Meritage Reports Record Revenues; Opens First O'Charley's
Restaurant in Michigan
GRAND RAPIDS, Mich., Sept. 30 /PRNewswire-FirstCall/ -- Meritage Hospitality
Group Inc. (AMEX:MHG), the nation's only publicly traded Wendy's franchisee and
the nation's first O'Charley's franchisee, today announced net sales for the
third fiscal quarter ended August 29, 2004 increased 7.1% to $14.1 million,
compared to $13.2 million during the same period last year. Meritage's
consolidated earnings from operations were $752,000 compared to $851,000 in the
same period of 2003. Consolidated earnings from operations in the third
quarter were impacted by pre-opening and start-up expenses of approximately
$259,000 associated with the development and rollout of the O'Charley's
restaurant concept. Meritage opened the nation's first O'Charley's franchised
restaurant on August 24, 2004 in Grand Rapids. After interest expense, gains
on sales of non-operating property and income taxes, Meritage's consolidated
net earnings for the quarter were $126,000 which, after preferred stock
dividends of $107,000, resulted in net earnings of less than $0.01 per common
share, compared to net earnings of $269,000 or $0.05 per common share for the
same period in 2003.
2004 Nine Month Results Net sales for the first nine months ended August 29, 2004, increased 11.2% to
$39.6 million, compared to $35.6 million during the same period last year. Meritage's consolidated earnings from operations were $1,408,000 (after
approximately $446,000 of pre-opening and start-up costs associated with the
O'Charley's development and rollout) compared to $1,307,000 last year. Meritage
reported a loss of $279,000 or $0.11 per common share after preferred stock
dividends for this nine month period compared to net earnings of $315,000 or
$0.05 per common share for the same period last year. Last year's earnings
included gains from the sale of surplus real estate of $751,000 compared to a
gain of only $137,000 through the first nine months of 2004.
Commenting on Meritage's results, CEO Robert Schermer, Jr., stated, "Wendy's
earnings from operations improved 44% for the first nine months, and we
continue the start-up phase of a multi-unit build out plan for our O'Charley's
restaurants. Our Wendy's business segment continues to experience
above-average same store sales growth compared to the entire Wendy's system. This fact, combined with excellent control of restaurant operating costs, has
allowed us to increase net earnings from operations in our Wendy's segment. We
currently have two new Wendy's restaurants under development which are
scheduled to open before calendar year end. At that time, Meritage expects to
have 48 Wendy's restaurants and one O'Charley's restaurant in operation. We
are also very encouraged by our initial O'Charley's restaurant sales volumes
and anticipate opening our second unit in the Detroit metropolitan area in
early 2005. We remain optimistic about entering the casual dining segment and
the growth vehicle that the O'Charley's operations should provide to 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 also expanded into the casual dining segment when it 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.
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; delays in scheduled
restaurant openings; 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 Earnings
For the Three Months Ended August 29, 2004 and August 31, 2003
(Unaudited) 2004 2003 Food and beverage revenue $ 14,105,882 $ 13,168,844 Costs and expenses
Cost of food and beverages 3,821,248 3,354,705
Operating expenses 7,959,420 7,505,410
General and administrative expenses 891,020 763,100
Depreciation and amortization 682,189 694,985
Total costs and expenses 13,353,877 12,318,200
Earnings from operations 752,005 850,644 Other income (expense)
Interest expense (747,508) (595,879)
Interest income 12,743 8,008
Miscellaneous income --- 5,892
Total other expense (734,765) (581,979)
Earnings before income taxes 17,240 268,665
Income tax benefit 108,500 ---
Net earnings 125,740 268,665 Dividends on preferred stock 106,642 6,642
Net earnings on common shares $ 19,098 $ 262,023 Net earnings per common share
- basic and diluted $ 0.00 $ 0.05 Weighted average shares
outstanding - basic 5,258,752 5,347,501
Weighted average shares
outstanding - diluted 5,623,515 5,640,591
Meritage Hospitality Group Inc. and Subsidiaries
Consolidated Statements of Earnings
For the Nine Months Ended August 29, 2004 and August 31, 2003
(Unaudited) 2004 2003 Food and beverage revenue $ 39,633,268 $ 35,640,797 Costs and expenses
Cost of food and beverages 10,776,735 8,833,286
Operating expenses 22,869,338 21,296,687
General and administrative expenses 2,525,870 2,152,834
Depreciation and amortization 2,052,896 2,051,073
Total costs and expenses 38,224,839 34,333,880 Earnings from operations 1,408,429 1,306,917 Other income (expense)
Interest expense (1,960,551) (1,785,242)
Interest income 23,219 28,109
Miscellaneous income 4,400 14,559
Gain on sale of non-operating property 136,800 750,716
Total other expense (1,796,132) (991,858)
(Loss) earnings before income taxes (387,703) 315,059
Income tax benefit 108,500 ---
Net (loss) earnings (279,203) 315,059 Dividends on preferred stock 326,568 19,926
Net (loss) earnings on common shares $ (605,771) $ 295,133 Net (loss) earnings per common share
- basic $ (0.11) $ 0.06
Net (loss) earnings per common share
- diluted $ (0.11) $ 0.05 Weighted average shares outstanding
- basic 5,289,635 5,345,331 Weighted average shares outstanding
- diluted 5,289,635 5,653,943
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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