Champps (NASDAQ:CMPP)
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Champps Entertainment, Inc. (NASDAQ: CMPP) (“Champps”
or “the Company”)
today announced results for its fiscal 2007 third quarter ended April 1,
2007.
Total revenues for the third quarter decreased 4.8 percent to $49.2
million, compared with revenues of $51.7 million for the third quarter
of last year. Comparable same store sales decreased 4.3 percent for
third quarter of fiscal 2007 compared to third quarter of fiscal 2006.
Comparable food sales decreased 3.4 percent, while comparable alcohol
sales decreased 6.5 percent for the third quarter 2007 compared to third
quarter of fiscal 2006.
The Company ended the quarter with $17.3 million of cash, reflective of
a $7.9 million increase in cash since the beginning of the fiscal year.
No borrowings are outstanding under the Company’s
credit facility and no share repurchases were made this quarter. The $15
million of convertible notes payable due December 2007 remain outstanding1.
The average dining room guest check, excluding alcoholic beverages, was
approximately $14.07 for the third quarter of fiscal 2007 compared to
$13.73 for the third quarter of fiscal 2006, a 2.5 percent increase.
During the third quarter of fiscal 2007, food sales and alcoholic
beverage sales represented 71.5 percent and 28.5 percent of total sales,
respectively. During the third quarter of fiscal 2006, food and
alcoholic beverage sales represented 70.9 percent and 29.1 percent of
total sales, respectively.
In January 2007, the Company closed one underperforming restaurant in
Phoenix, Arizona. Previously, the Company had closed three
underperforming locations in May 2006. The results for these locations
along with associated closure and exit costs have been classified as
discontinued operations for all periods presented. Also, in January
2007, the lease expired for a franchised restaurant located in Omaha,
Nebraska which was not renewed.
The net loss for the third quarter 2007 was $0.6 million, or $0.04 loss
per diluted share compared to net loss of $1.9 million, or $0.15 loss
per diluted share in the same quarter last year. An additional income
tax expense of $0.4 million was recorded in the third quarter of fiscal
2007 related to a charge to establish a valuation allowance on certain
income tax credits whose full realization is not more likely than not
based on the income trends of the Company. Also, this quarter the
Company incurred $0.5 million (pre-tax) for potential company sale
expense related to legal and board of directors’
special committee costs associated with the potential sale of the
Company as discussed below. Included in the net loss for the third
quarter fiscal 2006 was $2.1 million (pre-tax) for asset impairment
charges and restaurant closings/disposals. A discontinued operations
loss of $0.2 million (net of tax), or $0.01 loss per diluted share, was
recorded in this year’s third quarter compared
to a discontinued loss of $1.4 million (net of tax), or $0.11 loss per
diluted share recorded in last year’s third
quarter.
“January and February’s
sales this year were down 6.3 percent, which was due in part to the
inclement weather experienced in our Midwest and Eastern markets,
including the typically busy Valentine’s Day
and President’s Day weekend,”
noted Mike O’Donnell, Champps’
Chairman, President, and Chief Executive Officer. “However,
we did see March sales which, while still negative on a comparable
basis, were only down 1.1 percent, which is encouraging from a trend
perspective especially considering that we also experienced inclement
weather during St. Patrick’s Day. For March,
food sales were down 0.4 percent and liquor sales were down 2.5 percent.
Additionally, we experienced a positive same store sales increase in
April.”
O’Donnell added, “We
remain committed to focusing on the basics of our business and our
previously disclosed initiatives as the best way for us to meet our
goals of increased sales and profitability. We have continued the
roll-out of our new cash flow partnership bonus plan and now have 20
general managers and five directors of operation who are participating.
Our 'visioneering' culture-based training program which communicates our
foundational ideas, principles and stakeholder commitments remains a
focus along with other training programs to improve management tenure
and operational effectiveness. Additionally, we plan to open new
restaurants moving forward, with our first new restaurant since 2005
scheduled to open in the fourth quarter of calendar 2007 and we are
actively pursuing franchise opportunities.”
Adjusted diluted income per share from continuing operations without the
income tax valuation expense, potential company sale expenses and
impairment items, would have been $0.02 for the third quarter of fiscal
2007 compared with adjusted diluted income per share from continuing
operations of $0.06 in last year’s fiscal
third quarter. A reconciliation of non-GAAP financial measures is
provided in the financial schedules accompanying this press release.
Unadjusted, the diluted loss per share for the third quarter of fiscal
2007 included $0.05 of income tax valuation expense and potential
company sale expenses, while the diluted loss per share for the third
quarter of fiscal 2006 included $0.10 of asset impairment charges and
restaurant closings/disposals.
Product costs increased to 28.2 percent of sales in the most recent
quarter from 28.1 percent of sales compared to the third quarter of the
last fiscal year. Labor costs increased to 33.0 percent of sales from
31.4 percent of sales for the same period last fiscal year due in part
to higher wage costs as a result of an increase in the tipped minimum
wage in certain states, primarily Ohio and Colorado, as well as the
de-leveraging effects associated with lower sales and higher bonus costs
as a result of the rollout of the partnership bonus program, which
started in March 2006.
Other operating costs were 16.3 percent of sales in this year’s
third quarter compared to 15.5 percent of sales in the same quarter last
year. The increase in other operating costs was due primarily to higher
marketing costs. Occupancy expense while down $0.1 million, was 10.4
percent of sales in the third quarter of fiscal 2007 and 10.1 percent of
sales in the third quarter of fiscal 2006, reflective of the lower
sales. Depreciation and amortization expense was 5.3 percent of sales in
both the third quarters of fiscal 2007 and fiscal 2006.
General and administrative expenses for the third quarter were $3.2
million, or 6.4 percent of sales, compared to $3.7 million, or 7.2
percent of revenues in the comparable period last fiscal year. General
and administrative expenses decreased as a result of lower legal costs
and reduced support staff levels partially offset by higher bonus
expense as a result of the rollout of the partnership bonus program to
directors of operations, which started in May 2006.
A net loss of $7.1 million, or $0.54 loss per diluted share, was
reported for the first nine months of fiscal 2007 compared with net
income of $0.4 million, or $0.03 income per diluted share, reported in
the first nine months of the prior fiscal year. An additional income tax
expense of $7.8 million was recorded in the first nine months of fiscal
2007 related to charges to establish a valuation allowance on certain
income tax credits whose full realization is not more likely than not
based on the income trends of the Company. Also, in the first nine
months of fiscal 2007 the Company incurred $0.5 million (pre-tax) of
potential company sale expenses related to legal and board of directors’
special committee costs associated with the potential sale of the
Company as further discussed below and $0.5 million (pre-tax) of asset
impairment charges. Included in net income for the first nine months of
fiscal 2006 income was $2.1 million (pre-tax) for asset impairment
charges and restaurant closings / disposals. A discontinued operations
loss of $0.3 million (net of tax), or $0.02 loss per diluted share, was
recorded in this year’s first nine months
compared to a discontinued loss of $1.8 million (net of tax), or $0.14
loss per diluted share recorded in last year’s
first nine months.
Adjusted diluted income per share from continuing operations without the
income tax valuation expense, potential company sale expenses and
impairment items would have been $0.12 for the first nine months of
fiscal 2007 compared with adjusted diluted income per share from
continuing operations of $0.27 in last year’s
first nine months. A reconciliation of non-GAAP financial measures is
provided in the financial schedules accompanying this press release.
Unadjusted, the diluted loss per share for the first nine months of
fiscal 2007 included $0.64 of income tax valuation expense, potential
company sale expense and impairment charges while the diluted income per
share for the first nine months of fiscal 2006 included $0.10 of
impairment expense.
As previously disclosed, on January 11, 2007, it was announced that a
Special Committee of the Board of Directors had entered into a letter of
intent with Kinderhook Industries, LLC to sell all of the Company’s
assets (other than certain tax assets) to a new entity to be formed by
Kinderhook, for a purchase price of $75 million in cash, plus the
assumption of all of the Company’s
liabilities, including outstanding debt.
On March 1, 2007, the Company announced that the letter of intent
expired pursuant to its terms and that the Special Committee was
continuing to pursue a sale of the Company and that it had received
indications of interest from a number of potential purchasers. There can
be no assurance that any transaction will be agreed upon or consummated.
The Company's management does not plan to have a conference call this
quarter to discuss earnings.
About Champps Entertainment, Inc.
Champps Entertainment, Inc. owns and operates 49 and franchises/licenses
12 restaurants in 21 states. Champps, which competes in the upscale
casual dining segment, offers an extensive menu consisting of freshly
prepared food, coupled with exceptional service. Champps creates an
exciting environment through the use of videos, music, sports and
promotions.
Safe Harbor Statement
Certain statements made in this press release are forward-looking
statements based on management's current experience and expectations.
These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Such forward-looking statements include statements regarding
our strategic initiatives; the realization or non-realization of
deferred tax assets; impairment charges and closing of restaurants; new
menu and operating initiatives critical to improvement in same store
sales; the absence of new store openings in the remainder of fiscal 2007
and a return to modest growth in fiscal 2008 including franchise growth
efforts; future uses of cash for stock repurchases or exit costs;
decision to pursue a sale of the Company; and the results of the
Company's efforts to solicit competing proposals for the acquisition of
the Company, among others. Among the factors that could cause future
results to differ materially from those provided in this press release
are: the ability of the Company to successfully implement our strategic
initiatives to improve same store sales; the ability to make and fund
stock repurchases; the ability to realize or not realize deferred tax
assets through generation of future taxable income, tax planning
strategies or other means; the ability to finalize the transaction
contemplated by the letter of intent; the impact of intense competition
in the casual dining restaurant industry; the Company's ability to
control restaurant operating costs, which are impacted by commodity
prices, minimum wage and other employment laws, fuel and energy costs,
consumer perceptions of food safety, changes in consumer tastes and
trends, and general business and economic conditions. Information on
significant potential risks and uncertainties that may also cause such
differences include, but are not limited to, those mentioned by the
Company from time to time in its filings with the SEC. The words "may,"
"believe," "estimate," "expect," "plan," "intend," "project,"
"anticipate," "should" and similar expressions and variations thereof
identify certain of such forward-looking statements, which speak only as
of the dates on which they were made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties,
and, therefore, readers should not place undue reliance on these
forward-looking statements.
1 If the debt is not converted, or repaid as
part of a sale transaction (see below), the Company expects to either
pay the debt off with available cash, proceeds from credit facility
borrowings, refinance term debt, or utilize a combination of these
sources.
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended and Nine Months Ended April 1, 2007
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
Nine Months Ended
April 1,
April 2,
April 1,
April 2,
2007
2006
2007
2006
Revenue
Sales
$ 49,055
$ 51,485
$ 150,482
$ 157,177
Franchising and royalty, net
173
174
525
468
Total revenue
49,228
51,659
151,007
157,645
Costs and expenses
Cost of sales and operating expenses
Product costs
13,868
14,462
42,959
44,082
Labor costs
16,191
16,192
48,944
49,428
Other operating expense
7,990
7,987
24,130
23,905
Occupancy
5,092
5,208
15,343
15,572
Pre-opening expense
-
78
-
157
General and administrative expense
3,164
3,710
9,906
10,539
Depreciation and amortization
2,586
2,739
7,778
8,262
Severance
-
5
(136)
110
Asset impairment charges and restaurant closings/disposals
-
2,136
530
2,136
Potential company sale expense
499
-
499
-
Other expense
157
131
269
286
Income from operations
(319)
(989)
785
3,168
Interest expense, net
153
237
632
913
Expense (income) related to predecessor companies
-
(2)
12
(5)
Income (loss) from continuing operations, before tax
(472)
(1,224)
141
2,260
Income tax expense
(133)
(700)
6,941
26
Income (loss) from continuing operations
(339)
(524)
(6,800)
2,234
Loss on discontinued operations, net of tax
232
1,405
326
1,798
Net income (loss)
$ (571)
$ (1,929)
$ (7,126)
$ 436
Basic income (loss) per share:
Income (loss) from continuing operations
$ (0.03)
$ (0.04)
$ (0.52)
$ 0.17
Loss from discontinued operations, net of tax
(0.01)
(0.11)
(0.02)
(0.14)
Net income (loss)
$ (0.04)
$ (0.15)
$ (0.54)
$ 0.03
Diluted income (loss) per share:
Income (loss) from continuing operations
$ (0.03)
$ (0.04)
$ (0.52)
$ 0.17
Loss from discontinued operations, net of tax
(0.01)
(0.11)
(0.02)
(0.14)
Net income (loss)
$ (0.04)
$ (0.15)
$ (0.54)
$ 0.03
Basic weighted average shares outstanding
13,086
13,194
13,104
13,135
Diluted weighted average shares outstanding
13,086
13,194
13,104
13,188
CHAMPPS ENTERTAINMENT, INC.Supplemental Information(Stated
as a percentage of restaurant sales)(Unaudited)
Three Months Ended
Nine Months Ended
April 1,
April 2,
April 1,
April 2,
2007
2006
2007
2006
Store weeks
637
637
1,911
1,911
Average weekly sales
77,009
80,824
78,745
82,249
Product costs
28.2%
28.1%
28.6%
28.1%
Labor costs
33.0%
31.4%
32.5%
31.4%
Other operating expenses
16.3%
15.5%
16.0%
15.2%
Occupancy
10.4%
10.1%
10.2%
9.9%
Pre-opening expenses
0.0%
0.2%
0.0%
0.1%
Total cost of sales and operating expenses
87.9%
85.3%
87.3%
84.7%
Depreciation and amortization
5.3%
5.3%
5.2%
5.3%
Total cost of sales, operating expenses and depreciation and
amortization
93.2%
90.6%
92.5%
90.0%
General and administrative expense
6.4%
7.2%
6.6%
6.7%
(Stated as a percentage of revenue)
Champps Entertainment, Inc.
Selected Balance Sheet Information
(In thousands)
(Unaudited)
April 1,
July 2,
2007
2006
Cash and cash equivalents
$ 17,309
$ 9,449
Total assets
129,729
136,702
Total debt
14,858
14,707
Total shareholders' equity
69,839
76,728
Champps Entertainment, Inc.
Selected Cash Flow Information
(In thousands)
(Unaudited)
Nine Months Ended
April 1,
April 2,
2007
2006
Net cash provided by operating activities
$ 8,966
$ 11,067
Net cash used in investing activities
(627)
(3,289)
Net cash provided by (used in) financing activities
(479)
751
Net change in cash and cash equivalents
$ 7,860
$ 8,529
Reconciliation of Non-GAAP Results to GAAP Results
In addition to the results provided in accordance with Generally
Accepted Accounting Principles (“GAAP”)
throughout this press release, for the three months and nine months
ended April 1, 2007 and April 2, 2006, the Company has provided “adjusted
diluted net income (loss) per share from continuing operations,”
a non-GAAP measurement that excludes the impact of the income tax
valuation allowance expense, potential company sale expenses and asset
impairment charges. The non-GAAP measurement is intended to supplement
the presentation to the Company’s financial
results in accordance with GAAP. The Company believes that the
presentation of this item provides additional information to facilitate
the comparison of past and present financial results. Adjusted diluted
net income (loss) per share from continuing operations should not be
considered in isolation or construed as a substitute for net income
(loss) per share or other operations data or cash flow data prepared in
accordance with GAAP for purposes of analyzing our profitability or
liquidity. Adjusted diluted net income (loss) per share from continuing
operations, as calculated, may not be comparable to similarly titled
measures reported by other companies.
Three Months Ended
April 1, 2007
Reported
IncomeTaxValuation
After-TaxPotential CompanySale Expense
After-TaxImpairmentCharge
Adjusted
Income (loss) from continuing operations
$ (339)
$ 404
$ 302
$ -
$ 367
Loss on discontinued operations, net of tax
232
-
-
-
$ 232
Net income (loss)
(571)
404
302
-
$ 135
Diluted income (loss) per share:
Income (loss) from continuing operations
$ (0.03)
$ 0.03
$ 0.02
$ -
$ 0.02
Loss on discontinued operations, net of tax
(0.01)
-
-
-
(0.01)
Net income (loss)
(0.04)
0.03
0.02
-
0.01
Three Months Ended
April 2, 2006
Reported
IncomeTaxValuation
After-TaxPotential CompanySale Expense
After-TaxImpairmentCharge
Adjusted
Income (loss) from continuing operations
$ (524)
$ -
$ -
$ 1,292
$ 768
Loss on discontinued operations, net of tax
1,405
-
-
-
$ 1,405
Net income (loss)
(1,929)
-
-
1,292
$ (637)
Diluted income (loss) per share:
Income (loss) from continuing operations
$ (0.04)
$ -
$ -
$ 0.10
$ 0.06
Loss on discontinued operations, net of tax
(0.11)
-
-
-
(0.11)
Net income (loss)
(0.15)
-
-
0.10
(0.05)
Nine Months Ended
April 1, 2007
Reported
IncomeTaxValuation
After-TaxPotential CompanySale Expense
After-TaxImpairmentCharge
Adjusted
Income (loss) from continuing operations
$ (6,800)
$ 7,785
$ 302
$ 321
$ 1,608
Loss on discontinued operations, net of tax
326
-
-
-
$ 326
Net income (loss)
(7,126)
7,785
302
321
$ 1,282
Diluted income (loss) per share:
Income (loss) from continuing operations
$ (0.52)
$ 0.59
$ 0.02
$ 0.03
$ 0.12
Loss on discontinued operations, net of tax
(0.02)
-
-
-
(0.02)
Net income (loss)
(0.54)
0.59
0.02
0.03
0.10
Nine Months Ended
April 2, 2006
Reported
IncomeTaxValuation
After-TaxPotential CompanySale Expense
After-TaxImpairmentCharge
Adjusted
Income from continuing operations
$ 2,234
$ -
$ -
$ 1,292
$ 3,526
Loss on discontinued operations, net of tax
1,798
-
-
-
$ 1,798
Net income
436
-
-
1,292
$ 1,728
Diluted income (loss) per share:
Income from continuing operations
$ 0.17
$ -
$ -
$ 0.10
$ 0.27
Loss on discontinued operations, net of tax
(0.14)
-
-
-
(0.14)
Net income
0.03
-
-
0.10
0.13