Einstein Bros 2012 Annual Report Download - page 21

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312513085036/d445565d10k.htm[9/11/2014 10:07:50 AM]
We are the largest owner/operator, franchisor and licensor of bagel specialty restaurants in the United States. As a leading fast-casual
restaurant chain, our restaurants specialize in high-quality foods for breakfast, lunch and afternoon snacks in a bakery-café atmosphere with a
neighborhood emphasis. Our product offerings include fresh bagels and other bakery items baked on-site, made-to-order breakfast and lunch
sandwiches on a variety of bagels, breads or wraps, gourmet soups and salads, assorted pastries, premium coffees and an assortment of snacks. Our
manufacturing operations and network of independent distributors deliver high-quality ingredients to our restaurants.
Fiscal 2012 reflect our continued focus on execution of our key strategies and the in-depth review of strategic alternatives by our Board of
Directors (the “Board”). This Overview will first review 2012 Highlights and Trends and the results of the strategic alternatives review. Lastly, we
will provide a 2013 Outlook.
2012 Highlights and Trends
Our results for 2012 reflect the continued soundness of our business model, the underlying strength of our brands and the talent and
dedication of our employees. We continued to focus on our key strategies which are:
• Drive comparable store sales growth;
• Manage corporate margins; and
• Accelerate unit growth.
For 2012, our system-wide comparable store sales were +1.0% with seven consecutive quarters of positive system-wide comparable store
sales.
Q1 Q2 Q3 Q4 Year
System-wide comparable sales +1.1% +1.3% +0.2% +1.4% +1.0%
Company-owned comparable sales +1.1% +1.2% +0.2% +1.1% +0.9%
The primary reasons for this sequential improvement was strong growth in average check, a favorable menu mix shift, strength in catering
sales and slightly lower customer discounts. This was partially offset by lower comparable transactions.
Our catering business, on a comparable store basis, grew by approximately 17% which we attribute to our focus on our online ordering
system, online search engine and online marketing. Our catering business now makes up approximately 8% of our comparable company-owned
restaurant revenues. We have also seen strong growth in our blended beverage line of business. Coffee and blended beverage sales now represent
approximately 10% of our menu mix and continue to grow. We believe that our sandwich business continues to benefit from the success of our
bagel thin sandwich platform, paninis and our continued focus on healthy, low calorie food options. We targeted our marketing investments at
coupons, directional billboards and digital online media.
Our margin as a percentage of restaurant revenues improved in our company-owned restaurants by 1.1% primarily due to a 2.0% drop in our
prime costs (combined costs of sales and total labor) as a percentage of
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company-owned restaurant revenues. Our initiatives around food costs and labor, including waste management, made up 1.6% of this improvement
in food costs. Partially offsetting the improvement in the management of our prime costs was an increase in marketing investment of 0.4% as a
percentage of company-owned restaurant revenues. Our marketing investment in fiscal 2012 included product testing in certain markets, continued
local store (grass roots) marketing and grand opening support.
Revenues from our manufacturing facility grew by $1.4 million, or 4.7%, to $30.5 million as a result of additional export revenues. Our
commissary revenues declined by approximately $4.9 million in 2012 from 2011 as a result of the closure of our commissaries. To streamline our
supply chain and to reduce our cost base, in March 2012, we completed our plan to close our five food commissary facilities. Related to this plan,
we incurred approximately $0.7 and $0.5 million of restructuring expenses in 2011 and 2012, respectively, including employee termination
benefits and lease termination expenses. We realized cost savings of approximately $1.5 million from the closure of these facilities. For our
manufacturing and commissaries segment as a whole, revenues declined by $3.4 million, or 10.1%, while this segment’ s profitability improved by
$2.7 million, or 66%.
We made progress in balancing our unit portfolio toward our goal of having at least 50% of our system-wide units being franchise and
license units. The proportion of units opened in our franchise and license channels was approximately 72% of total openings as we opened 40
franchise and license units in addition to 15 company-owned restaurant openings. In total, we opened 55 units. Total net units increased in fiscal
2012 to 816 from 773 at the end of fiscal 2011.