Value menu debut pressures Einstein Noah profits

by Jeff Gelski
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LAKEWOOD, COLO. – A $2.5 million investment in support of a value menu strategy and challenging macro-economic trends led to a drop in first-quarter net income for Einstein Noah Restaurant Group, Inc., the company said.

In the quarter ended April 2, net income was $2,361,000, equal to 14c per share on the common stock, which included 9c per share for the strategy investment. First-quarter net income in the previous year was $3,204,000, or 19c per share, which included 2c per diluted share for restructuring expenses.

Transitioning to a more value-oriented strategy has the company offering more meal combos, such as a deli sandwich, side and a drink for $5.99 at lunch or a bagels shmear and a medium coffee for $3.99 at breakfast, said Jeff O’Neill, president and chief executive officer of Einstein Noah Restaurant Group, in a May 2 earnings conference call.

The company had an increase in discounts and a coupon program in what Mr. O’Neill called a “transition quarter.”

“Cleary, I would have much preferred if our investment into our new transaction-driving initiative had not coincided with one of the worst quarters for the industry in over three years,” he said. “But I would just leave it, leave us with this, it’s the right focus for the business, and it doesn’t dampen my enthusiasm for the roll-out of our everyday value strategy and the positive impact it’s going to have on the business going forward.”
First-quarter total revenues increased 1% to $106,123,000 from $104,873,000. System-wide comparable store sales decreased 0.6%, which reflected macro-economic trends and a calendar shift in the Easter/Passover holidays, according to Einstein Noah. Specialty beverages grew more than 8% in the quarter and remain a priority, Mr. O’Neill said.

As of April 2, there were 822 restaurants in operation under the brands of Einstein Bros. Bagels, Noah’s New York Bagels and Manhattan Bagel.

Guidelines for the current fiscal year remain unchanged, Einstein Noah Restaurant Group said. The company expects 60 to 80 system-wide openings and capital expenditures of $20 million to $22 million.

“This year will consist of company expansion and relocations within current markets, while franchise growth will focus primarily on infill of existing franchise territories and a build-out in some key development areas,” Mr. O’Neill said. “License growth will remain in traditional spaces such as hospitals, universities and stadiums, but there will be a little more emphasis on airports where we’ve already experienced significant traction.”

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