to invest in marketing initiatives to build traffic and drive awareness of its brands. Marketing initiatives and coupon-related discounts increased 0,5 million USD and 1,0 million USD, respectively compared to 2008. Company-owned restaurant gross profit was 18,2 million USD, or 19,2 percent in the second quarter of 2009, compared to 19,7 million USD, or 20,4 percent in the second quarter of 2008.

As a percentage of sales, company-owned restaurant cost of goods sold were favourable by 100 basis points in the second quarter of 2009 compared to 2008, and the Company continues to expect the cost of major agricultural commodities to decrease approximately 0,9 million USD in the back half of 2009 compared to the same period in 2008. In addition, the Company implemented several productivity improvements in the areas of SKU rationalization, labor efficiencies and food cost management during the quarter. These initiatives, coupled with a modest price advance of 1,6 percent, had a favourable impact in the second quarter of 2009 and are expected to continue to improve store level margins through the balance of 2009.

New Units and Development

Franchise and license locations continued a trend of positive comparable store sales, posting a 2,2 percent increase for the second quarter of 2009. The Company also benefitted from a net increase of 28 additional license restaurants and two franchise restaurants since July 01, 2008. The effect of the new locations and comparable store sales helped drive franchise and license related revenues up 16,5 percent to 1,7 million USD in the second quarter of 2009.

Restaurant openings during the second quarter of 2009 consisted of one Einstein Bros. company-owned restaurant, one Einstein Bros. franchise restaurant, and seven Einstein Bros. licensed restaurants. Two Einstein Bros. company-owned restaurants and one Einstein Bros. licensed restaurant were closed during the quarter.

For the remainder of 2009, the Company anticipates the opening of five new company-owned Einstein Bros. restaurants, four to six additional franchised Einstein Bros. restaurants, and 18 to 23 additional Einstein Bros. licensed restaurants. The development pipeline for company-owned, franchised and licensed Einstein Bros. restaurants continues to expand, creating an inventory of future locations.