Schlotzsky’s, Inc. (Nasdaq: BUNZ) today reported a net loss for second quarter 2003 of $2.3 million, or $(0.31) per diluted share, for the quarter ended June 30, 2003, as compared with net income of $487,000, or $0.07 per diluted share, during the same period last year. Revenues fell 10.3% from last year to $14.3 million.

Systemwide contractual sales fell 16.9% to $85.3 million and same store contractual sales fell 11.9% compared with a 5.5% decrease a year ago. Unit counts decreased by net 74 stores, or 11%. Franchise royalties and fees fell 19%.

The release noted that increases in provisions for bad debt and guarantee exposure of $1.7 million due to the weak performance of certain franchised restaurants were included in second quarter results. John C. Wooley, president and chief executive officer, said, “We and our franchise owners continue to find the marketplace very challenging. But we also believe that we now have in place important initiatives that are the right responses to the challenges we face.”

As part of an effort to turn things around, Schlotzsky’s affirmed an earlier announcement that it had reduced corporate staff by 39 positions, or 29%. Separation payments will be expensed in the third quarter so results from the action should be seen as early as the fourth quarter. The move, along with other reductions in G&A expenses, should save some $4 million annually.

Schlotzsky’s is marketing franchises to both large multi-unit operators and individual on-premise owner-operators and encouraging struggling franchisees to sell stores in order to pare operations down to something more manageable.

The company continues to plug its Concept 2005 project to introduce new menu items and redesign stores. Concept 2005 has been designed to give franchisees a choice on the time frame in which the changes are introduced with a systemwide conversion goal over the next three years.

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