Einstein Noah Restaurant Group Inc. Q1 2010 Earnings Call Transcript - TheStreet

Einstein Noah Restaurant Group Inc. Q1 2010 Earnings Call Transcript

Einstein Noah Restaurant Group Inc. Q1 2010 Earnings Call Transcript
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Einstein Noah Restaurant Group Inc. (BAGL)

Q1 2010 Earnings Call

May 06, 2010 5:00 pm ET

Executives

Jeff O'Neill - President and CEO

James O'Reilly - CCO

Analysts

Jeff Farmer - Jefferies & Company

Steve West - Stifel Nicolaus & Company

Matthew DiFrisco - Oppenheimer and Company

Presentation

Operator

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Greetings and welcome to the Einstein Noah Restaurant Group First Quarter 2010 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Jeff O'Neill. Thank you, you may begin.

Jeff O

'

Neill

Good afternoon, and welcome to the Einstein Noah Restaurant Group first quarter 2010 conference call. I am Jeff O'Neill, Chief Executive Officer and president and with me today is James O'Reilly, our Chief Concept Officer.

I'll start by covering a few regulatory matters. Please note that during our formal remarks and in our responses to your question certain items maybe discussed which are not based on historical facts. Such items including statements indicating our belief, trends, plans, expectations, assumptions, anticipation, guidance, projections, estimates and the like should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All such forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially. For more details please refer to our news release issued today and to the risk factors in our SEC filings.

And now, let's review our key objects for the year which are as follows. First we intend to leverage our strength in bagels and breakfast along with our weakened emphasis and focus on the burgeoning healthy innovation segment in order to drive top line growth. In addition, we'll use targeted programs and promotions in lunch, beverages and catering to drive sales in these areas as well. Second, we are continuing to build our corporate margins by managing the middle of our P&L [typed]. And finally we will continue to accelerate unit expansions.

With regard to our first quarter, I'm pleased with our progress today and believe our numbers and results reflect this strategic and financial progress we made during the quarter. At both senior level and in the field our team is energized about we expect, what we expect to be an exciting year at Einstein Noah.

As noted in our press release, system wide comp store sales returned to positive territory after five quarters of decline and reflect a 150 basis point improvement from the fourth quarter of 2009 and a 300 basis points improvement from a year ago. We also note that despite economic headwinds and stronger competition in the breakfast day part, we were able to increase our averaged check by 1.3% as customers responded favorably to our product initiatives.

At our company operated units comp sales were roughly flat in the first quarter, a 150 basis point improvement from the fourth quarter of 2009 and a 550 basis point improvement from a year ago. We note that due to our geographic concentration, company locations were more severely affected by weather in the northeast, particularly during February.

In terms of our profitability, we realize margin improvement in both our restaurants and manufacturing business, and increased our total gross profit by 15% and our adjusted EBITDA by 22% which demonstrates tremendous progress through the first quarter. It's clear to us that the initiatives we were implementing to improve margins are working.

At store level, we have multiple initiatives crossing most of the P&L with our biggest initiatives focused on managing food and labor outliers. Our supply chain team had made significant advances with year-over-year commodity cost improvements, reduction in freight expenses and implementation of new vendor price verification process.

At our manufacturing and commissary facilities, our teams continued to improve profitability, increasing capacity of a flat labor building on last year's already substantial gains in this area.

From a franchise perspective, we have a pipeline of 64 franchise locations through our development agreements and we look to sign an additional 10 to 15 agreements this year and [razor] pipeline is on 90 to 100 restaurants.

Current franchisees are expected to open 12 to 16 restaurants this year alone including two already opened in the first quarter while our license partners are poised to open to 35 to 45 including five already opened in the first quarter. At the company level we will open about 10 to 12 units, double the number of openings from last year of which we have already opened three in the first quarter. We will also continue our upgrade program which is meeting intended ROIC.

In fact we planned 17 plant upgrade this year and completed five in the first quarter. We also have plans to invest in our kitchen display ordering system, surveillance cameras and a revitalized coffee program along with updated external signage.

I would now like to turn things over to James O' Reilly, our Chief Concept Officer.

James O

'

Reilly

Thanks Jeff. As we have discussed on prior calls, building consistent growth in comparables sales will be driven by focusing on transaction driving programs while growing check through strong menu mix initiatives. To that end we are working diligently on increasing our sales volumes through product and promotion innovation, investing and marketing expense to increase the awareness of our marketing initiatives and introducing average check driving options that increase consumer spend while still balancing our priced value relationship

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