Industry News | May 8, 2001

Schlotzsky's Reports Record Revenues

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Schlotzsky's, Inc. (Nasdaq:BUNZ) today announced results for the first quarter of 2001, including net income of $591,519, or $0.08 per share (diluted). The company reported record revenues for the quarter of $15.3 million, an increase of 6.4% over the first quarter of 2000.

"We are pleased with the trend of our financial results and quality of our earnings,'' said John C. Wooley, President and CEO. "Our recent earnings growth momentum is the direct result of our business strategy based on leveraging, through franchising and licensing, the Schlotzsky's® Deli premium brand.''

Specific highlights include:

• Same store sales for the entire Schlotzsky's® Deli system (including franchised and company-owned restaurants) increased 2.6% over the first quarter of 2000, representing the 25th consecutive quarterly increase since the company's IPO in 1995;

• Systemwide sales increased to $107.2 million, a new first quarter record; Recurring revenue from royalties, brand contribution and restaurant sales were 95% of company total revenue, versus 89% for the same period of last year;

• G&A expenses declined 5.5% compared to the first quarter of 2000, and also declined 5.5% compared to the fourth quarter of 2000; Debt reduction continued, with a $1.6 million reduction for the first quarter of 2001; and

• The company repurchased on the open market during the first quarter of 2001 122,500 shares of its outstanding common stock at a cost of $463,000.

On a year-over-year comparison, net income declined 50.2% from $1.2 million, or $0.16 per share, from the first quarter of 2000. Results from the first quarter of 2000 included transaction-based revenue from the Turnkey Program that has been discontinued. Excluding $545,000 of such transaction-based revenue, earnings before interest, taxes, depreciation and amortization (EBITDA) increased 6.2% for the first quarter of 2001 to $2,476,328, compared to adjusted EBITDA of $2,332,594 for the same period a year ago.

"These results demonstrate the soundness of the changes we made in our business strategy in 2000,'' said Wooley. "Schlotzsky's has proven its ability to rebuild the Company's profitability and financial strength following the significant charge recorded in the second quarter of 2000 for the cancellation of the Turnkey Program.

"Our strategy has enabled us to establish a strong foundation for ongoing profitable growth as we leverage a fixed cost structure,'' he continued. "The result of these changes is more predictable earnings based on recurring revenue streams, rather than transaction revenue.''

The Schlotzsky's® Deli system will continue to open new restaurants and remodel and relocate restaurants to replace less profitable locations. During the first quarter of 2001, the Schlotzsky's® Deli system opened 15 restaurants and closed 15. Going forward, Schlotzsky's will work with new and existing franchisees to open both 3,200 square foot freestanding units as well as lower-cost units located in endcaps of prime retail shopping centers. Each of the two formats will support the quality brand, with the smaller endcap version being more appealing to existing franchisees due to its lower construction costs.

Schlotzsky's said new and existing franchisees will benefit from the premium price Schlotzsky's® Deli products command across all economic cycles. In addition, Schlotzsky's® style of food is increasingly appealing to a public that is seeking alternatives to burgers as the consumer looks for food that can be enjoyed with less guilt. The company believes these trends will result in the continued growth of the Schlotzsky's® Deli system and build on the nine-year trend of increases in same store sales.