Einstein Bros 2006 Annual Report Download - page 34

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Results of Operations for 2005 as compared to 2004
Total revenues for 2005 were slightly below our expectations predominantly due to lower manufacturing revenues, license fees and a lower
level of increased transactions at our company-owned restaurants but represented positive sales performance over prior years. Total revenue
improved 4.1% during fiscal 2005 compared to fiscal 2004. This improvement was primarily attributable to an increase in restaurant sales. During
fiscal 2005, we derived 93.3% of our total revenue from our company-owned restaurants. Our company-owned restaurant sales increased 2.4%
when calculated on a comparative 53-week basis for both fiscal 2005 and 2004. Restaurant comparable store sales increased 5.2% for fiscal 2005
due to an increase of 5.4% in check average offset by 0.2% decrease in transactions.
Comparable store sales for each quarter in 2005 and 2004 are as follows:
Fiscal 2005 Fiscal 2004
First Quarter 4.6% (4.8)%
Second Quarter 6.3% (3.7)%
Third Quarter 6.0% (1.6)%
Fourth Quarter 3.9% 2.6%
We believe the positive trend in comparable store sales is a result of price increases coupled with a shift in the product mix to higher priced
items, improvements in the operation of our restaurants including initiatives in customer service and overall restaurant appearance, the introduction
of new menu items, further development of catering programs in selected markets, and advertising campaigns that were initiated in the fourth
quarter of fiscal 2004 and second and third quarters of fiscal 2005 that strengthened consumer awareness.
Gross Profit
Our total gross profit during fiscal 2005 demonstrates continuing improvement over prior years due to careful monitoring of the impact of
price increases and the cost of products sold using theoretical food cost models. The dollar change in our total gross profit improved 9.7% during
fiscal 2005 compared to fiscal 2004. The improvement was primarily driven by an increase of 12.5% in our company-owned restaurant margins,
which contributes the most significant component of total gross profit. Our restaurant margins are impacted by various restaurant-level operating
expenses such as the cost of products sold, salaries and benefits, insurance, supplies, repair and maintenance expenses, advertising, rent, utilities
and property taxes. Similarly, our manufacturing margins are impacted by various manufacturing-level operating expenses such as the cost of
products sold, salaries and benefits, insurance, supplies, repair and maintenance expenses, rent, utilities and property taxes. Depreciation,
amortization and income taxes do not impact our restaurant or manufacturing margins.
Because certain elements of cost of sales such as rent, utilities, property taxes and manager salaries are fixed in nature, incremental sales
positively impact gross profit. During fiscal year 2005, the increase in company-owned restaurant sales over the comparable period contributed
approximately $11.7 million of store contribution margin related to the increased sales. This margin increase was partially offset by approximately
$1.6 million in additional marketing expenses, $2.0 million in additional bonuses payable to restaurant managers due to improved operating
performance and $0.7 million in increased bank charges and credit card fees.
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Our manufacturing operations are ancillary to our company-owned restaurants. For the fiscal years ended 2005 and 2004, our manufacturing
margins represented less than 1.0% of total revenues. The profit derived from our manufacturing operations represents third-party sales and can be
significantly impacted by fixed overhead costs such as rent, utilities, property taxes and manager salaries and fluctuating commodity costs.
Other Expenses
Our general and administrative expenses increased 10.2% during fiscal 2005 when compared to the same period in 2004. Approximately
$2.4 million was the result of an increase in salaries and bonuses to corporate office staff and management due to improved operating performance.
Also contributing to the increase was approximately $0.6 million in travel, $0.4 million in severance wages, $0.5 million in additional accrued
vacation wages payable in future periods, $0.3 million in additional recruiting and relocation expenses, offset by approximately $1.1 million in
reduced legal spending for matters that were resolved in early 2005.
Depreciation and amortization expenses decreased 5.5% during fiscal 2005 when compared to the preceding fiscal year. The decrease in
depreciation and amortization expense is primarily due to a portion of our asset base becoming fully depreciated.