Austin-based Schlotzsky’s, Inc., announced results for the third quarter ended September 30, 2001, including net income of $659,000, or $0.09 per share (diluted), a 358-percent increase over net income of $144,000, or $0.02 per share in the third quarter of last year.

Revenues for the current quarter were $15.5 million, an increase of 2.5 percent over the third quarter of 2000. General and administrative (G&A) expenses for the quarter, including severance costs related to a reduction in force, decreased 14.4 percent to $4.9 million, compared to $5.7 million for the third quarter of 2000.

For the first nine months of 2001, the company reported net income of $2.0 million, or $0.27 per share (diluted), compared to a net loss of $2.7 million, or a loss of $0.36 per share, for the nine months ended September 30, 2000. Revenue for the first nine months of 2001 increased 6.2 percent to $46.9 million compared to the same period last year.

For the trailing 12 months ended September 30, 2001, Schlotzsky’s recorded revenues of $61.9 million and net income of $2.4 million, or $0.32 per share.

“The results for this quarter are a clear indication that the strategy to improve our overhead structure and to focus on recurring revenue, which we put in place in the last half of 2000, is yielding positive results,” said John Wooley, Schlotzsky’s president and CEO. “The results are evidence that we have a solid base to build on for the future. Even though our system experienced some sales declines in this transition
period, mostly due to economic factors, we delivered improved earnings. Our income for the quarter increased more than 350 percent.”

Other developments include:

Systemwide sales, including both company-owned and franchised restaurants, were $106.2 million.

Systemwide same store sales declined 5.2 percent from the third quarter of 2000.

Recurring revenue from royalties, brand contribution, and restaurant sales were approximately 95 percent of company total revenue.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) increased to $2.5 million in the third quarter compared to $1.8 million in the comparable quarter last year.

Commercial bank debt reduction continued, with $1.4 million paid down in the quarter.

The Schlotzsky’s Deli system ended the third quarter with 692 stores systemwide (29 Company-owned and 663 franchised).

173,000 shares of the company’s common stock have been repurchased through September 30, 2001, including 9,500 shares in the third quarter.

“Schlotzsky’s is now ready to focus its efforts on resuming growth in systemwide sales,” said Wooley. “We believe we have the best store designs and best store operating system that we have had in the history of our Company.” Future new restaurants will include both the 3,200 square foot freestanding units and shopping center units located in prime retail shopping areas, as well as Company-owned restaurants. Most new company-owned units will incorporate such prototype features as coffee bars, pastries, computers with free internet access, and an upgraded decor package.

Schlotzsky’s Looks Ahead

Officials at Schlotzsky’s expect earnings per share for the fourth quarter of 2001 to exceed those of the fourth quarter of 2000, when they were $0.05 per share. For the year 2002, based on the company’s new cost structure, management says it expects earnings per share to exceed 2001 earnings, even if the economy remains soft.

Schlotzsky’s focus in 2002, Wooley said, will be on growth in systemwide sales, using tools the company developed in its company-owned restaurants over the past year.