Einstein Bros 2013 Annual Report Download - page 21

10-K
http://www.sec.gov/Archives/edgar/data/949373/000119312514073832/d629623d10k.htm[9/11/2014 10:05:27 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 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.
This Overview will review 2013 Highlights and Trends and provide a 2014 Outlook.
2013 Highlights and Trends
Our results for 2013 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 and tactics which are to:
• Drive same-store sales growth;
• Manage and enhance corporate margins through supply chain, manufacturing and store level efficiency; and
• Accelerate unit growth primarily through franchise and license expansion. We opened a record 61 restaurants in 2013.
For fiscal 2013, our system-wide and company-owned comparable store sales were -0.3% and -0.6%, respectively, with a quarterly
distribution as follows:
Q1 Q2 Q3 Q4 Year
System-wide comparable sales -0.6% +0.7% -1.4% +0.1% -0.3%
Company-owned comparable sales -1.0% +0.4% -1.4% -0.5% -0.6%
While system-wide transaction decline was -2.4% for fiscal 2013, the fourth quarter posted a transaction decline of only -1.0%. During fiscal
2013, we focused on stimulating comparable transactions by improving our value layer deals coupled with innovative features on our premium
sandwiches. Average check increased +2.1% for fiscal 2013 on a system-wide basis.
Our focus on our online ordering system, online search engine and online marketing resulted in growth of our catering business by
approximately 18%. Our catering business now makes up approximately 9% of our company-owned restaurant revenues. Coffee and blended
beverage sales also represent approximately 9% of our menu mix and continue to grow.
Our margin as a percentage of restaurant revenues declined at our company-owned restaurants by 1.5% primarily due to sales deleveraging.
Our prime costs (combined costs of sales and total labor) increased 0.6% to
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57.4% of company-owned restaurant sales as a result of our investment in value-driven discounting. Our marketing expenses declined 0.2% to
2.8% of company-owned restaurant sales.
Revenues from our manufacturing facility grew by $2.5 million, or 8.2%, to $33.6 million as a result of additional sales to our third-party
wholesalers and additional sales to our franchisees and licensees. Gross margin increased 29.5% to $8.8 million on the strength of incremental
sales.
We again 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 84% of total openings in 2013 as we opened
51 franchise and license units in addition to 10 company-owned restaurants during fiscal 2013. Total net units increased in fiscal 2013 to 852 from
816 at the end of fiscal 2012, with 46% being franchised and licensed units, up from 43% at the end of fiscal 2012. Thus far in fiscal 2014, we
have opened eight licensed units and two franchised units.
Our Recapitalization – Fiscal 2012 and 2013
In 2012, our Board authorized a review of strategic alternatives to maximize value for all stockholders. This review was initiated in May and
culminated in December with a recapitalization of the Company, including the payment of a one-time special cash dividend of $4.00 per share of
common stock on December 27, 2012.
The recapitalization included the amendment and restatement of the Company’ s existing Senior Credit Facility, which consists of a Term
Loan A and a revolver with a syndicate of banks (“Senior Credit Facility”). The amendment and restatement of the Senior Credit Facility increased
the Company’ s Term Loan A from $75 million to $100 million, increased the revolver availability from $50 million to $75 million, and extended
the maturity date from December 20, 2015 to December 6, 2017. The additional borrowing capacity was used to fund the one-time special