Industry News | November 13, 2002

Schlotzsky's, Inc. Announces Third Quarter Results

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Schlotzsky's, Inc. (Nasdaq:BUNZ) today announced results for the third quarter that ended September 30, 2002, with revenue of $15,093,000, down 2.7% compared to the same quarter last year. The company posted a net loss for the quarter of $240,000, or a loss of $0.03 per diluted share, which company officials attributed to continuing weakness in the economy at a time when the company is also investing resources in its concept and preparing for growth.

For the nine months ended September 30, 2002, the company reported net income of $876,000, or $0.12 per diluted share on revenues of $46.2 million. This compares with net income of $2,001,000, or $0.27 per diluted share, on revenues of $46.9 million, in the prior year period.

Systemwide sales decreased 7.7% from the previous year quarter and same store sales were down 6.3%.

While systemwide sales, same store sales, and net income declined compared to the third quarter of 2001, the company retired the remaining portion of its $40 million December 1999 bank group credit agreement with the proceeds of mortgage financing, and exercised its option to acquire the territorial rights of its largest area developer, said officials.

In addition, the company reports that it continues to work on a long-term financing plan that will be used primarily to develop new company-owned restaurants in as many as 25 key markets throughout the U.S., to reduce certain debt that has higher interest rates and shorter terms, and for the repurchase program for the company's common stock. The company is pursuing financing alternatives, including asset-backed financing secured by intellectual property and related royalty rights and agreements. If implemented, the company would create wholly-owned subsidiaries to hold its intellectual property and related royalty rights and agreements and to manage and service these assets.

"Schlotzsky's, like many consumer focused companies, has been impacted by the prolonged soft economy, particularly in our key markets of Austin and Dallas; but we are focused on being in the best possible position for when the economy recovers. We continue to make strategic investments in the proven Schlotzsky's concept, and intend to accelerate the development of company-owned restaurants to lead our system. The decision to expand the company-owned restaurants will enable shareholders much greater participation in the strong revenue possibilities we know Schlotzsky's is capable of delivering," said John C. Wooley, president and CEO.