News

Einstein Noah earnings flat, franchise revenues up 12%

November 4, 2010

Einstein Noah Restaurant Group Inc. reported financial results for the third quarter ended September 28, 2010.

The company operates under the Einstein Bros. Bagels, Noah's New York Bagels and Manhattan Bagel brands.

For the third quarter, system-wide same-store sales increased 0.7 percent, driven by an increase in traffic growth through the quarter. Comps at company-owned locations were relatively flat (-0.2%), and reflected a 200 basis point improvement from a 2.2 percent decrease in same-store sales in the second quarter of 2010.

Total revenues increased 1.3 percent to $101.4 million, compared to $100.0 million in the third quarter of 2009. Company-owned restaurant sales increased to $91.8 million from $91.2 million reported in the same quarter last year.

As a percentage of company-owned restaurant sales, cost of goods sold were 28.4 percent, favorable by 40 basis points; labor costs were 29.6 percent, favorable by 90 basis points; while other operating costs were 11.0 percent, 40 basis points higher compared to last year.

The company also invested $1.8 million in marketing initiatives during the third quarter of 2010 compared to $1.4 million last year to build traffic and drive awareness of its brands.

Adjusted EBITDA grew 3.1 percent to $10.9 million in the third quarter of 2010, compared to $10.5 million in the third quarter of 2009.

Adjusted net income increased to $3.4 million, or $0.20 in adjusted diluted EPS, in the third quarter of 2010, compared to $2.5 million, or $0.15 in adjusted diluted EPS, in the third quarter of 2009.

Growth & development

Restaurant openings during the third quarter of 2010 consisted of 17 Einstein Bros. units, including 1 franchise restaurant and 16 license restaurants.

In the trailing 12 months since Sept. 29, 2009, the company has benefitted from a net increase of 9 additional franchise restaurants and 34 license restaurants. The effect of the new locations helped increase franchise and license related revenues by 17.2 percent to $2.1 million in the third quarter of 2010, up from $1.8 million in the third quarter of 2009.

"The third quarter was very successful for Einstein Noah on many levels. For the first time in 2010, system-wide comparable restaurant sales and transactions were positive, driven by the successful launch of our new line-up of bagel thin sandwiches," said Jeff O'Neill, CEO and president of Einstein Noah.

"Our 32 percent adjusted net income growth was healthy, as we continued to realize cost efficiencies through ongoing initiatives at the store-level, within our supply chain, and in our manufacturing operations. Finally, we reached a new development milestone by surpassing 700 restaurants, which further underscores our mission to be the fastest growing fast casual restaurant chain in North America."

2010 outlook

The company expects to open between 57 and 65 total restaurants for FY 2010, which is in line with the company's prior guidance of 57 to 74 total restaurants. By ownership type, the company anticipates the opening of seven to eight new company-owned restaurants, 15 to 17 new franchise restaurants, and 35 to 40 license restaurants.

The company currently has 20 signed development agreements for Einstein Bros. Bagels franchises, and coupled with the 4 planned additional development agreements in 2010, the company expects to yield an ending pipeline of 100 to 110 additional franchise locations.

As of Sept. 28, 2010, the company also has secured pricing on approximately 90 percent of all major agricultural commodities, including wheat, for the remainder of 2010, which should result in favorable prices compared to 2009.