Thirty-Nine Weeks Ended
September 29, 2013
Compared to the
Thirty-Nine Weeks Ended
September 23, 2012
The following table sets forth, for the periods indicated, our consolidated statements of operations both on an actual basis and expressed as a percentage of revenues.
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Thirty-Nine Weeks Ended
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September 29,
2013
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% of
Revenues
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September 23,
2012
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% of
Revenues
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Change
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% Change
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(dollars in thousands)
|
Revenues
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$
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304,975
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100
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%
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$
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297,105
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100
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%
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|
$
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7,870
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2.6
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%
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Cost and expenses:
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Cost of sales
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78,635
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25.8
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%
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77,164
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26.0
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%
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1,471
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|
|
1.9
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%
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Labor
|
107,491
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35.2
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%
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102,950
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34.7
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%
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4,541
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|
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4.4
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%
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Operating
|
48,504
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15.9
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%
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45,752
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15.4
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%
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2,752
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6.0
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%
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Occupancy
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20,983
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6.9
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%
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19,448
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6.5
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%
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1,535
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7.9
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%
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General and administrative expenses
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17,166
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5.6
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%
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|
17,085
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5.8
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%
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|
81
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0.5
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%
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Restaurant preopening costs
|
2,508
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0.8
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%
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3,615
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1.2
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%
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(1,107
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)
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(30.6
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)%
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Depreciation and amortization
|
14,859
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4.9
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%
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13,765
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4.6
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%
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1,094
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7.9
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%
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Total costs and expenses
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290,146
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95.1
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%
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279,779
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94.2
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%
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10,367
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3.7
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%
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Income from operations
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14,829
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|
|
4.9
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%
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|
17,326
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|
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5.8
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%
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(2,497
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)
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(14.4
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)%
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Net interest expense
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870
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0.3
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%
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1,008
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0.3
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%
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(138
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)
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(13.7
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)%
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Income before income taxes
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13,959
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4.6
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%
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16,318
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5.5
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%
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(2,359
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)
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(14.5
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)%
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Income tax expense
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3,749
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1.2
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%
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4,612
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1.6
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%
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(863
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)
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(18.7
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)%
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Net income
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$
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10,210
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3.3
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%
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$
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11,706
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3.9
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%
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$
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(1,496
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)
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(12.8
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)%
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Certain percentage amounts may not sum due to rounding.
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Revenues.
Revenues
increased
$7.9 million
, or
2.6%
, to
$305.0 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$297.1 million
for the
thirty-nine weeks ended
September 23, 2012
. The
increase
of
$7.9 million
was primarily due to a net additional
243
operating weeks provided by
nine
company owned restaurants opened in
2012
and
four
restaurants opened in
2013
, less the operating weeks of
three
restaurant closures in
2013
, two in the first quarter and one in the second quarter. Partially offsetting the effect of the net increase in operating weeks was a
decrease
in comparable restaurant revenues of
3.3%
that
decrease
d revenues by
$9.1 million
, which was driven by a
3.4%
decrease
in guest counts. Average check for the first
thirty-nine
weeks of
2013
slightly
increase
d as compared to the same period in the prior year. Our comparable restaurant revenues for 2013 were negatively impacted due to the shift in our operating calendar as a result of the fifty-third week in fiscal 2012. We consider a restaurant to be part of the comparable revenue base in the first full quarter following the eighteenth month of operations. Additionally, during the second quarter of 2012, we opened one BRIO that we do not own but which we operate pursuant to a management agreement under which we receive a management fee. Other than our receipt of this management fee, the operation of this restaurant has no impact on our financial statements.
For our BRAVO! brand, restaurant revenues
decrease
d
$2.0 million
, or
1.6%
, to
$119.1 million
for the
thirty-nine weeks ended
September 29, 2013
as compared to
$121.1 million
for the
thirty-nine weeks ended
September 23, 2012
. Comparable revenues for the BRAVO! brand restaurants
decrease
d
2.3%
, or
$2.7 million
, to
$113.4 million
for the
thirty-nine weeks ended
September 29, 2013
as compared to
$116.1 million
for the
thirty-nine weeks ended
September 23, 2012
. This
decrease
was due to a
decrease
in guest counts partially offset by an
increase
in average check. Revenues for BRAVO! brand restaurants not
included in the comparable revenue base
increase
d
$0.7 million
to
$5.7 million
for the
thirty-nine weeks ended
September 29, 2013
. At
September 29, 2013
, there were
45
BRAVO! restaurants included in the comparable revenue base and
two
BRAVO! restaurants not included in the comparable revenue base.
For our BRIO brand, restaurant revenues
increase
d
$9.5 million
, or
5.4%
, to
$185.4 million
for the
thirty-nine weeks ended
September 29, 2013
as compared to
$175.9 million
for the
thirty-nine weeks ended
September 23, 2012
. Comparable revenues for the BRIO brand restaurants
decrease
d
4.1%
, or
$6.4 million
, to
$150.7 million
for the
thirty-nine weeks ended
September 29, 2013
as compared to
$157.1 million
for the
thirty-nine weeks ended
September 23, 2012
. This
decrease
was due to a
decrease
in guest counts and a
decrease
in average check during the first
thirty-nine
weeks of
2013
. Revenues for BRIO brand restaurants not included in the comparable revenue base
increase
d
$15.9 million
to
$34.7 million
for the
thirty-nine weeks ended
September 29, 2013
. At
September 29, 2013
, there were
45
BRIO restaurants included in the comparable revenue base and
11
BRIO restaurants not included in the comparable revenue base.
Cost of Sales.
Cost of sales
increased
approximately
$1.4 million
, or
1.9%
, to
$78.6 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$77.2 million
for the
thirty-nine weeks ended
September 23, 2012
. As a percentage of revenues, cost of sales
decreased
to
25.8%
for the
thirty-nine weeks ended
September 29, 2013
as compared to
26.0%
for the
thirty-nine weeks ended
September 23, 2012
. The increase in commodity costs in 2013 over 2012 was offset by a price increase over the same period. As a percentage of revenues, food costs
decreased to
21.1%
but
increase
d in total dollars by
$1.2 million
. Beverage costs, as a percentage of revenues,
remained flat at
4.7%
but
increase
d in total dollars by
$0.2 million
. The
increase
in these costs in total dollars was related to growth in our restaurant base in
2013
due to the
nine
company owned restaurants opened in
2012
and the
four
restaurants opened in the
thirty-nine weeks ended
September 29, 2013
.
Labor Costs.
Labor costs
increased
approximately
$4.5 million
, or
4.4%
, to
$107.5 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$103.0 million
for the
thirty-nine weeks ended
September 23, 2012
. As a percentage of revenues, labor costs
increased
to
35.2%
for the
thirty-nine weeks ended
September 29, 2013
, from
34.7%
for the
thirty-nine weeks ended
September 23, 2012
. These
increase
s were primarily due to the deleveraging resulting from the
decrease
in our comparable revenues as well as labor inefficiencies associated with the
nine
company owned restaurants opened in
2012
and
four
new restaurants opened in
2013
.
Operating Costs.
Operating costs
increased
$2.7 million
, or
6.0%
, to
$48.5 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$45.8 million
for the
thirty-nine weeks ended
September 23, 2012
. This
increase
was mainly due to a net additional
243
operating weeks in
2013
as compared to
2012
resulting from the
nine
company owned restaurants opened in
2012
and
four
restaurants opened in the first
thirty-nine
weeks of
2013
, less the operating weeks of
three
restaurant closures in
2013
, two in the first quarter and one in the second quarter. As a percentage of revenues, operating costs
increased
to
15.9%
for the
thirty-nine weeks ended
September 29, 2013
, compared to
15.4%
for the
thirty-nine weeks ended
September 23, 2012
. The
increase
as a percentage of revenues was primarily related to higher repairs and maintenance, utilities, advertising costs and janitorial services, as well as the deleveraging from the
decrease
in comparable sales in the first
thirty-nine
weeks of
2013
as compared to the same period in the prior year.
Occupancy Costs.
Occupancy costs
increased
$1.6 million
, or
7.9%
, to
$21.0 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$19.4 million
for the
thirty-nine weeks ended
September 23, 2012
. The
increase
was due to
nine
company owned restaurants opened in
2012
and
four
new restaurants opened in the first
thirty-nine
weeks of
2013
. As a percentage of revenues, occupancy costs
increased
to
6.9%
for the
thirty-nine weeks ended
September 29, 2013
as compared to
6.5%
for the
thirty-nine weeks ended
September 23, 2012
due to the deleveraging from the
decrease
in comparable sales in the first
thirty-nine
weeks of
2013
as compared to the same period in the prior year.
General and Administrative.
General and administrative expenses
increased
by
$0.1 million
, or
0.5%
, to
$17.2 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$17.1 million
for the
thirty-nine weeks ended
September 23, 2012
. The
increase
in general and administrative expenses was attributable to higher stock compensation costs due to stock grants in 2012 and 2013 as compared to the prior period and higher professional fees, offset by lower incentive compensation. As a percentage of revenues, general and administrative expenses
decreased
to
5.6%
for the
thirty-nine weeks ended
September 29, 2013
, from
5.8%
for the
thirty-nine weeks ended
September 23, 2012
.
Restaurant Pre-opening Costs.
Pre-opening costs
decreased
by approximately
$1.1 million
, to
$2.5 million
for the
thirty-nine weeks ended
September 29, 2013
, as compared to
$3.6 million
for the
thirty-nine weeks ended
September 23, 2012
. Year over year changes in pre-opening costs are driven by the timing and number of restaurant openings in a given period. During the first
thirty-nine
weeks of
2013
, we opened
four
restaurants
and had
four
additional
restaurants
under construction. In the first
thirty-nine
weeks of
2012
, we opened
seven
restaurants
and had
three
additional
restaurants
under construction.
Depreciation and Amortization.
Depreciation and amortization expenses
increased
$1.1 million
, to
$14.9 million
for the
thirty-nine weeks ended
September 29, 2013
compared to
$13.8 million
for the
thirty-nine weeks ended
September 23, 2012
. As a
percentage of revenues, depreciation and amortization expenses
increase
d to
4.9%
for the
thirty-nine weeks ended
September 29, 2013
as compared to
4.6%
for the
thirty-nine weeks ended
September 23, 2012
. The
increase
, as a percentage of revenues, was due to the deleveraging resulting from the
decrease
in comparable sales during the first
thirty-nine
weeks of
2013
, while the
increase
in dollars was due to the growth in the number of our restaurants.
Net Interest Expense.
Net interest expense
decreased
$0.1 million
to
$0.9 million
for the
thirty-nine weeks ended
September 29, 2013
as compared to
$1.0 million
for the
thirty-nine weeks ended
September 23, 2012
. This
decrease
was due to lower average outstanding debt during the first
thirty-nine
weeks of
2013
compared to the same period in the prior year.
Income Taxes.
Income tax expense was
$3.7 million
, or
26.9%
of income before income taxes, for the
thirty-nine weeks ended
September 29, 2013
as compared to
$4.6 million
, or
28.3%
of income before income taxes, for the
thirty-nine weeks ended
September 23, 2012
. The
decrease
in tax expense as a percentage of income before income taxes was due to increased general business credits.
Liquidity
Our principal sources of cash have been net cash provided by operating activities and borrowings under our senior credit facilities. As of
September 29, 2013
, we had approximately
$2.7 million
in cash and cash equivalents and approximately
$37.6 million
of availability under our senior credit facilities (after giving effect to
$2.4 million
of outstanding letters of credit at
September 29, 2013
). Our need for capital resources is driven by our restaurant expansion plans, on-going maintenance of our restaurants, investment in our corporate infrastructure and information technology infrastructures. Based on our current real estate development plans, we believe our combined expected cash flows from operations, available borrowings under our senior credit facilities and expected landlord lease incentives will be sufficient to finance our planned capital expenditures and other operating activities over the next twelve months.
Consistent with many other restaurant and retail chain store operations, we use operating lease arrangements for the majority of our restaurant locations. We believe that these operating lease arrangements provide appropriate leverage of our capital structure in a financially efficient manner. Currently, operating lease obligations are not reflected as indebtedness on our consolidated balance sheet. The use of operating lease arrangements will impact our capacity to borrow money under our senior credit facilities. However, restaurant real estate operating leases are expressly excluded from the restrictions under our senior credit facilities related to the incurrence of funded indebtedness.
Our liquidity may be adversely affected by a number of factors, including a decrease in guest traffic or average check per guest due to changes in economic conditions, as described in our
2012
Annual Report on Form 10-K under the heading “Risk Factors.”
The following table presents a summary of our cash flows for the
thirty-nine weeks ended
September 29, 2013
and
September 23, 2012
(in thousands):
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|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended,
|
|
September 29,
2013
|
|
September 23,
2012
|
Net cash provided by operating activities
|
$
|
23,323
|
|
|
$
|
33,288
|
|
Net cash used in investing activities
|
(23,098
|
)
|
|
(26,880
|
)
|
Net cash used in financing activities
|
(11,235
|
)
|
|
(8,582
|
)
|
Net decrease in cash and cash equivalents
|
(11,010
|
)
|
|
(2,174
|
)
|
Cash and cash equivalents at beginning of period
|
13,717
|
|
|
10,093
|
|
Cash and cash equivalents at end of period
|
$
|
2,707
|
|
|
$
|
7,919
|
|
Operating Activities.
Net cash
provided by
operating activities was
$23.3 million
for the
thirty-nine weeks ended
September 29, 2013
, compared to net cash
provided by
operations of
$33.3 million
for the
thirty-nine weeks ended
September 23, 2012
. The
decrease
in net cash
provided by
operating activities in the first
thirty-nine
weeks of
2013
compared to the same period in
2012
was due to an increase in cash expenditures in excess of the increase in cash receipts. This was primarily due to the timing of one additional payroll cycle in 2013 as compared to 2012 and the repayment of landlord lease incentives. Cash receipts from operations for the first
thirty-nine
weeks of
2013
and
2012
were
$300.7 million
and
$293.2 million
, respectively. Cash expenditures from operations during the first
thirty-nine
weeks of
2013
and
2012
were
$282.1 million
and
$264.3 million
, respectively.
Investing Activities.
Net cash
used in
investing activities was
$23.1 million
for the
thirty-nine
weeks ended
September 29, 2013
, compared to
$26.9 million
for the
thirty-nine
weeks ended
September 23, 2012
. We invest cash to purchase property and equipment related to our restaurant expansion plans. The
decrease
in spending was related to the timing of restaurant openings, the timing of spending related to our new restaurants as well as the number of restaurants that were opened and under construction during
2013
versus
2012
. During the first
thirty-nine
weeks of
2013
, we opened
four
restaurants
and had
four
additional
restaurants
under construction. In the first
thirty-nine
weeks of
2012
, we opened
seven
restaurants
and had
three
additional
restaurants
under construction.
Financing Activities.
Net cash
used in
financing activities was
$11.2 million
for the
thirty-nine
weeks ended
September 29, 2013
, compared to net cash
used in
financing activities of
$8.6 million
for the
thirty-nine
weeks ended
September 23, 2012
. For the
thirty-nine
weeks ended
September 29, 2013
,
$6.9 million
was used to pay down the Company’s term debt and
$4.3 million
was used to repurchase Company shares as part of our stock buyback program. For the
thirty-nine
weeks ended
September 23, 2012
,
$9.1 million
was used to pay down the Company’s term debt, partially offset by $0.5 million in cash and tax benefits related to stock option exercises that was received during the first
thirty-nine
weeks of the
2012
.
As of
September 29, 2013
, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.
Capital Resources
Future Capital Requirements.
Our capital requirements are primarily dependent upon the pace of our real estate development program and resulting new restaurants. Our real estate development program is dependent upon many factors, including economic conditions, real estate markets, site locations and the nature of lease agreements. Our capital expenditure outlays are also dependent on costs for maintenance and capacity additions in our existing restaurants as well as information technology and other general corporate capital expenditures.
We anticipate that each new restaurant on average will require a total cash investment of $1.5 million to $2.5 million (net of estimated lease incentives). We expect to spend approximately $0.4 million to $0.5 million per restaurant for cash pre-opening costs. The projected cash investment per restaurant is based on historical averages.
We currently estimate capital expenditures, net of estimated lease incentives, for the remainder of
2013
to be in the range of approximately
$5.0 million
to
$7.0 million
, for a total of
$23.0 million
to
$25.0 million
for the year. This is primarily related to the opening of
four
additional restaurants in the last
quarter
of
2013
, the start of construction of restaurants to be opened in early
2014
, as well as normal maintenance related capital expenditures relating to our existing restaurants. In conjunction with these restaurant openings, the Company anticipates expensing approximately
$1.5 million
in pre-opening costs for the remainder of
2013
for a total of approximately
$4.0 million
for all of
2013
.
Current Resources.
Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital. Restaurant sales are primarily paid for in cash or by credit card, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverage and supplies, therefore reducing the need for incremental working capital to support growth. We had a net working capital
deficit
of
$31.6 million
at
September 29, 2013
, compared to a net working capital
deficit
of
$25.8 million
at
December 30, 2012
.
In connection with our initial public offering, we entered into a credit agreement with a syndicate of financial institutions with respect to our senior credit facilities. Our senior credit facilities provide for (i) a $45.0 million term loan facility, maturing in 2015, and (ii) a revolving credit facility under which we may borrow up to $40.0 million (including a sublimit cap of up to $10.0 million for letters of credit and up to $10.0 million for swing-line loans), maturing in 2015. Under the credit agreement, we are also entitled to incur additional incremental term loans and/or increases in the revolving credit facility of up to $20.0 million if no event of default exists and certain other requirements are satisfied. Our revolving credit facility is (i) jointly and severally guaranteed by each of our existing or subsequently acquired or formed subsidiaries, (ii) secured by a first priority lien on substantially all of our subsidiaries’ tangible and intangible personal property, (iii) secured by a first priority security interest on all owned real property and (iv) secured by a pledge of all of the capital stock of our subsidiaries. Our credit agreement also requires us to meet financial tests, including a maximum consolidated total leverage ratio, a minimum consolidated fixed charge coverage ratio and a maximum consolidated capital expenditures limitation. At
September 29, 2013
, we were in compliance with our applicable financial covenants. Additionally, our credit agreement contains negative covenants limiting, among other things, additional indebtedness, transactions with affiliates, additional liens, sales of assets, dividends, investments and advances, prepayments of debt, mergers and acquisitions, and other matters customarily restricted in such agreements and customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, defaults
under other material debt, events of bankruptcy and insolvency, failure of any guaranty or security document supporting the senior credit facilities to be in full force and effect, and a change of control of our business. On October 9, 2012, we entered into an amendment to our credit agreement. The amendment eliminated dollar restrictions in paying dividends, distributions to shareholders, or repurchasing of our common share subject to the defined leverage ratio.
Borrowings under our senior credit facilities bear interest at our option of either (i) the Alternate Base Rate (as such term is defined in the credit agreement) plus the applicable margin of 1.75% to 2.25% or (ii) at a fixed rate for a period of one, two, three or six months equal to LIBOR plus the applicable margin of 2.75% to 3.25%. The applicable margins with respect to our senior credit facilities vary from time to time in accordance with agreed upon pricing grids based on our consolidated total leverage ratio. Swing-line loans under our senior credit facilities bear interest only at the Alternate Base Rate plus the applicable margin. Interest on loans based upon the Alternate Base Rate are payable on the last day of each calendar quarter in which such loan is outstanding. Interest on loans based on LIBOR is payable on the last day of the applicable LIBOR period and, in the case of any LIBOR period greater than three months in duration, interest is payable quarterly. In addition to paying any outstanding principal amount under our senior credit facilities, we are required to pay an unused facility fee to the lenders equal to 0.50% to 0.75% per annum on the aggregate amount of the unused revolving credit facility, excluding swing-line loans, commencing on October 26, 2010, payable quarterly in arrears. As of
September 29, 2013
, we had an outstanding principal balance of approximately
$16.2 million
on our term loan facility and no outstanding balance on our revolving credit facility.
Based on our forecasts, management believes that we will be able to maintain compliance with our applicable financial covenants for the next twelve months. Management believes that the cash
provided by
operating activities as well as available borrowings under our revolving credit facility will be sufficient to meet our liquidity needs over the same period.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our on-going business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or variable interest entities (“VIEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of
September 29, 2013
, we were not involved in any VIE transactions and did not otherwise have any off-balance sheet arrangements.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the significant accounting policies from what was previously reported in our
2012
Annual Report on Form 10-K.
Accounting Estimates
— The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances at the time. Actual amounts may differ from those estimates.
Recent Accounting Pronouncements
— We reviewed all newly issued accounting pronouncements and concluded that they either are not applicable to our operations or that no material effect is expected on our financial statements as a result of future adoption.