Exhibit 99.1
Schlotzsky's, Inc. Announces 2003 Second-Quarter Results;
Continued Sales Decline; Overhead Reductions;
New Menu Format Moving Forward
AUSTIN, Texas--(BUSINESS WIRE)--Aug. 14, 2003--Schlotzsky's, Inc.
(Nasdaq:BUNZ) today reported revenues of $14.3 million and a net loss
of $2.3 million, or $(0.31) per diluted share, for the quarter ended
June 30, 2003. This compares with revenues of $15.9 million and net
income of $487,000, or $0.07 per diluted share, during the same period
last year. Included in the operating results for the current quarter
were increases in provisions for bad debt and guarantee exposure of
$1.7 million due to the weak performance of certain franchised
restaurants, said officials.
"We and our franchise owners continue to find the marketplace very
challenging. But we also believe that we now have in place important
initiatives that are the right responses to the challenges we face,"
said John C. Wooley, president and chief executive officer. Among the
initiatives the Company has undertaken to improve financial results
and reinvigorate growth:
-- The Company has streamlined its organization and reduced
corporate headquarters staff by 39 positions, or approximately
29 percent, and is implementing plans to substantially reduce
other general and administrative expenses. Company officials
expect to see the results of the reduction in force beginning
in the fourth quarter of 2003, with separation payments
expensed in the third quarter, and to realize a total
reduction in general and administrative expenses of at least
$4 million on an annualized basis.
-- The Company is enhancing its menu with greater culinary
sophistication, improved nutritional values, and greater
choice for the consumer. Concept 2005 is the core initiative
that provides a self-paced menu roadmap for franchise owners
to upgrade their offerings, with the goal of completing
systemwide conversion over the next three years.
-- The Company has launched a restaurant remodeling and reimaging
program as part of Concept 2005, also self-paced for franchise
owners, with new designs ranging in size from small shopping
center designs to freestanding marketplace restaurants.
-- The Company has been communicating with its franchise owners -
through regularly scheduled conference calls on which all are
invited to participate, the national convention of
Schlotzsky's franchise owners, and Internet based
communications - to gain their participation in shaping and
adopting these new initiatives. Officials said that the
Concept 2005 menu enhancement and restaurant reimaging were
well received by franchise owners at its convention in July in
Washington, D.C.
-- The Company is seeking to refinance certain seller financed
debt which matures in 2005 and higher interest rate mortgage
debt to amortize them over a longer term at more favorable
rates.
-- The Company has refocused its franchise sales efforts,
supported by the Concept 2005 menu format and new restaurant
design offerings, which are expected to make the concept more
attractive to prospective franchise owners. The Company has
also combined its real estate and franchise licensing
functions.
For new franchise owners, the Company is marketing to both large
multi-unit operators and individual on-premise owner-operators. In
addition, the Company is advising its current franchise owners to
choose one of two paths to success. Those who are career professional
restaurant operators capable of operating multiple units and larger
restaurants will be invited and encouraged to do so. For certain other
franchise owners, such as career-change entrants to the restaurant
business who have had recent difficulties, the Company may offer
assistance to help them sell one or two of their units to third
parties so that they can concentrate on being successful as an
on-premise owner-operator in a restaurant with the new menu and design
format.
"As we move forward on menu rollout, restaurant reimaging, and
franchise sales, we expect to see our financial results improve. We
strongly believe these are the right responses to address the
competitive challenges we have seen," said Wooley. Concept 2005,
already in place in several Company-operated restaurants, is expected
to deliver improved financial results as franchise owners adopt the
self-paced concept design and menu roadmap. The Company also expects
Concept 2005 to help accelerate its franchise growth initiative, said
officials.
Schlotzsky's will conduct a conference call to discuss information
included in this press release and related matters at 9:30 a.m. CDT on
Thursday, August 14, 2003. The conference call will be available for
analysts and institutional investors at 1-800-341-2319, PIN #8239. The
conference call will be available simultaneously, and in its entirety,
to all interested investors and news media through a webcast at
www.cooldeli.com.
Schlotzsky's, Inc., founded in Austin, Texas, in 1971, through its
wholly-owned subsidiaries, is a franchisor and operator of restaurants
in the fast casual sector. Our current menu features upscale
made-to-order hot sandwiches and pizzas served on our proprietary buns
and crusts, wraps, chips, salads, soups, fresh baked cookies and other
desserts, and beverages. As of June 30, 2003, there were 597
Schlotzsky's(R) Deli restaurants open and operating in 37 states, the
District of Columbia and six foreign countries. Visit
www.schlotzskys.com or www.cooldeli.com for more information and
e-coupons.
This press release may contain statements deemed to be
"forward-looking statements" within the meaning of Section 27A of the
Securities Act or Section 21E of the Exchange Act. Any statements that
are not statements of historical fact may be deemed forward-looking
statements. Forward-looking statements are not meant to predict or
guarantee actual results, performance, events, or circumstances and
may not be realized because they are based upon our current
projections, plans, objectives, beliefs, expectations, estimates, and
assumptions and are subject to a number of risks and uncertainties,
many of which are beyond our control. Actual results and the timing of
certain events and circumstances may differ materially from those
described by the forward-looking statements as a result of these risks
and uncertainties. Forward-looking statements may include, without
limitation, statements concerning business, financial and growth
strategies and objectives, costs and earnings projections, new
restaurant development, and assumptions relating to any of these
statements. Factors that may influence forward-looking statements or
cause actual results to differ materially from those described or
anticipated by the forward-looking statements may include, without
limitation, inability of the Company or our franchisees to obtain
adequate financing, increased competition within the restaurant
industry, continued viability of restaurants during a weak economy,
inability to sell restaurants, failure to adequately motivate
franchisees to remodel and reimage their restaurants and to fully
implement Concept 2005, failure to successfully recruit multi-unit and
single-unit franchisees, and stock volatility and illiquidity. Because
of the risks and uncertainties related to these factors and the
forward-looking statements, readers are cautioned not to place undue
reliance on the forward-looking statements. There can be no assurance
that any events or results described in any forward-looking statement
will actually occur or be achieved. We undertake no obligation to
publicly revise the forward-looking statements to reflect events or
circumstances that arise after the date hereof or to reflect the
occurrence of unanticipated events or circumstances. Readers should
carefully review the risk factors described above and in other
documents filed by the Company with the SEC. Readers are specifically
directed to the discussion under "Risk Factors" in the Company's most
recent Form 10-K.
SCHLOTZSKY'S, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Six Months Ended
------------------------- --------------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
(Unaudited) (Unaudited)
------------------------- --------------------------
Revenues
Royalties $ 4,285,230 $ 5,264,312 $ 8,589,118 $ 10,383,799
Franchise
fees 3,333 42,000 3,333 62,000
Developer
fees 44,228 60,034 94,387 120,067
Restaurant
sales 8,000,609 8,269,362 15,612,838 16,140,254
Brand
contribution 1,708,957 1,991,130 3,360,062 3,874,157
Other fees
and revenue 219,390 276,294 432,039 568,679
------------------------- --------------------------
Total
revenues 14,261,747 15,903,132 28,091,777 31,148,956
------------------------- --------------------------
Expenses
Service costs:
Royalties 667,118 1,106,100 1,330,910 2,241,368
Franchise fees - 15,955 - 25,955
------------------------- --------------------------
667,118 1,122,055 1,330,910 2,267,323
------------------------- --------------------------
Restaurant
operations:
Cost of sales 2,348,501 2,311,986 4,520,121 4,508,120
Personnel and
benefits 3,445,067 3,292,578 6,810,228 6,461,889
Operating
expenses 2,202,095 1,869,095 4,104,342 3,635,994
------------------------- --------------------------
7,995,663 7,473,659 15,434,691 14,606,003
------------------------- --------------------------
Loss on equity
investment 83,693 48,074 150,843 78,294
------------------------- --------------------------
General and
administrative 6,712,589 4,835,390 11,783,304 9,315,277
------------------------- --------------------------
Depreciation
and
amortization 1,282,595 1,086,438 2,532,001 2,169,731
------------------------- --------------------------
Total
expenses 16,741,658 14,565,616 31,231,749 28,436,628
------------------------- --------------------------
Income
(loss)
from
operations (2,479,911) 1,337,516 (3,139,972) 2,712,328
Other
Interest
income 103,609 94,618 207,257 312,061
Interest
expense (1,009,968) (655,436) (2,025,873) (1,257,962)
------------------------- --------------------------
Income
(loss)
before
income
taxes (3,386,270) 776,698 (4,958,588) 1,766,427
Provision
(credit) for
income taxes (1,119,000) 288,000 (1,625,000) 650,000
------------------------- --------------------------
Net income
(loss) $(2,267,270) $ 488,698 $ (3,333,588) $ 1,116,427
========================= ==========================
Earnings per
common share -
basic $ (0.31) $ 0.07 $ (0.46) $ 0.15
========================= ==========================
Earnings per
common share -
diluted $ (0.31) $ 0.07 $ (0.46) $ 0.15
========================= ==========================
OTHER OPERATING DATA
Restaurants
Open -
Beginning of
Period 619 672 643 674
Openings
During
Period -
New 7 5 7 7
Reopenings 1 2 2 6
------------------------- --------------------------
Total
Openings 8 7 9 13
Closings
During
Period (30) (8) (55) (16)
------------------------- --------------------------
Restaurants
Open - End of
Period 597 671 597 671
========================= ==========================
Systemwide
Contractual
Sales $85,263,000 $102,645,000 $170,776,000 $202,848,000
Decrease in
Systemwide
Contractual
Sales (16.9%) (6.5%) (15.8%) (6.5%)
Decrease in
Same Store
Contractual
Sales (11.9%) (5.5%) (11.7%) (5.4%)
Average Weekly
Contractual
Sales $ 10,773 $ 11,800 $ 10,595 $ 11,635
Decrease in
Average Weekly
Contractual
Sales (8.7%) (1.7%) (8.9%) (1.5%)
Note: Systemwide contractual sales, same store contractual sales and
average weekly contractual sales are all based on contractual sales as
defined in our Franchise Agreements and represent net sales under
generally accepted accounting principles plus the amounts of any
discounts for employee or manager meals. Contractual sales are used
because these are the basis of our royalty income and are the only
sales amounts reported by the franchisees.
CONTACT: Schlotzsky's Inc., Austin
Jessica Furlow, 512-236-3644
ir@schlotzskys.com