Einstein Noah Restaurant Group Inc. (BAGL) has recently reported third quarter 2011 adjusted earnings of 17 cents per share, which missed the Zacks Consensus Estimate by 2 cents and deteriorated from 21 cents earned a year ago. Lower-than-expected results were due to soft same-store sales and commodity cost inflation.
Total revenue inched up 2.1% year over year to $103.5 million. The uptick reflects strong growth in check, a favorable mix shift and improved catering sales, which were offset by lower comparable transactions.
The tough comparison this quarter can be traced back to the Free Bagel Friday promotion last year. System-wide same-store sales upped 1.0%.
Segment-wise, company-owned restaurant sales dipped 0.4% to $275.5 million, while Manufacturing and Commissary revenue climbed 12.5% to $25.5 million and Franchise and License related revenue was up 16.2% at $7.2 million.
Gross margin contracted 170 basis points (bps) year over year to 17.8% primarily due to a spike in commodity costs as well as product mix shift toward catering and sandwiches plus an increase in rent and other operating and marketing costs, partially offset by lower labor.
Store Update
At the end of the quarter, the company had 758 restaurants, out of which 431 were company owned, 94 were franchised and 233 were licensed.
Financial Position
At the end of the quarter, Einstein Noah had cash and cash equivalents of approximately $11.8 million and a debt burden of $87.7 million. Free cash flow was $22.0 million.
Outlook
For fiscal 2011, the company plans to open 60 to 65 restaurants (previously 75 to 90 restaurants). Einstein Noah also expects cost inflation to be higher in the remainder of 2011. Capital expenditures are estimated at $30 million.
Our Take
We expect the company to benefit from sales-driven initiatives such as the introduction of products and promotion of premium products to attract customers. Moreover, the company’s unit expansion policy remains on track. Lakewood, Colorado-based Einstein Noah will also enjoy the payment of minimal amount cash-taxes for the next several years. To counter inflation, management locked in 100% of its wheat and coffee needs for 2011. For 2012, 44% of its wheat and 70% of its coffee needs are contracted at the current level.
However, we remain cautious about mounting inflation and wavering consumer confidence. Additionally, with quarterly earnings missing the estimate for the last three quarters, we expect a pessimistic outlook by the analysts. Einstein Noah currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. Einstein Noah competes with the companies like Jamba Inc. (JMBA) and Kona Grill Inc. (KONA
We expect the company to benefit from sales-driven initiatives such as the introduction of products and promotion of premium products to attract customers. Moreover, the company’s unit expansion policy remains on track. Lakewood, Colorado-based Einstein Noah will also enjoy the payment of minimal amount cash-taxes for the next several years. To counter inflation, management locked in 100% of its wheat and coffee needs for 2011. For 2012, 44% of its wheat and 70% of its coffee needs are contracted at the current level.
However, we remain cautious about mounting inflation and wavering consumer confidence. Additionally, with quarterly earnings missing the estimate for the last three quarters, we expect a pessimistic outlook by the analysts. Einstein Noah currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. Einstein Noah competes with the companies like Jamba Inc. (JMBA) and Kona Grill Inc. (KONA)
EINSTEIN NOAH (BAGL): Free Stock Analysis Report
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