Meritage Reports 14% Sales Increase; Continued Operating Strength
in Second Quarter
GRAND RAPIDS, Mich., June 29 /PRNewswire-FirstCall/ -- Meritage Hospitality
Group Inc. (AMEX:MHG), the nation's only publicly traded Wendy's franchisee and
the first O'Charley's franchisee, today announced net sales for the second
quarter ended May 30, 2004, increased 14% to $13.5 million, compared to $11.9
million during the same period last year. Meritage's earnings from operations
increased 37% to $676,000, compared to $493,000 in 2003. Meritage's net
earnings for the quarter were $75,000 which, after preferred stock dividends,
resulted in a net loss of $0.01 per common share, compared to net earnings of
$549,000 or $0.10 per common share for the same period in 2003. Last year's
second quarter results included a $628,000 gain from the sale of surplus real
estate. While there were no such transactions in the second quarter of 2004,
the Company anticipates that it will experience gains from the sale of real
estate in the second half of 2004 that are likely to exceed 2003 levels.
2004 Six Month Results Net sales for the first six months ended May 30, 2004, increased 14% to $25.5
million, compared to $22.5 million during the same period last year. Meritage's
earnings from operations increased 44% to $656,000 (which included a $186,000
charge for O'Charley's pre-opening and start-up costs), compared to $456,000
last year. Meritage reported a loss of $405,000 or $0.12 per common share
after preferred stock dividends for the six month period compared to net
earnings of $46,000 or $0.01 per common share for the same period last year
which again included a gain from the sale of surplus real estate (a gain of
$751,000 through the first six months of 2003 compared to a $137,000 gain
through the first six months of 2004).
Commenting on Meritage's results, CEO Robert Schermer, Jr., stated, "Our
Wendy's business continues to show strength in same store sales. Excellent
control of restaurant operating costs allowed us to achieve positive operating
results, and our Wendy's operations are on track to significantly out-perform
2003 results. While sales of real estate in this fiscal year are forecasted to
exceed 2003 levels, comparisons of net earnings between 2003 and 2004 are
skewed by the timing of these real estate transactions." Mr. Schermer added,
"The Company has two new Wendy's restaurants that it is planning to develop in
West Michigan: one in Holland, Michigan and another in Caledonia, Michigan. In
addition, we are scheduled to open our first O'Charley's restaurant in Grand
Rapids in late August, and we have numerous O'Charley's locations under review
for our development pipeline in the Detroit metropolitan area. The Company's
balance sheet remains strong. Midway through, fiscal 2004 appears to be
another solid year of growth for Meritage." Meritage currently operates 47 "Wendy's Old Fashioned Hamburgers" restaurants
throughout Western and Southern Michigan serving more than nine million
customers annually. The Company has been one of the fastest growing Wendy's
franchisees within the Wendy's franchise system during the past four years.
The Company is also expanding into the casual dining segment when it recently
entered into the nation's first development agreement with O'Charley's Inc.,
giving Meritage the exclusive rights to develop O'Charley's restaurants in the
State of Michigan.
The Wendy's franchise system is the third largest quick-service restaurant
hamburger chain in the world with more than 6,375 restaurants and system-wide
sales in excess of $7.1 billion. Wendy's International (traded as WEN on NYSE)
is the leading national, high quality hamburger concept in the quick- service
restaurant category.
O'Charley's Inc. (traded as CHUX on NASDAQ/NM), which currently operates 214
restaurants in 16 states in the Southeast and Midwest, is regarded as a leading
regional high quality food concept within the casual restaurant segment. A
typical O'Charley's restaurant is a free-standing brick building containing
6,790 square feet and seating for 275 customers including 52 bar seats.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995 Certain statements contained in this news release that are not historical facts
constitute forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, and are intended to be covered by the
safe harbors created by that Act. Forward-looking statements may be identified
by words such as "estimates," "anticipates," "projects," "plans," "expects,"
"believes," "should," and similar expressions, and by the context in which they
are used. Such statements are based only upon current expectations of the
Company. Any forward-looking statement speaks only as of the date made.
Reliance should not be placed on forward-looking statements because they
involve known and unknown risks, uncertainties and other factors which may
cause actual results, performance or achievements to differ materially from
those expressed or implied. Meritage undertakes no obligation to update any
forward-looking statements to reflect events or circumstances after the date on
which they are made.
Statements concerning expected financial performance, business strategies and
action which Meritage intends to pursue to achieve its strategic objectives,
constitute forward-looking information. Implementation of these strategies and
achievement of such financial performance are subject to numerous conditions,
uncertainties and risk factors, which could cause actual performance to differ
materially from the forward-looking statements. These include, without
limitation: competition; changes in the national or local economy; changes in
consumer tastes and eating habits; concerns about the nutritional quality of
our restaurant menu items; concerns about consumption of beef or other menu
items due to diseases including E. coli, hepatitis, and mad cow; promotions and
price discounting by competitors; severe weather; changes in travel patterns;
road construction; demographic trends; the cost of food, labor and energy; the
availability and cost of suitable restaurant sites; the ability to finance
expansion; interest rates; insurance costs; the availability of adequate
managers and hourly-paid employees; directives issued by the franchisor
regarding operations and menu pricing; the general reputation of Meritage's and
its franchisors' restaurants; legal claims; and the recurring need for
renovation and capital improvements. In addition, Meritage's expansion into
the casual dining restaurant segment as a franchisee of O'Charley's will
subject Meritage to additional risks including, without limitation,
unanticipated expenses or difficulties in securing market acceptance of the
O'Charley's restaurant brand, the ability of our management and infrastructure
to successfully implement the O'Charley's development plan in Michigan, and our
limited experience in the casual dining segment. Also, Meritage is subject to
extensive government regulations relating to, among other things, zoning,
public health, sanitation, alcoholic beverage control, environment, food
preparation, minimum and overtime wages and tips, employment of minors,
citizenship requirements, working conditions, and the operation of its
restaurants. Because Meritage's operations are concentrated in certain areas
of Michigan, a marked decline in Michigan's economy, or in the local economies
where our restaurants are located, could adversely affect our operations.
Meritage Hospitality Group Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended May 30, 2004 and June 1, 2003
(Unaudited)
May 30, June 1,
2004 2003 Food and beverage revenue $13,468,262 $11,859,991 Costs and expenses
Cost of food and beverages 3,674,025 2,935,173
Operating expenses 7,633,194 7,044,553
General and administrative expenses 816,267 694,888
Depreciation and amortization 669,266 692,058
Total costs and expenses 12,792,752 11,366,672 Earnings from operations 675,510 493,319 Other income (expense)
Interest expense (609,854) (595,233)
Interest income 9,005 18,311
Other income, net - 4,667
Gain on sale of non-operating property - 628,297
Total other (expense) income (600,849) 56,042
Earnings before income taxes 74,661 549,361 Income taxes - - Net earnings 74,661 549,361 Dividends on preferred stock 106,642 6,642 Net (loss) earnings on common shares $(31,981) $542,719 Net (loss) earnings per common share -
basic and diluted $(0.01) $0.10 Weighted average shares outstanding -
basic 5,266,866 5,345,866 Weighted average shares outstanding -
diluted 5,266,866 5,635,285 Meritage Hospitality Group Inc. and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended May 30, 2004 and June 1, 2003
(Unaudited)
May 30, June 1,
2004 2003 Food and beverage revenue $25,527,386 $22,471,953 Costs and expenses
Cost of food and beverages 6,955,487 5,478,581
Operating expenses 14,909,918 13,791,277
General and administrative expenses 1,634,850 1,389,734
Depreciation and amortization 1,370,707 1,356,088
Total costs and expenses 24,870,962 22,015,680 Income from operations 656,424 456,273 Other income (expense)
Interest expense (1,213,043) (1,189,363)
Interest income 10,474 20,101
Other income, net 4,400 8,667
Gain on sale of non-operating property 136,800 750,716
Total other expense (1,061,369) (409,879) (Loss) earnings before income taxes (404,945) 46,394
Income taxes - - Net (loss) earnings (404,945) 46,394 Preferred stock dividends declared 219,926 13,284 Net (loss) earnings on common shares $(624,871) $33,110 Net (loss) earnings per common share -
basic and diluted $(0.12) $0.01 Weighted average shares outstanding -
basic 5,305,076 5,344,247 Weighted average shares outstanding -
diluted 5,305,076 5,660,075
DATASOURCE: Meritage Hospitality Group Inc.
CONTACT: Robert E. Schermer, Jr. of Meritage Hospitality Group Inc., +1-616-776-2600 Web site: http://www.meritagehospitality.com/
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