Quality Dining Q3
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Quality Dining Q3
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(FOOL CONFERENCE CALL SYNOPSIS)* Randy Befumo (MF Templar)
QUALITY DINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QDIN)") else Response.Write("(NASDAQ: QDIN)") end if %> OVERVIEW: Quality Dining is a restaurant management company that has recently acquired two entire chains in an effort to accelerate growth. In the past few months, Quality Dining has bought Grady's American Grill and Bruegger's Corporation lock, stock and barrel, transforming them from a franchisee into the a franchiser and the owner of two unique restaurant properties. In addition to its new casual dining chain and bagel bakeries, Quality Dining runs Burger Kings, Chili's and Spageddies. The company recently completed a secondary offering of 2.5 million shares to help pay for the very large Bruegger's acquisition, which to some seemed like an instance of the minnow swallowing the whale. Priced cheaper than EINSTEIN'S/NOAH'S BAGELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ENBX)") else Response.Write("(NASDAQ: ENBX)") end if %> and without the complicated accounting baggage of MANHATTEN BAGEL'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BGLS)") else Response.Write("(NASDAQ: BGLS)") end if %>, Quality Dining represents a credible alternative if investors are looking for a retail dining concept with exposure to the fast growth bagel bakery market.
THIRD QUARTER RESULTS
ALEXANDRIA, Va., September 9, 1996/FOOLWIRE/ --- Quality Dining announced total revenues of $63.6 million for the third quarter of fiscal 1996, an increase of 148% over the same period of fiscal 1995. The increase was the rest of the company's acquisitions of Bruegger's Corporation and Grady's American Grill as well as continued strong growth in the Company's other units. Comparable restaurant sales for company-owned units for the third quarter of fiscal 1996 were positive 2.4% at Bruegger's Bagel Bakeries, positive 2.3% at Burger King restaurants, positive 6.8% at Spageddies Italian Kitchen restaurants and negative 6.1% at Chili's Grill & Bar restaurants. Sales at Chili's restaurants have recently turned positive according to the company.
The Company reported pre-tax income of $3.7 million for the quarter, excluding restructuring and integration costs, a 27% increase versus the comparable period in fiscal 1995. Excluding the special charge, the Company's net income for the third quarter of fiscal 1996 would have been $2.2 million, or $0.17 per share. The per share amounts for the third quarter of fiscal 1996 reflect a 90% increase in weighted average shares outstanding over the comparable period in fiscal 1995. As previously reported, the Company recorded a special pre-tax charge of $8.0 million during the quarter for restructuring and integration costs related to the acquisition of Bruegger's Corporation. Including the special charge, Quality Dining reported a net loss of $2.9 million for the quarter, or $0.23 per share.
YEAR-TO-DATE RESULTS
Quality Dining also reported record total revenues of $172.6 million for the first 40 weeks of fiscal 1996, a 122% increase over the comparable period in fiscal 1995. Comparable restaurant sales for company-owned units for the 40 weeks ended August 4,1996, were positive 0.9% at Bruegger's Bagel Bakeries, positive 0.5% at Burger King restaurants and negative 1.1% at Chili's Grill & Bar restaurants. For the 40 weeks ended August 4, 1996, Quality Dining reported pre-tax income of $10.0 million, excluding restructuring and integration costs, an increase of 53% over the comparable period in fiscal 1995. Excluding the special charges, the Company's net income for the first 40 weeks of fiscal 1996 would have been $6.2 million, or $0.61 per share, compared with $4.1 million, or $0.61 per share, for the comparable period in fiscal 1995. The per share amounts for the first 40 weeks of fiscal 1996 reflect a 49% increase in weighted average shares outstanding over the comparable period in fiscal 1995. Including the special charges, Quality Dining reported a net loss of $0.2 million for the first 40 weeks of fiscal 1996, or $0.01 per share.
OPERATING EXPENSES
Operating expenses were up almost across the board as a result of expense related to the two mergers. Food and beverage expenses were up 0.80% over year ago levels, payroll costs were up 3.0%, depreciation and amortization was down 0.10% and other operating expenses were 1.9%. General and administrative expenses were 6.1% of revenues in the quarter compared to 5.0% last year. Year-to-date, general and administrative expenses were 5.8% of revenues compared to 5.2% a year ago. These costs will continue to be higher than year-ago levels as they integrate the Bruegger's acquisition. Bruegger's was a much larger chain than Quality Dining when it purchased the company and it will require increased management level support. The company believes that interest expenses as a percentage of sales should decrease in the future as a result of the 2.5 million share secondary offering that Quality Dining recently completed.
UNIT COUNT
Quality Dining began the quarter with 150 units and ended the quarter with 490 units because of the Bruegger's acquisition. Total Bruegger's units at the end of the quarter were 359, with 80 owned by the company and another 279 franchised units. Quality Dining had 63 Burger King units at the end of the quarter in the fast-food segment and 42 Grady's American Grills, 21 Chili's and five Spageddies.
In the next quarter, unit count will increase because of continued emphasis on the Bruegger's concept. Bruegger's fourth quarter unit count will be 102 company-owned stores and 323 franchised units. The pipeline for Bruegger's openings is filling up nicely and they are consistent with their plan. Burger King will have no openings, Grady's will be flat as well, they will open one Chili's to get up to 22 and one Spageddies to notch up to six there. This is going to bring them to over 550 units, all told.
For fiscal 1997, the company's goals are pretty lofty. They want 675 Bruegger's, 67 Burger King's, 43 Grady's, 25 Chili's and eight Spageddies. The company stressed that some analysts have confused calendar year goals with fiscal year goals and that they are on track for their 1997 goals currently. Quality Dining remains confident that they have the money, management and partners to get to 2000 units by the year 2000.
DEVELOPING BRUEGGER'S
Since the closure of the merger with Bruegger's, Quality Dining has added key management, built infrastructure and talked to its partners. One key addition is a former Burger King executive, former head of all European operations, who has hit the ground running at Bruegger's. A number of other additions were named in the conference call and they have added a lot of warm bodies to the Bruegger's human infrastructure.
The company has geared up its support services group and developed a POS system for customer service. This is a new restaurant information management system that will be the basis for a system throughout Bruegger's. It will be in place this year for company owned units and offered starting in December for franchisees.
DEVELOPING GRADY'S
Grady's has been getting a lot of attention as well. There is a 30-month strategic plan in place. They are focusing the menu and have added a specific lunch and dinner menu. They have geared the new menu to bring to the consumers something that was easier to read and more user friendly, but one that allowed them to execute better. Their goals with the food was to improve flavor profile and some portion sizes to make the food more relevant to where the consumer trend is going. They are looking to place a chef in every restaurant to ensure the food quality. Its original target was to do this by November 1st but it may take until December 1st.
Quality Dining has implemented a new service awareness program and there has been an increase in productivity on the staff side. They are also looking to significantly increase the average check size. The new menu was rolled out between August 1st and August 15th and in that time checks are up 10% without any price increases. The results are not going to be immediate, but the company believes it is headed in the right direction * 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 |