News

Spicy Pickle focuses on turnaround

November 15, 2010

Spicy Pickle Franchising Inc., the operator and franchisor of Spicy Pickle and BG Urban Cafe Canadian brands, has announced results for its third quarter and nine months ended Sept. 30, 2010.

For the third quarter, its first full quarter under new management, revenues increased to $1.1 million from $954,188. For the nine months, revenues increased to $3.3 million, up from $3.1 million reported during the same period last year.

According to the company earnings report, the revenue increase was due to a rise in franchise fees, royalties and rebates, which totaled $487,375 for the quarter compared to $295,979 in the year-ago quarter, and $1.3 million for the nine months, up from $1 million reported in the prior nine-month period.

At the end of the quarter, there were six company-owned Spicy Pickle locations and 26 franchised locations in the U.S.

The loss from operations totaled $810,616 for the quarter compared with $608,190 for the year ago quarter. For the first nine months of FY 2010, the net loss was $1.85 million compared to $1.57 million reported in the first nine months of FY 2009.

"Approximately $350,000 in expenses for the quarter was either non-cash or severance related and we have increased our investments in re-branding the Spicy Pickle and Urban Cafes concepts. Additionally, we have increased our advertising spending for both brands and have invested in strengthening our management team and board of directors," said CEO Mark Laramie.

"Most importantly, we are now seeing increased restaurant average weekly sales. Furthermore, we are beginning to experience improved unit level economics as a result of our new supply chain. However, company owned store revenue has been reduced due to closing one of our company-owned restaurants pending relocation."

The company had total assets of $5.3 million at September 30, 2010, versus $5.8 million at the same time a year ago. Current assets amounted to $1.13 million versus current liabilities of $1.45 million of which the $350,000 in deferred franchise revenue is a non-cash obligation. The company reported it has borrowed about $1 million on its $2 million line of credit.

Outlook: "We are still somewhat dependent on the economy and consumer spending, but we believe we have accomplished a great deal in a short time,” Laramie said. “We believe that through the marketing and re-branding investments we are making, and will continue to make, we are positioning both of our brands for future growth and development.”

Due to the economic climate over the past few years, the company has had to terminate several franchise agreements that called for additional locations.

“As a result of the recent economic slowdown a number of our franchisees that had agreements for multiple restaurants failed to meet their commitments.  We are evaluating all of our agreements and where the franchisee cannot meet the obligation of its build out schedule we are terminating its agreement for future restaurants,” the company’s Q-10 earnings report said.

“As of September 30, 2010, we still had agreements with franchisees to open 30 additional restaurants under the Spicy Pickle Brand.  We will continue to monitor the franchisee ability to meet their build out schedule and terminate those agreements that are in violation of their terms and will not meet their commitment."

Based on current franchise agreements and construction schedules, the company believes there will be 28 Spicy Pickle franchisee-owned restaurants and at least six company-operated restaurants open by the end of 2010.