Einstein Noah Restaurant Group Inc.
) has recently reported second quarter 2012 adjusted earnings of 19
cents per share, which lagged the Zacks Consensus Estimate of 23
cents but surpassed the year-ago adjusted earnings of 15 cents.
On a GAAP basis, including expenses related to the strategic
alternatives review process, earnings were 17 cents per share in
second quarter 2012 versus 18 cents in the year-ago quarter.
Total revenue budged up 2.2% year over year to $106.0 million but
missed the Zacks Consensus Estimate of $109.0 million. The uptick
reflects a system-wide comparable restaurant sales increase of
1.3%, aided by a 3.9% rise in average check, partially offset by a
2.6% reduction in transactions.
Segment-wise, company-owned restaurant sales inched up 3.0% to
$96.4 million, while Manufacturing and Commissary revenue declined
7.2% to $7.2 million, hurt by recent commissary closures. Franchise
and License related revenue grew 3.9% to $2.4 million due to solid
royalty revenue generation from additional franchise and licensed
units unveiled in the last year.
Gross profit expanded 15.0% year over year to $21.1 million in the
quarter, primarily on cost containment initiatives. Cost-saving
initiatives combined with positive comps led to gross margin
expansion of 220 basis points to 19.9%.
Total company-owned restaurant costs fell 150 bps to 82.3%, as cost
of goods slipped 210 basis points to 28% of restaurant sales due to
the operational efficiencies. Other operating costs dipped 30 bps
These benefits were partially offset by an increase of 30 basis
points in labor costs at 29.3% owing to healthcare-related
expenditures, a 50 basis-point hike in investment towards marketing
initiatives at 3.6% and rent increment of 10 bps at 10.8%.
EINSTEIN NOAH (BAGL): Free Stock Analysis
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At the end of the quarter, the company had 783 restaurants, out of
which 448 were company owned, 95 were franchised and 240 were
In the reported quarter, Einstein Noah opened one company-owned
unit and five franchised units as well as closed one unit.
Additionally, the company opened four licensed units, and three
were shut down.
Einstein Noah ended the quarter with cash and cash equivalents of
approximately $14.7 million and a debt burden of $70.5 million. The
company reduced its debt burden by around $1.9 million in the
For fiscal 2012, the company plans to open 60-80 restaurants.
Expected openings include 8-12 company-owned units, 12-14 franchise
restaurants and 40-54 license restaurants. Capital expenditures are
estimated at $24-$26 million. Commodity inflation for the full year
is expected to remain in the 2%-3% range.
For last few quarters, Lakewood, Colorado-based Einstein Group's
performance remains choppy. After beating the earnings
estimates for the last two quarters, the company lagged this
quarter. Prior to the preceding two quarters, quarterly
earnings had failed to meet the estimate for three consecutive
Now, Einstein Noah Restaurant Group, which operates under the
Einstein Brothers Bagels, Noah's New York Bagels, and Manhattan
Bagel brands, considers an assessment of strategic alternatives to
bolster shareholder return. These strategies also include the
likelihood of a merger or sale of the company. However, we have yet
to see any concrete outcome of the review of strategic alternatives
Einstein Noah continues to concentrate on sales-driven initiatives
as well as cost-cutting measures to foster earnings growth.
Einstein Group will also enjoy the payment of minimum cash-taxes
for the next several years. To counter inflation, management locked
in 90% of its wheat and 100% of its 2012 coffee needs at current
However, we remain cautious about the stiff competition and
wavering consumer confidence. We are maintaining our long-term
Neutral recommendation on the stock.