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

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