Schlotzsky’s Inc. (Nasdaq:BUNZ) yesterday announced results for the second quarter of 2001, including net income of $751,000, or $0.10 per share (diluted), compared to a net loss of $4.0 million or $0.54 per share in the second quarter of last year, when the turnkey program was cancelled.

The company reported revenues for the current quarter of $16.1 million, an increase of 10 percent over the second quarter of 2000.

For the first half of 2001, the company reported net income of $1.3 million, or $.18 per share (diluted), compared to a net loss of $2.8 million, or $0.38 per share, for the six months ended June 30, 2000. Revenue for the first six months of 2001 increased 8 percent to $31.4 million compared to the same period last year.

For the 12 months ended June 30, 2001, the company recorded revenues of $61.5 million and net income of $1.8 million, or $0.25 per share.

“Reporting our fourth consecutive quarter of increasing profits is clear indication that Schlotzsky’s turned an important corner last year,” said John C. Wooley, president and CEO. “During the quarter, performance was enhanced by the results of our company-owned stores in Austin and our improved corporate cost structure. We have also had success applying what we’ve learned in Austin to our nationwide franchise network.”

Other highlights include:

  • The company avoided much of the impact of a slower economy with systemwide same store sales declining less than 1 percent from the second quarter of 2000.
  • Systemwide sales, including both company-owned and franchised restaurants, were just under $110 million.
  • Recurring revenue from royalties, brand contribution and restaurant sales were over 95 percent of company total revenue, confirming the company’s transition away from one-time real estate development revenues.
  • Earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $2.7 million in the second quarter.
  • G&A expenses for the quarter were $5.0 million compared to $12.3 million for the second quarter of 2000, which included one-time charges and an increase in reserves related to cancellation of the turnkey program.
  • Commercial bank debt reduction continued, with $1.5 million paid down in the quarter.

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Wooley said that the company is emphasizing quality growth. “We want to carefully resume our growth and we are in a solid position to do so. We have an outstanding product and our market segment, upscale sandwiches, is growing as consumers look for alternatives to hamburgers and traditional fast foods.”

The Austin area restaurants are on the forefront of Schlotzsky’s efforts to increase same store sales. “We are very pleased with the strong results of our company-owned Austin restaurants, which increased same store sales by 6.6 percent over the second quarter of last year,” Wooley said. “These restaurants are serving as our proving ground for how restaurants should look, operate and perform across our franchise system. The full package being tested in certain restaurants includes upgraded decor, coffee bar, bakery, iMac computers with Internet connections, POS systems and a pocket paging system to alert customers when orders are ready. Company-owned restaurants employing all of these features have generated sales in excess of $40,000 per week. Overall, our company restaurants in Austin are averaging more than $33,000 per week. When compared to our current systemwide average weekly sales per restaurant of $12,000, the potential for building revenue from our more than 700 current restaurant base is compelling.”

To enable franchisees to take advantage of restaurant and menu enhancements, Wooley said the company is increasingly emphasizing franchisee training at its Austin facility. “There is tremendous opportunity for revenue and royalty growth at existing restaurants by applying the lessons we’ve learned in Austin. The challenge now is to spread these proven innovations across our system. Our training facility is a perfect vehicle to accomplish this. The focus of all of our meetings with franchisees is training.”

Wooley also said the company’s performance will continue to be enhanced through its cost control efforts. “We are continuing to build on the success of our cost reduction efforts and will make additional improvements to our operations to take more costs out in the future,” he said.

The company continues to work with franchisees to remodel and replace under-performing locations. During the quarter, the Schlotzsky’s® Deli system opened four locations and closed 13. The current system total stands at 702. Future new units will include both the 3,200 square foot freestanding units as well as smaller end-cap units located in prime retail shopping centers. Each of the two formats will support the quality brand, with the smaller version being more appealing to existing franchisees due to its lower construction costs.


Over the next 12 months, the company expects growth in total system revenue. More importantly, the company expects earnings to grow at a faster rate than revenue as a result of its improved cost structure and increased efficiency. Management expects to see an increase in total restaurant count by the end of the year.

Schlotzsky’s Inc., founded in Austin, Texas, in 1971, is a franchisor of quick-service restaurants featuring made-to-order hot sandwiches served on distinctive sourdough bread, along with sourdough crust pizzas, salads and soups. As of June 30, 2001, there were 702 Schlotzsky’s® Deli restaurants open and operating in 38 states, the District of Columbia and 10 foreign countries. Visit or for more information and e-coupons.

This news release contains “forward-looking statements,” as defined under the federal securities laws. Forward-looking statements include those regarding the business plans and prospects of the Company. Forward-looking statements reflect the Company’s expectations based on current information. The Company undertakes no obligation to update any forward-looking statements. Shareholders and prospective investors are cautioned that actual future results may be materially different because of various risks and uncertainties, including but not limited to the following factors: economic trends in the upscale sandwich market segment; transferability of results in Austin to other markets; appeal of restaurant models to existing and prospective franchisees; enrollment of franchisees in training programs; restaurant openings and closings by franchisees; success of the Company’s cost control efforts; and other factors identified in the Company’s Form 10-K under the heading “Risk Factors.”


Three Months Ended Six Months Ended
———————— ————————–
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
———– ———– ———— ————
Royalties $ 5,733,405 $ 5,902,376 $ 11,168,001 $ 11,424,194
Franchise fees 35,000 115,000 185,000 270,850
Developer fees 85,566 197,947 170,048 501,842
Restaurant sales 7,648,059 6,232,979 15,064,202 11,979,952
contribution 1,967,129 1,844,993 3,696,146 3,448,451
Other fees and
revenue 594,595 350,763 1,127,529 1,440,607
———– ———– ———— ————
revenues 16,063,754 14,644,058 31,410,926 29,065,896
———– ———– ———— ————
Service costs:
Royalties 1,191,288 1,378,969 2,484,231 2,664,243
Franchise fees 17,500 54,167 77,500 129,167
———– ———– ———— ————
1,208,788 1,433,136 2,561,731 2,793,410
———– ———– ———— ————

Restaurant operations:
Cost of sales 2,146,036 1,774,367 4,193,678 3,413,927
Labor cost 3,163,864 2,567,695 6,347,163 4,851,814
expenses 1,765,119 1,288,682 3,353,455 2,595,337
———– ———– ———— ————
7,075,019 5,630,744 13,894,296 10,861,078
———– ———– ———— ————

Equity loss on
investment 38,696 — 54,452 —
General and
administrative 5,006,884 12,264,327 9,689,753 17,217,962
Depreciation and
amortization 1,039,465 944,830 2,037,768 1,870,749
———– ———– ———— ————
expenses 14,368,852 20,273,037 28,238,000 32,743,199
———– ———– ———— ————

Income (loss)
operations 1,694,902 (5,628,979) 3,172,926 (3,677,303)
———– ———— ———— ————
Interest income 267,084 681,229 530,266 1,444,095
Interest expense (707,048) (768,885) (1,492,735) (1,612,348)
———– ———– ———— ————
Income (loss)
before income
taxes 1,254,938 (5,716,635) 2,210,457 (3,845,556)
———– ———– ———— ————

Provision (credit)
for income taxes 504,000 (1,712,488) 868,000 (1,029,544)
———– ———- ———— ————

Net income
(loss) $ 750,938 ($ 4,004,147) $ 1,342,457 ($ 2,816,012)
=========== =========== ============ ============

Earnings per common
share – basic
and diluted: $ 0.10 ($ 0.54) $ 0.18 ($ 0.38)
=========== =========== ============ ============


Restaurants Open
– Beginning of
Period 711 727 711 743
——- ——- ——- ——-
Openings During Period –
New 2 8 9 15
Reopenings 2 10 11 14
——- ——- ——- ——-
Total Openings 4 18 20 29
Closings During
Period (13) (21) (29) (48)
——- ——- ——- ——-
Restaurants Open
– End of Period 702 724 702 724
======= ======= ======= =======

Sales $109,783,000 $110,110,000 $216,954,000 $214,340,000
Increase (decrease)
in Systemwide Sales (0.3%) 7.5% 1.2% 10.1%
Increase (decrease)
in Same Store Sales (0.8%) 4.1% 0.7% 4.8%
Average Weekly
Sales $ 12,000 $ 11,699 $ 11,809 $ 11,329
Increase in Average
Weekly Sales 2.6% 8.2% 4.2% 9.2%