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Restaurant Industry News
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Wednesday January 7th, 2009 |
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Perkins & Marie Callender's Inc. Reports Results for the Third Quarter Ended October 5, 2008
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Total revenues down 2.6% to $127.9 million |
Click here for financial tables
Perkins & Marie Callender's Inc. is reporting today the financial results for its third quarter ended October 5, 2008.
Highlights for the third quarter of 2008 as compared to the third quarter of 2007 were:
• Total revenues were down 2.6% to $127.9 million in the third quarter of 2008, primarily due to decreases in comparable sales at Perkins and Marie Callender's restaurants, partially offset by the operations of six new Company-operated Perkins restaurants. Since the third quarter of 2007, the Company has opened six new Perkins restaurants and acquired one Perkins restaurant from a franchisee.
• One Perkins franchised restaurant opened during the third quarter of 2008 and two Perkins franchised restaurants were closed during the third quarter of 2008.
• Perkins restaurants' comparable sales decreased by 3.7% and Marie Callender's restaurants' comparable sales decreased by 8.6% in the third quarter of 2008 as compared to the third quarter of 2007. These declines in comparable sales resulted primarily from a decrease in comparable guest counts at both concepts.
• We refinanced our existing term loan and revolver with $132.0 million of secured notes and a new $26.0 million revolver. The related debt agreements governing the secured notes and the new revolver contain minimal financial maintenance covenants. In connection with the refinancing, the Company received $12.5 million in contributions from its parent and affiliates.
J. Trungale, President and Chief Executive Officer of Perkins & Marie Callender's Inc., commented, "Economic conditions during the third quarter 2008 presented unprecedented challenges to the restaurant industry as a whole, including Perkins & Marie Callender's Inc. Despite this, we successfully refinanced our secured debt, which we believe speaks to the inherent strength of our brands. Foxtail continues to be in a recovery mode. We are diligently improving its systems and management strength in order to improve its manufacturing processes and financial results. Finally, in light of current economic conditions, we have implemented value-driven initiatives across both the Perkins and Marie Callender's brands in order to attract customers by offering less expensive menu items and alternatives. Although the economy has clearly impacted overall guest count, we remain steadfast in our long term commitment to high service levels and quality."
Third Quarter of 2008 Financial Results
Revenues in the third quarter of 2008 decreased 2.6% to $127.9 million from $131.3 million in the third quarter of 2007. The decrease resulted from a $4.0 million decrease in sales in the restaurant segment and a $0.6 million decrease in sales in the franchise segment, partially offset by a $1.2 million increase in sales in the Foxtail segment.
Food cost for the third quarter of 2008 increased to 29.6% of food sales from 28.5% in the third quarter of 2007. Restaurant segment food cost was down by 0.3% to 26.2% of food sales in the third quarter of 2008 as the impact of higher commodity costs were fully offset by menu price increases and improved store-level controls. In the Foxtail segment, food cost increased to 66.7% of food sales in the third quarter of 2008 from 60.8% in the third quarter of 2007, due primarily to higher dairy and flour prices.
Labor and benefits costs, as a percentage of total revenues, decreased by 0.1% to 32.4% in the third quarter of 2008 compared to the third quarter of 2007. In the third quarter of 2008, a 0.2% decrease in the restaurant segment resulting from lower employee medical insurance costs was partially offset by increases resulting from higher seasonal contract labor costs in the Foxtail segment.
Operating expenses for the third quarter of 2008 were $34.2 million, or 26.8% of total revenues, compared to $34.7 million, or 26.4% of total revenues in the third quarter of 2007. Restaurant segment operating expenses increased by 0.5% to 29.3% of restaurant sales in the third quarter of 2008 due primarily to increased utilities costs. Operating expenses in the Foxtail segment increased by $0.3 million or 1.1% to 12.6% of segment food sales due primarily to higher custodial service costs resulting from a 2008 outsourcing arrangement and from higher repair and maintenance costs.
General and administrative expenses were 8.3% of total revenues, an increase of 1.7% from the third quarter of 2007. The increase is due primarily to higher marketing costs at Foxtail and increased consulting costs.
Depreciation and amortization was 4.5% and 4.6% of revenues in the third quarters of 2008 and 2007, respectively.
Interest, net was 6.7% of revenues in the third quarter of 2008, compared to 5.5% in the prior year's third quarter. The 1.2% increase resulted mainly from an increase in the average effective interest rate on the Company's debt to 11.9% from 10.3% during the third quarter of 2008 compared to the third quarter of 2007, and an approximate $8.4 million increase in the average debt outstanding during the third quarter of 2008 compared to the third quarter of 2007.
On September 24, 2008, the Company issued $132.0 million of 14% senior secured notes and entered into a new $26.0 million revolving credit facility, in connection with the refinancing of its then existing $100.0 million term loan and $40.0 million revolver. The pre-existing credit agreement terminated upon the consummation of the refinancing. In connection with this transaction, we recognized a loss of $3.0 million, representing the write-off of previously deferred financing costs related to the terminated credit agreement.
As of October 5, 2008, we recorded a non-cash goodwill impairment charge of $20.2 million, comprised of $18.5 million to our franchise segment and $1.7 million to our Foxtail segment. We also reviewed all identifiable intangible assets, and, based on the results of our interim review, no additional impairment charges were considered necessary.
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