Exhibit 99
_________________
FOR IMMEDIATE RELEASE
CONTACT: Robert E. Schermer, Jr.
Meritage Hospitality Group Inc.
616/776-2600
GRAND RAPIDS, Michigan, January 9, 2004. Meritage Hospitality Group Inc. (AMEX: MHG), the nation’s only publicly traded Wendy’s franchisee and O’Charley’s franchisee, today announced net sales for the fiscal year ended November 30, 2003 increased 5.6% to $48,513,000, compared to $45,953,000 last year. The Company’s net earnings for the fiscal year increased 4.4% to $740,000 or $0.13 per share, compared to net earnings of $709,000 or $0.12 per share last year.
Meritage’s net sales for the fourth quarter ended November 30, 2003 increased 13.0% to $12,873,000, compared to $11,394,000 over the comparable period last year. Net earnings for the fourth quarter were $425,000 or $0.08 per share, compared to net earnings of $153,000 or $0.03 per share during the same period last year. Net earnings per share were favorably impacted in the fourth quarter and during the fiscal year by credits to earnings from several non-operating items including the previously reported sale of surplus real estate which the Company acquires from time to time in its restaurant development efforts, and a $500,000 income tax credit in the fourth quarter related to the estimated future benefit of net operating loss carryforwards. Conversely, the Company’s earnings were negatively impacted by accelerated depreciation resulting from major property and equipment disposals associated with the Company’s extensive store remodeling program completed during 2003, the closing of a thirty-year old restaurant that was not replaced, and the purchase of a previously leased thirty-year old restaurant that is being demolished and rebuilt.
Commenting on the results, CEO Robert E. Schermer, Jr. stated, “2003 was a year of two distinct consumer environments for our business. In the first half of the year we faced unexpected challenges including a price war (discounting by competitors), a weak local economy, high beef prices, the effects of the war in Iraq, and severe winter weather. Fortunately, many of these factors eased during the second half of the year, and we have experienced continued positive sales momentum since last August. Meritage’s fourth quarter same store sales at our Wendy’s restaurants improved and have continued strong into our first quarter of 2004 despite the mad cow incident reported in Washington. As for the mad cow incident, the Wendy’s system follows strict food safety safeguards and guidelines established years ago. The benefits of our new store development and major store renovations are beginning to produce positive sales results through increased customer traffic. Meritage now has one of the finest multi-unit restaurant portfolios in the Wendy’s system as evidenced by our 100% Sparkle Certification from Wendy’s International.”
2004 OUTLOOK
Looking ahead, the immediate challenge remains high beef prices. As counter intuitive as it may seem, assuming consumer demand remains strong and beef prices decline due to the ban on U.S. beef by several foreign countries, the mad cow incident could actually be a positive for 2004 by lowering restaurant operating margins. Meritage’s development plans for 2004 include opening 2 to 3 new Wendy’s restaurants, and 2 to 3 new O’Charley’s restaurants during the calendar year. Given the strength of our existing store sales, the addition of the new O’Charley’s restaurants, and subject to the timing of store openings, we anticipate compounding double-digit sales growth for the next several years. “The Company’s balance sheet is strong, and 2004 is shaping up to be a solid growth year in our Wendy’s business coupled with an exciting launch of the Company’s new O’Charley’s business segment,” Mr. Schermer added.
On January 5, 2004, Meritage announced it completed a $7.5 million private equity offering for expansion in the casual dining segment with exclusive development rights for O’Charley’s restaurants in Michigan. In addition, the Company reported a $6.3 million financing commitment from G.E. Capital Franchise Finance and a new $2.6 million credit facility with Standard Federal Bank. O’Charley’s, which currently operates 206 restaurants in 16 states in the Southeast and Midwest, is regarded as a leader in food quality within the casual restaurant segment. A typical O’Charley’s restaurant is a free-standing brick building containing 6,790 square feet and seating for 275 customers including 52 bar seats.
Meritage currently operates 47 “Wendy’s Old Fashioned Hamburgers” restaurants throughout Western and Southern Michigan serving 7.0 million customers annually. The Company has been one of the fastest growing Wendy’s franchisees within the Wendy’s franchise system for the past three years. The Wendy’s franchise system is the third largest quick-service restaurant hamburger chain in the world with more than 6,375 restaurants and system-wide sales in excess of $7.1 billion. Wendy’s is the leading national, high quality hamburger concept in the quick-service restaurant category. O’Charley’s is a leading regional high quality casual concept in the casual dining restaurant category.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
Certainstatementscontainedinthisreportthatarenothistoricalfacts constituteforward-lookingstatements,withinthemeaningofthePrivate SecuritiesLitigationReformActof1995,andareintendedtobecoveredbythe safeharborscreatedbythatAct.Relianceshouldnotbeplacedon forward-lookingstatementsbecausetheyinvolveknownandunknownrisks, uncertaintiesandotherfactorswhichmaycauseactualresults,performanceor achievementstodiffermateriallyfromthoseexpressedorimplied. Forward-lookingstatementsmayalsobeidentifiedbywordssuchasestimates, anticipates,projects,plans,expects,intends,believes,shouldandsimilar expressions,andbythecontextinwhichtheyareissued.Suchstatementsare baseduponcurrentexpectationsandspeakonlyasofthedatemade.TheCompany undertakesnoobligationtoupdateanyforward-lookingstatementstoreflect eventsorcircumstancesafterthedateonwhichtheyaremade.
Statementsconcerningexpectedfinancialperformance,on-goingbusiness strategiesandactionswhichtheCompanyintendstopursuetoachievestrategic objectivesconstituteforward-lookinginformation.Implementationofthese strategiesandtheachievementofsuchfinancialperformancearesubjectto numerousconditions,uncertaintiesandriskfactors.Factorswhichcouldcause actualperformancetodiffermateriallyfromtheseforwardlookingstatements include,withoutlimitation,competition;changesinlocalandnationaleconomic conditions;changesinconsumertastesandviewsaboutthefoodthattheCompany serves;severeweather;changesintravelpatterns;increasesinfood,laborand energycosts;theavailabilityandcostofsuitablerestaurantsites;the abilitytofinanceexpansion;fluctuatinginterestrates;fluctuatinginsurance rates;theavailabilityofadequateemployees;directivesissuedbythe franchisor;thegeneralreputationofthefranchisor’srestaurants;andthe recurringneedforrenovationandcapitalimprovements.Also,theCompanyis subjecttoextensivegovernmentregulationsrelatingto,amongotherthings, zoning,minimumwage,publichealthcertification,liquorlicensingandthe operationofitsrestaurants.BecausetheCompany’soperationsareconcentrated inthestateofMichigan,amarkeddeclineintheMichiganeconomycould adverselyaffectitsoperations.
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Food and beverage revenue | $ | 48,513,456 | $ | 45,952,990 | ||||
| Costs and expenses | ||||||||
| Cost of food and beverages | 12,272,050 | 11,183,572 | ||||||
| Operating expenses | 28,606,742 | 26,860,460 | ||||||
| General and administrative expenses | 2,819,095 | 2,763,970 | ||||||
| Depreciation and amortization | 3,043,929 | 2,644,779 | ||||||
| Total costs and expenses | 46,741,816 | 43,452,781 | ||||||
| Earnings from operations | 1,771,640 | 2,500,209 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (2,330,080 | ) | (1,981,855 | ) | ||||
| Interest income | 28,192 | 99,961 | ||||||
| Other income | 19,990 | 33,356 | ||||||
| Gain on sale of non-operating assets | 750,716 | 40,636 | ||||||
| Total other expense | (1,531,182 | ) | (1,807,902 | ) | ||||
| Earnings before income taxes | 240,458 | 692,307 | ||||||
| Income tax benefit | 500,000 | 17,000 | ||||||
| Net earnings | 740,458 | 709,307 | ||||||
| Preferred stock dividends | 26,568 | 26,568 | ||||||
| Net earnings on common shares | $ | 713,890 | $ | 682,739 | ||||
| 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Food and beverage revenue | $ | 12,872,659 | $ | 11,393,956 | ||||
| Costs and expenses | ||||||||
| Cost of food and beverages | 3,438,764 | 2,716,744 | ||||||
| Operating expenses | 7,310,055 | 6,806,527 | ||||||
| General and administrative expenses | 666,261 | 550,235 | ||||||
| Depreciation and amortization | 950,622 | 732,100 | ||||||
| Total costs and expenses | 12,365,702 | 10,805,606 | ||||||
| Earnings from operations | 506,957 | 588,350 | ||||||
| Other income (expense) | ||||||||
| Interest expense | (587,072 | ) | (551,599 | ) | ||||
| Interest income | 83 | 65,801 | ||||||
| Other income | 5,431 | 9,821 | ||||||
| Gain on sale of non-operating assets | -- | 40,636 | ||||||
| Total other expense | (581,558 | ) | (435,341 | ) | ||||
| Earnings before income taxes | (74,601 | ) | 153,009 | |||||
| Income tax benefit | 500,000 | -- | ||||||
| Net earnings | 425,399 | 153,009 | ||||||
| Preferred stock dividends | 6,642 | 6,642 | ||||||
| Net earnings on common shares | $ | 418,757 | $ | 146,367 | ||||
