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O'Charley's Inc. Q2 2010 Earnings Call Transcript

O'Charley's Inc. Q2 2010 Earnings Call Transcript

O'Charley's Inc. (CHUX)

Q2 2010 Earnings Call Transcript

August 12, 2010 11:00 am ET

Executives

TST Recommends

Gene Marbach – IR

Phil Hickey – Chairman and Interim CEO

Larry Hyatt – CFO and Treasurer

Analysts

Robert Derrington – Morgan Keegan

Jeff Omohundro – Wells Fargo Securities

Bryan Hunt – Wells Fargo Securities

Presentation

Operator

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Previous Statements by CHUX
» O’Charley’s Inc. Q1 2010 Earnings Call Transcript
» O'Charley's Inc. Q4 2008 Earnings Call Transcript
» O’Charley’s Inc. F2Q08 (Qtr End 07/13/08) Earnings Conference Call Transcript

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the O'Charley's second quarter 2010 conference call. (Operator instructions) I would now like to turn the conference over to Gene Marbach. Please go ahead sir.

Gene Marbach

Thank you Brendy.

Good morning all and thank you for joining O'Charley's fiscal 2010 second quarter conference call. On the call today are Phil Hickey, the company’s Chairman and Interim Chief Executive Officer; and Larry Hyatt, the company’s Chief Financial Officer.

The order of business this morning will be some brief remarks from Phil and Larry about the second quarter. We will then open the call to questions. In the time allotted we will take as many questions as possible.

Before we begin, I would like to note that certain statements made by O'Charley's management on this call may be deemed to constitute forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements may be affected by certain risks and uncertainties, including risks described in the company's filing with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included in the company's comments, you should not regard the inclusion of such information as a representation that its objectives, plans, and projected results will be achieved and the company's actual results could differ materially from such forward-looking statements.

I would now like to turn the call over to Mr. Phil Hickey, Chairman & Interim CEO of O'Charley's. Please go ahead sir.

Phil Hickey

Thank you and good morning everyone. This is my first quarterly earnings call in my role as interim CEO of O'Charley's, and it is an honor to serve in this capacity until David Head, our incoming CEO arrives.

While there are clearly competitive and economic challenges that exist in our industry, I believe in the potential of each of our three concepts here at O'Charley's Inc, and I’m confident that our company’s best days lie ahead of us.

Speaking of David Head, he will be joining us as President and CEO of O'Charley's Inc. around September 1. David is a proven leader, whom I have known for 15 years, and he brings with him strong leadership skills, deep operational experience in the restaurant industry, and an impressive track record refining and repositioning restaurant concepts.

I look forward to working closely with David to improve our financial performance and grow shareholder value by building guest loyalty through consistent delivery of great food and great service. While the economic environment continues to provide challenges for casual dining companies, two of our three concepts, the Ninety Nine and Stoney River experienced a positive shift in momentum in the quarter.

At the Ninety Nine concept, we continue to strengthen our ties to our core guests, who appreciate a friendly environment that offers generous portions of high-quality traditional fare at moderate prices. Ninety Nine outperformed its relevant Knapp-Track averages in the quarter, and had its first quarter of positive guest count growth in more than four years.

Our ‘Real-Sized Entrees for $9.99' offering continues to prove popular with our guest, and profitable for us. So we will continue to refresh these items. Our guests continued to respond favorably to the opportunity to upgrade their entrée into a full meal for an additional three bucks, and our ‘Red Sox Win Kids Eat Free’ promo continues to be popular.

During the quarter Ninety Nine improved its guest satisfaction scores by 200 basis points versus the prior year quarter. Summer [ph] at Ninety Nine means lobster rolls, and we have been selling between 12,000 and 14,000 of them per week, an increase of about 20% compared to last summer. We believe that we can continue our current sales momentum at Ninety Nine for the rest of the year. Through the first four weeks of the current quarter, same-store sales have been positive.

At our Stoney River Legendary Steaks concept, same-store sales showed improvement over the trends of the past three years, and guest counts have been positive for three consecutive quarters. It appears that the repositioning of the Stoney River concept that we initiated last year continues to show progress. We are striving to increase our relevance to a broader guest market. In order to achieve this objective, we have reduced prices of certain menu items, added menu items and more affordable wine choices to the wine list, while continuing to offer our loyal Stoney River guests, the same great guest service experience in all their signature favorites.

We are also focused on bringing Stoney River cost structure in line with the lower check average, and this quarter’s 530 basis point improvement in restaurant operating margin indicates that we continue to make progress in this area. Through the first four weeks of the current quarter, Stoney River was positive as well. While we were disappointed with the second quarter financial performance of the O'Charley's concept, we believe that our enhanced focus on innovative food offerings, service improvements and value will resonate with the O'Charley's guest, and lead to a shift in sales trends later on this year.

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