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Free Hospitality Publications
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Restaurant Industry News
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Tuesday October 24th, 2006 |
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Lone Star Steakhouse 3rd Quarter Profit Falls
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Income from continuing operations for the third quarter decreased to $42,000 or $0.00 per share ($0.00 diluted) from $2,096,000 or $0.10 per share ($0.07 diluted) in the prior year. |
Year-to-date income from continuing operations was $10,209,000 or $0.49 per share ($0.46 diluted) down from $19,024,000 or $0.93 per share ($0.85 diluted) last year.
Included in income from continuing operations for the third quarter of fiscal 2006 and 2005 was non-cash stock compensation expense of $923,000 and $36,000, respectively, which net of applicable income taxes, had the effect of decreasing net income by $650,000 and $173,000, respectively. The year-to- date net effect of non-cash stock compensation decreased net income $1,690,000 in 2006 and $1,326,000 in 2005. Additionally, income from continuing operations for the third quarter of fiscal 2006 included approximately $2,712,000 in merger expenses and $1,823,000 for impairment expense on six Lone Star Steakhouse & Saloon restaurants closed early in the fourth quarter. Fiscal 2005 included approximately $2,653,000 of expense for disaster relief donation and losses related to Hurricane Katrina.
For the third quarter, revenue from continuing operations decreased 1.1% to $138,407,000 from $139,992,000 in the prior year and year-to-date revenues from continuing operations increased 1.5% to $445,832,000 from $439,069,000 last year.
Net income for the third quarter was $214,000 or $0.01 per share ($0.01 diluted) compared to $964,000 or $0.05 per share ($0.02 diluted) last year. Year-to-date net income was $9,395,000 or $0.45 per share ($0.42 diluted) compared to net income of $17,129,000 or $0.84 per share ($0.76 diluted) in 2005.
Comparable store sales growth (decline) by concept:
Concept Twelve-Weeks Thirty-six Weeks Four-Weeks
Ended Ended Ended
Sept. 5, Sept. 6, Sept. 5, Sept. 6, Oct. 3, Oct. 4,
2006 2005 2006 2005 2006 2005
Lone Star
Steakhouse &
Saloon (9.4)% (0.6)% (4.0)% (2.3)% (9.9)% (4.7)%
Sullivan's
Steakhouse 3.1% 2.0% 4.6% 1.6% 2.9% 4.2%
Del Frisco's
Double Eagle
Steak House 9.9% 6.4% 9.9% 7.8% 9.6% 6.6%
Texas Land &
Cattle Steak
House 1.5% 0.7% 2.5% 3.5% (0.6)% 0.4%
Total Company (5.1)% 0.5% (1.0)% (0.4)% (5.1)% (1.9)%
In addition to the numerous economic factors impacting discretionary income for many casual dining consumers, the Lone Star restaurants' comparable store sales were adversely affected by the Company's decision to reduce print pieces in its direct mail advertising program by 68% compared to the third quarter last year, and to discontinue discount coupon marketing. The Company believes the discount coupon marketing program utilizing direct mail and free standing inserts has become ineffective due to proliferation of these offers in the casual dining segment. The Company's expense for the NASCAR sponsorship in the third quarter of 2006 was $1,392,000 bringing year to date NASCAR sponsorship costs to $4,308,000. For the third quarter, guest counts for the Lone Star Steakhouse & Saloon restaurants were down by 7.5% and check average was down by 1.9%.
Thus far in fiscal 2006, seven new Lone Star Steakhouse & Saloon restaurants and three new Texas Land & Cattle Steak House ("Texas Land & Cattle") restaurants have opened. During this same time period, the Company closed 40 underperforming Lone Star restaurants. Thirty-four of these restaurants were closed during the thirty-six week period ended September 5, 2006 and their related operations are included in discontinuing operations. The Company continues to review all of its Lone Star Steakhouse & Saloon restaurants for underperforming restaurants and possible closings.
The Company has plans to open an additional 16 Lone Star Steakhouse & Saloon restaurants and four Texas Land and Cattle restaurants during the remainder of 2006 or 2007. There are also plans to open four Sullivan's Steakhouse restaurants and two Del Frisco's Double Eagle Steak House restaurants during this time period.
The sales volumes for the last nine Lone Star Steakhouse & Saloon restaurants opened since April 2004 and opened for more than four weeks ranged from $2,245,000 to $3,900,000 on an annualized basis and average $2,937,000 compared to $1,910,000 for the older Lone Star restaurants. The new Lone Star Steakhouse & Saloon restaurants annualized average volume has declined from the previously mentioned annualized rate of approximately $3,400,000.
The two new Texas Land & Cattle Steak Houses opened during the third quarter had annualized store volumes ranging from $2,696,000 to $4,520,000 and averaged $3,718,000 compared to $3,199,000 for the original twenty Texas Land & Cattle Steak House units.
During the third quarter, the Company did not repurchase any shares of its common stock. The current repurchase authorization has 2,026,000 shares remaining.
On August 18, 2006, the Company announced it had entered into a definitive agreement to be acquired by affiliates of Lone Star Funds for $27.10 per share, in cash. The Company's Board of Directors approved the agreement in a special meeting on August 18, 2006. The transaction is subject to the Company's stockholders approving the transaction and other customary conditions, and is expected to be completed during the fourth quarter of 2006.
Neither Lone Star Funds nor its affiliates, despite the similarity in name, is an affiliate or associate of Lone Star Steakhouse & Saloon, Inc. and neither Lone Star Funds nor its affiliates have any relationship with Lone Star Steakhouse & Saloon, Inc., except with respect to the merger agreement. No members of the management or the Board of Directors of Lone Star Steakhouse & Saloon, Inc. will be participating with Lone Star Funds or its affiliates in the purchase of Lone Star Steakhouse & Saloon, Inc.
In addition, the Company announced in view of the pending transaction, the Company does not anticipate paying a cash dividend for the 2006 third quarter, but intends to subsequently pay such dividend to its stockholders if for any reason the transaction is not consummated.
The Company expects to provide a proxy statement to its stockholders as soon as practicable. There can be no assurance that the transaction will be completed.
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