Wall Street Deli Q4
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Wall Street Deli Q4
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(FOOL CONFERENCE CALL SYNOPSIS)* By Debora Tidwell (MF Debit)
Wall Street Deli Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSDI)") else Response.Write("(NASDAQ: WSDI)") end if %> UNION CITY, Ca., August 14, 1996/FOOLWIRE/ --- Wall Street Deli reported their Q4 and Fiscal Year 1996 results this morning. Net sales for the quarter increased to $17.7 million compared with sales of $17.5 million in Q4 1995. Sales growth primarily resulted from new stores opened since last year. Fiscal 1996 revenues increased to $69.4 million compared with $68.2 million in fiscal 1995. The Company recorded a net loss of $2.5 million, or $0.72 per share. Excluding the non-cash charge from the adoption of SFAS 121, ongoing earnings per share were $0.09 for Q4 and $0.13 for fiscal 1996.
The company elected to take the FASB 121 write-down in Q4 1996. They would be required to do it in 1997 and they decided it was best for the company to get it done and get it behind them. FASB 121 relates to impairment of assets where you are required to review each of your producing assets and write them down if they are not performing to a certain level. The Wall Street Deli's results were that they took a $4.7 million non-cash book charge in Q4. This wrote down 14 stores to their current economic value which is very low -- basically the scrap value of the equipment. This created a $2.6 million loss in Q4 overall and a $2.5 million loss for the year to date or a loss of ($0.76) per share in Q4 and ($0.72) per share year to date.
Depreciation expense for Q4 is $490,000. That is net of a credit of $487,000 which is a cumulative amount of depreciation that was reversed out in Q4. If you add that back in, the company's true restaurant margins for Q4 would have been 10.8%. In Q2, margins were 8.7%, in Q3 they were 10%. While they are making progress, they are still not where they want to be.
In the company's corporate G&A for Q4, the expenses were $964,000 versus an average $700,000 for the first three quarters of the year. They had a lot of adjustments in Q4 and when they decided to do the FASB writedown in Q4 they built some reserves that were added to that expense in Q4. To put it in perspective, if you take those four administrative expense accounts -- the division G&A, catering, corporate G&A, and the interest -- for the year, the net of those expenses was $6.6 million. Their budget for 1997 for those expenses is around $6 million. They had essentially closed their books when they decided to make the FASB write-down and, at that point, if they had not done it the company would have reported earnings per share of $0.04 for Q4 and $0.08 per share for FY 1996. Overall, they view the decision to do the writedown now as a positive move for them because it changes stores that were big losses on their books to either a small loss or a profit which is emotionally good for the people who have to run the stores.
In 1997, taking the FASB writedown early will remove $575,000 of depreciation from their expenses next year -- or will add approximately $0.10 per share to their operating earnings in 1997.
Same store sales for the quarter were down 3.9%, which is their 5th consecutive increase in same store sales even though they still are negative. They think they are doing the right things in the marketplace to reverse this trend and it is a top priority to get it turned around.
They opened one new store in Chicago in Q4 in a Carson Pirie Scott department store. It has been a very successful unit for them. It should trend in the million range. It will be seasonal but it gave them an opportunity to go into a different location than they're normall in.
They opened their Atlanta airport location in Concourse A. It is a franchise unit. The result of the store has been incredible. It looks like the store will do close to $2.5 million in 500 square feet of space. Not only are they doing well, but the store has shown them that they can run a smaller operation and do a lot of volume. The costs on that unit are very good and it has also created a lot of interest in the Wall Street Deli concept through inquiries on franchising.
FUTURE EXPANSION
In the coming year, they are looking to add 7-8 new stores. They have two leases signed in Los Angeles at two very good locations. They are about to wrap up Washington National Airport, which will be their second airport operation (although the company will be running that store, it isn't a franchise location).
They are constantly looking for new site opportunities. The success in the Atlanta airport has shown them that they can downsize a Wall Street Deli without the salad bar and other things and still do a lot of volume. They are looking at opportunities for sites in hospitals, airports, and opportunities other than downtown urban sites. They still have 15 RC Coopers at the end of the fiscal year and they expect to get those either sold or converted over the next year so that they have one concept going forward.
TCBY is now a branded concept within Wall Street Delis in Dallas, Houston, and one store in Denver. They are happy with the progress on that concept. It has been well received by their customers. Their yogurt sales were very depressed before they started with this concept so it is going to take some marketing and training to get customers back into their stores in the late afternoon hours but they feel very positive about the results they have had so far with TCBY. They are going to open a one unit joint-venture test store in Birmingham AL. They are taking an existing TCBY, a traditional unit in the suburbs of Birmingham, at around 2500 square feet. The local franchisee, a very good operator, is now running a barbeque concept and they are going to convert the barbeque concept to a Wall Street Deli concept. They are very excited about the potential of this concept and think they can do some very good volumes with a fairly low investment and if it works would be a good concept for suburban locations to build-out.
MARKETING PROGRAMS
They have been very aggressive in marketing in the last 3 months. Starting July 1st they went with a very strong discounted salad bar. So far the sales have been extremely strong with the salad bar special. They took their max-out salad bar from an average of $4.29 - $4.79 down to $3.99 and added a free fountain drink at that price. They are also continuing with their frequent diner program and they are getting a lot of redemptions that shows them they can build loyal customers through creating value within their concept.
They are planning on continuing the salad bar special until October 1st as a Summer special. October 1st they will be coming out with a chicken sandwich program. They will be introducing three different types of chicken sandwiches.
OTHER ITEMS/HIGHLIGHTS
July 1st they started their CTM training program -- their certified manager training program where they have videos in the stores and have training stores for new employees before they are assigned to another store in the system. They believe that with the new concepts and the marketplace they are competing in, they have to train their employees better, so they are putting a lot of effort into that.
In a prior conference call, the company indicated that 1996 would be a "throwaway" year, that they were trying to get their business straightened out, get a lot of their problems solved, and get themselves in a position to start growing the business again. They think they have accomplished a lot this year in that regard. They closed their commissaries, got their new vendor in place and working there. They got their MIS accounting systems in place and working. There is a lot of additional stuff they can do that they think will start to generate some additional efficiencies in that area, but they are very optimistic about their progress. Their immediate challenge is to get the same store sales turned around. They know that this is necessary to get the business back on solid ground. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |