Earnings... Look good to me - 2 cents above Zachs. Unaudited - but fundamentals look to be in tact. Should be a good run tomorrow. Any opinions?
-Jay
____________
Monday May 4, 7:57 pm Eastern Time
Company Press Release
Schlotzsky's, Inc. Announces 1st Quarter Results
Net Income Increases 51%
AUSTIN, Texas--(BUSINESS WIRE)--May 4, 1998,--Schlotzsky's, Inc. (NASDAQ:BUNZ - news) today
announced a 51% increase in net income for the quarter ended March 31, 1998. Net income after taxes was $1.34
million for this year's first quarter as compared to $889,000 for the first quarter of 1997. Earnings per share for the
quarter were $0.18, reflecting a 13% increase over the same period in the previous year.
Systemwide sales for all restaurants were $78 million for the quarter. This represented a 28% increase over the
first quarter of 1997. Schlotzsky's total revenue for the first quarter of 1998 was $8.5 million, an increase of 33%
over last year's comparable period.
The Company opened 30 new restaurants during the first quarter of 1998, surpassing its new restaurant
development during the same period last year. There were 698 Schlotzsky's(R) restaurants operating in 38 states
and the District of Columbia in the U.S. and 15 foreign countries as of March 31, 1998.
Schlotzsky's(R) restaurants experienced an increase in same store sales of 6% for the first quarter of 1998 when
compared to first quarter 1997. Average weekly sales for all restaurants increased 12% to $9,260 per week when
compared to $8,262 for the comparable period last year. Restaurants developed by the Company's Turnkey
Program since January 1, 1997, averaged over $15,000 per week for the first quarter of 1998, which is more than
60% higher than the system as a whole.
In connection with the first quarter 1998 earnings, the Company deferred recognition of net cash revenue
received from six Turnkey Program transactions that involved lease guaranties by the Company. This treatment is
consistent with the application of Financial Accounting Standard 66 which was applied with respect to the
Company's 1997 year end results. As of March 31, 1998, the Company had accumulated a net deferral of over $1.0
million of cash revenue received from Turnkey Program transactions. The Company obtained releases of
guaranties during April 1998 which it expects will result in the recognition of revenue during the second quarter.
Schlotzsky's is establishing a new mortgage program which will assist franchisees in purchasing Turnkey
Program restaurants directly from the Company. Merrill Lynch Business Financial Services, a subsidiary of Merrill
Lynch & Co., is committing $25 million to support this program and MetLife Capital, a subsidiary of Metropolitan
Life Insurance Company, has indicated that it will also support the program. The program provides long-term
fixed rate financing for Schlotzsky's franchisees purchasing restaurants developed by the Schlotzsky's Turnkey
Program. Rates currently being quoted are as low as 8.7%, depending on the performance of the restaurant and
the experience of the franchisee.
The Audit Committee of Schlotzsky's Board of Directors met on April 29, 1998 with representatives of Coopers &
Lybrand, L.L.P., which has audited the Company's financial statements for the past four years. Coopers &
Lybrand resigned as the Company's auditor effective today. However, the Company is continuing to use the firm
for tax advice. The Company expects to select a new firm to audit its 1998 financial statements within the next few
weeks.
''Coopers & Lybrand did not review the financial results of the first quarter of 1998,'' stated Monica Gill, Chief
Financial Officer for Schlotzsky's, Inc. ''However, we applied the same accounting treatment to our Turnkey
Program transactions as we applied to fourth quarter transactions,'' said Gill. ''Accordingly, we deferred revenue
and costs associated with Turnkey Program transactions supported by lease guaranties.''
''The fundamentals of our business continue to be strong. We are focused on the continued growth of our
franchise restaurant system and brand reputation. The addition of this very attractive mortgage program gives us
a tool to stimulate new restaurant development and to help our franchisees own rather than rent their restaurant
locations,'' said John C. Wooley, President and CEO of Schlotzsky's, Inc.
Schlotzsky's, Inc., founded in Austin in 1971, is a franchisor of quick service restaurants featuring made to order
sandwiches served on distinctive sourdough bread, along with pizzas, salads, and soups.
NOTE: Statements other than historical information contained in this release, including statements relating to
Schlotzsky's Turnkey Program, may constitute forward-looking statements under The Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors which
may cause actual results to be materially different from those contemplated by the forward-looking statements.
-0-
1st QUARTER 1998
----------------
REVENUES 1998 1997 % CHANGE
---- ---- --------
Royalties $4,259 $3,278 30
Franchise Fees 340 353 (4)
Developer Fees 0 0 -
Restaurant Sales 1,616 1,324 22
Brand Contribution 860 535 61
Turnkey Development 1,125 685 64
Other Fees & Revenues 254 160 59
----- -----
Total Revenues 8,454 6,335 33
OPERATING EXPENSES
Service Costs
Royalties 1,621 1,203 35
Franchise Fees 171 180 (5)
Restaurant Operations
Cost of Sales 534 398 34
Labor Costs 755 530 43
Operating Expenses 500 398 26
G&A
Total Operating
Expenses 2,915 2,010 45
----- -----
6,496 4,719 38
EBITDA 1,958 1,616 21
Interest Income 504 58 769
Depreciation Expense 204 152 34
Amortization Expense 112 98 14
Income Before Taxes 2,146 1,424 51
Income Tax Expense 804 536 50
----- -----
Net Income 1,342 889 51
===== =====
Earnings Per Share
Basic $0.18 $0.16
Diluted $0.18 $0.16
SCHLOTZSKY'S(R) SYSTEM DATA
1st Quarter 1998 1st Quarter 1997
Systemwide Sales (000) $78,043 $60,968
Change in Same Store Sales 6.22% 3.00%
Weighted Average Weekly Sales $9,260 $8,262
New Store Openings 30 29
Stores Closed 5 8
Stores in Operation 698 594
Outstanding Shares (weighted
shares) 7,617,340 5,667,640
1998 RESTAURANT DEVELOPMENT PIPELINE STATUS
(AS OF MAY 4, 1998)
Status of Pipeline Franchise Turnkey TOTAL
------------------ --------- ------- -----
Submitted for Approval 1 14 15
Approved/In Negotiation 7 22 29
Under Contract 2 14 16
Permitting/Bidding 12 14 26
Under Construction 22 12 34
-- -- --
PIPELINE TOTAL 44 76 120
Contact:
Schlotzsky's Inc.
Monica Gill, 512/236-3657
or
Laura Bernstein, 512/236-3821
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