Einstein Bros 2008 Annual Report Download - page 28

Form 10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312509042707/d10k.htm[9/11/2014 10:10:56 AM]
Our restaurant gross profit margins (company-owned restaurant gross profit divided by company-owned restaurant sales) improved slightly
to 20.3% in 2007 compared to 20.2% in 2006. Price increases implemented in 2007 and $1.3 million of gift card breakage were offset primarily by
higher commodities costs, labor and labor related costs, and other store level expenses. The cost of flour, cheese, coffee and butter collectively
increased $3.4 million. Wheat and, in turn, flour have reached unprecedented price levels and volatility during 2007. Increased wage rates,
including mandatory minimum wage rate increases, raised our labor costs by approximately $2 million in 2007 compared to 2006. In
addition, increased staffing due to extended hours in company-owned stores increased our labor costs in 2007 compared to 2006 by
approximately $2.2 million. Labor related costs increased by approximately $1 million for health care coverage and workers compensation claims.
Additionally, in 2007 we spent more for taxes, maintenance and insurance related to our company-owned stores.
Manufacturing Operations
(dollars in thousands)
Increase/
(Decrease)
Fiscal
2006
Fiscal
2007
2007
vs. 2006
Manufacturing and commissary revenues $21,076 $24,204 14.8%
Percent of total revenue 5.4% 6.0%
Manufacturing and commissary gross margin (0.4%) (2.4%) (500.0%)
Our manufacturing operations, which include our USDA approved commissaries, predominantly support our company-owned restaurants and
generate revenue from the sale of food products to franchisees, licensees, third-party distributors and other third parties. All inter-company
transactions have been eliminated during consolidation.
During 2007, our manufacturing operations experienced negative margins primarily due to increases in raw material costs, freight costs and
incremental start-up costs associated with new products and customers. Additionally, our margins declined in late 2007 due to the increases in the
price of wheat.
In addition, we incurred one-time charges of approximately $0.5 million associated with our closed commissaries and write-down of
inventory associated with conversion from an old inventory system to the current information technology system.
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Table of Contents
Franchise and License Operations
(dollars in thousands)
Increase/
(Decrease)
Fiscal
2006
Fiscal
2007
2007
vs. 2006
Franchise and license related revenues $ 5,187 $ 5,701 9.9%
Percent of total revenue 1.3% 1.4%
Franchise and license gross margin 100.0% 100.0% 0.0%
Number of franchise and license restaurants 182 196
Revenues for the franchised and licensed operations consist primarily of initial fees and royalty income earned as a result of sales within
franchise and license restaurants. Overall, licensee and franchisee royalty income improved 9.9%, or $0.5 million in 2007 as compared to 2006.
The percentage increase was predominantly due to improved comparable sales of 5.8% in the Manhattan Bagel and Einstein Bros. brands in fiscal
2007 compared to the same period in the prior year and an increase in the number of Einstein Bros. license restaurants and Manhattan Bagel
franchises of 31 and two, respectively. This was offset by the closure of two Einstein Bros. license restaurants, 12 Manhattan Bagel franchises, and
one Manhattan Bagel restaurant that was sold to the Company. The initial franchise and license fees that were recognized for 2007 and 2006 were
$0.6 million and $0.5 million, respectively.
General and Administrative Expenses
(dollars in thousands)
Increase/
(Decrease)
Fiscal
2006
Fiscal
2007
2007
vs. 2006
General and administrative expenses 37,484 40,635 8.4%
As a percentage of total revenue 9.6% 10.1%
Our general and administrative expenses increased 8.4%, or $3.2 million, in 2007 when compared to 2006. As a percentage of sales, our
general and administrative expenses were 10.1% in 2007 compared to 9.6% in 2006. Predominantly contributing to the increase was