Tampa, Florida-based Checkers Drive-In Restaurants saw its restaurant operating margins jump 365 basis points year on year while maintaining same store sales growth.
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Likewise, bottom-line net profit as a percentage of total revenues increased by 4.2% to 6.6% for the Q1 ended 25 March 2002 as compared to the quarter ended 26 March 2001.
Daniel J. Dorsch, CEO and president commented: “We continued down the road to building a better company with the best Q1 results reported in over seven years. This Q1 performance coming on the heels of a fabulous Q4 should give our investors, vendors, employees, and customers confidence that Checkers Drive-In Restaurants is done talking about being the turnaround company.”
Dorsch Continued: “We are currently putting in place a brand new franchise sales and development team to handle the new rush of inquiries from people who want to franchise our brands.”
Sales from corporate restaurants in the Q1 of 2002 increased 17% to US$37.1m from US$31.7m for the same period in 2001. The increase in corporate restaurant sales was partially a result of the reacquisition of 23 franchise stores since the end of the Q4 of 2001. Year-over-year, same store sales growth for the Q1 grew at 0.2% for company-owned restaurants, and 1.5% for franchise restaurants.
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By GlobalDataQ1 royalty income decreased US$116,000 or 3.4%, but increased per average franchise restaurant from US$5,297 to US$5,901 or 11.4%. The top-line decrease of US$116,000 was primarily a result of an average of 86 fewer franchise stores since the prior year’s Q1. Moreover, during the same time period, 64 of these franchise restaurants were transferred back to Company-owned restaurants.
During the Q1, cost of sales, as a percentage of restaurant sales, decreased year on year by 3.1%, or from 65.2% down to 62.1%. The decrease in cost of sales was primarily due to a focus on retaining motivated management, labour efficiency, as well as promotional mix.
David Koehler, CFO, stated: “We are pleased we maintained our sales volume while simultaneously improving our restaurant operating margins by 3.65% over Q1 2001. Also, available cash flow generated enabled us to pay down high-yielding debt, thus, increasing future potential EPS while de-leveraging our balance sheet.
“This performance is especially meaningful given we had four fewer weeks this quarter than in our Q4 2001 due to our fiscal reporting method – Q1, Q2 and Q3 consist of three 4-week periods, with the Q4 consisting of four 4 week periods.”
Other restaurant operating expenses remained fairly stable as a percentage of restaurant sales during the Q1 2002.
Restaurant depreciation and amortisation expense increased during the Q1 2002 as compared to the Q1 2001. As a percent of restaurant sales, restaurant depreciation and amortisation expense was 3.5% in the Q1 2002 compared to the prior year of 3.1%. The increase is the result of the classification of 45 company-owned restaurants beginning in the Q1 2002. Restaurants that were originally forecasted to be sold as part of the 1999 restructuring plan were reclassified from Held for Sale to Held for Use at 31 December 2001, and depreciation was thus recognised on these assets during the current quarter. The company plans to continue operating these locations as company-owned restaurants.
The company took additional charges for restaurant closures of US$208,000 associated with properties taken back during the current quarter that are subject to on-going lease obligations. Total charges for the quarter were US$375,000.
During the current quarter, the company spent US$1.1m on capital expenditures, predominantly for restaurant level renovations. Management believes that restaurant appearance is critical to sales performance, and as such, expenditures to enhance the appearance of present or newly acquired restaurants is expected to continue.
During the Q1, general and administrative (G&A) expenses decreased as a percent of total revenues by 0.5%, down to 7.5% from 8% year on year.
Checkers continued to strengthen it balance sheet by building cash and paying down debt. Total cash balances increased by 45% since 31 December 2001 from US$10.5m to US$15.2m as of 25 March 2002. The increase was partially from selling US$1m in fixed assets and proceeds of US$0.8m from warrants and options exercised during the Q1.
At the end of Q1, Checkers and its franchisees owned 409 Checkers operating primarily in the Southeastern US and 386 Rally’s operating primarily in the Midwestern US.
