Schlotzsky's Inc. Reports Second Quarter Results

    Industry News | August 9, 2001
    Schlotzsky's Inc. (Nasdaq:BUNZ) today announced results for the second quarter of 2001, including net income of $751,000, or $0.10 per share (diluted), compared to a net loss of $4.0 million or $0.54 per share in the second quarter of last year, when the turnkey program was cancelled.

    The company reported revenues for the current quarter of $16.1 million, an increase of 10 percent over the second quarter of 2000.

    For the first half of 2001, the company reported net income of $1.3 million, or $.18 per share (diluted), compared to a net loss of $2.8 million, or $0.38 per share, for the six months ended June 30, 2000. Revenue for the first six months of 2001 increased 8 percent to $31.4 million compared to the same period last year.

    For the 12 months ended June 30, 2001, the company recorded revenues of $61.5 million and net income of $1.8 million, or $0.25 per share.

    "Reporting our fourth consecutive quarter of increasing profits is clear indication that Schlotzsky's turned an important corner last year,'' said John C. Wooley, president and CEO. "During the quarter, performance was enhanced by the results of our company-owned stores in Austin and our improved corporate cost structure. We have also had success applying what we've learned in Austin to our nationwide franchise network.''

    Other highlights include:

    • The company avoided much of the impact of a slower economy with systemwide same store sales declining less than 1 percent from the second quarter of 2000.

    • Systemwide sales, including both company-owned and franchised restaurants, were just under $110 million.

    • Recurring revenue from royalties, brand contribution and restaurant sales were over 95 percent of company total revenue, confirming the company's transition away from one-time real estate development revenues.

    • Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $2.7 million in the second quarter.

    • G&A expenses for the quarter were $5.0 million compared to $12.3 million for the second quarter of 2000, which included one-time charges and an increase in reserves related to cancellation of the turnkey program.

    • Commercial bank debt reduction continued, with $1.5 million paid down in the quarter.

    Wooley said that the company is emphasizing quality growth. "We want to carefully resume our growth and we are in a solid position to do so. We have an outstanding product and our market segment, upscale sandwiches, is growing as consumers look for alternatives to hamburgers and traditional fast foods.''

    The Austin area restaurants are on the forefront of Schlotzsky's efforts to increase same store sales. "We are very pleased with the strong results of our company-owned Austin restaurants, which increased same store sales by 6.6 percent over the second quarter of last year,'' Wooley said. "These restaurants are serving as our proving ground for how restaurants should look, operate and perform across our franchise system. The full package being tested in certain restaurants includes upgraded decor, coffee bar, bakery, iMac computers with Internet connections, POS systems and a pocket paging system to alert customers when orders are ready. Company-owned restaurants employing all of these features have generated sales in excess of $40,000 per week. Overall, our company restaurants in Austin are averaging more than $33,000 per week. When compared to our current systemwide average weekly sales per restaurant of $12,000, the potential for building revenue from our more than 700 current restaurant base is compelling.''

    To enable franchisees to take advantage of restaurant and menu enhancements, Wooley said the company is increasingly emphasizing franchisee training at its Austin facility. "There is tremendous opportunity for revenue and royalty growth at existing restaurants by applying the lessons we've learned in Austin. The challenge now is to spread these proven innovations across our system. Our training facility is a perfect vehicle to accomplish this. The focus of all of our meetings with franchisees is training.''

    Wooley also said the company's performance will continue to be enhanced through its cost control efforts. "We are continuing to build on the success of our cost reduction efforts and will make additional improvements to our operations to take more costs out in the future,'' he said.

    The company continues to work with franchisees to remodel and replace under-performing locations. During the quarter, the Schlotzsky's® Deli system opened four locations and closed 13. The current system total stands at 702. Future new units will include both the 3,200 square foot freestanding units as well as smaller end-cap units located in prime retail shopping centers. Each of the two formats will support the quality brand, with the smaller version being more appealing to existing franchisees due to its lower construction costs.

    Over the next 12 months, the company expects growth in total system revenue. More importantly, the company expects earnings to grow at a faster rate than revenue as a result of its improved cost structure and increased efficiency. Management expects to see an increase in total restaurant count by the end of the year.

    Schlotzsky's will conduct a conference call to discuss information included in this news release and related matters at 9:30 a.m. (Central Time) on Thursday, Aug. 9, 2001. The conference call will be hosted by John C. Wooley and will be available for analysts and institutional investors at 888-343-1303. The conference call will be available simultaneously, and in its entirety, to all interested investors and news media through a Web cast at

    News and information presented in this release has not been corroborated by WTWH Media LLC.