Meritage Reports Results for Fiscal 2004; Plans Significant
O'Charley's Development in 2005
GRAND RAPIDS, Mich., Jan. 25 /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
fiscal year ended November 28, 2004 increased 9.9% to $53,303,000, compared to
$48,513,000 last year. The Company's net loss for the fiscal year was $489,000
or $0.15 per share, compared to net earnings of $740,000 or $0.13 per share
last year.
Meritage's net sales for the fourth quarter ended November 28, 2004 increased
6.2% to $13,669,000, compared to $12,873,000 over the comparable period last
year. Net loss for the fourth quarter was $210,000 or $0.04 per share,
compared to net earnings of $425,000 or $0.08 per share during the same period
last year. Last year, net earnings per share were favorably impacted by a
$500,000 income tax credit in the fourth quarter related to the estimated
future benefit of net operating loss carryforwards. Conversely, the Company's
earnings were negatively impacted in fiscal 2004 by higher commodity prices
throughout the Wendy's system, pre-opening and start up expenses related to the
opening of our first O'Charley's restaurant in August 2004, and prepayment
charges associated with the early payoff of long-term indebtedness. Meritage
paid off $1,666,000 of long-term debt and recorded deferred gains of $1,967,000
in fiscal 2004 as a result of sale-leaseback transactions.
Commenting on the results, CEO Robert E. Schermer, Jr. stated, "2004 was a year
of solid operational performance for Meritage as our Wendy's division exceeded
the average results of the Wendy's franchise system. This performance was
driven in large part by the strategic growth plan that management implemented
five years ago. The objective was simple -- to become the 'best of class'
operator in the entire Wendy's franchise system, build-out the Wendy's
restaurant market in West Michigan, and remodel and update all of our existing
stores. Today, our operating metrics are among the best of any multi-unit
Wendy's operator in the upper Unites States. Our company culture is
operations-focused and goal oriented. In the near term, we completed our
development of Wendy's restaurants in the West Michigan market, now operating a
total of 48 restaurants -- 32 of which are newly constructed and the remainder
of which are older units that have been recently remodeled. As a result, our
real estate asset base is one of the finest in the entire Wendy's system." On January 19, 2005, Meritage paid the previously announced cash dividend of
$0.05 per share to all common shareholders of record on December 28, 2004. The
Company's Board of Directors will consider additional dividends in the future.
2005 BUSINESS OUTLOOK In 2005, we will continue our strategy of high growth in our core competency as
we plan to open four new O'Charley's restaurants. The equity for this
expansion will be created with a combination of cash generated from our
restaurant operations and cash from continuing sale-leaseback transactions of
certain Wendy's restaurant properties pursuant to our previous announcement.
Income for 2005 will be negatively impacted by the early repayment of long-term
indebtedness related to the sale-leaseback transactions, pre-opening expenses
on the four new O'Charley's restaurants, and expense from the adoption of the
revised SFAS No. 123(R), "Share-Based Payment", which requires the recognition
of compensation expense for stock options and other stock-based awards. As a
result, we expect to report a loss in the range of $0.70 to $0.90 per share for
fiscal 2005 with planned sales growth of 15% to 20%. Our investment in the
O'Charley's development and the cash generation efforts that we will undertake
in 2005 will establish the basis for revenue growth and earnings improvements
thereafter.
Meritage is one of the nation's premier franchise operators. The Company is
the only publicly held Wendy's franchisee, operating 48 "Wendy's Old Fashioned
Hamburgers" restaurants throughout Western and Southern Michigan and serving
more than nine million customers annually. Meritage has been one of the
fastest growing Wendy's franchisees within the Wendy's franchise system during
the past four years. Meritage is also the nation's first O'Charley's
franchisee giving Meritage the exclusive rights to develop O'Charley's
restaurants in the State of Michigan. Meritage opened its first O'Charley's
restaurant August 2004 in Grand Rapids, 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 Income
For the Years Ended November 28, 2004 and November 30, 2003
(Unaudited) 2004 2003 Food and beverage revenue $53,302,657 $48,513,456 Costs and expenses
Cost of food and beverages 14,661,710 12,272,050
Operating expenses 30,925,213 28,606,742
General and administrative expenses 3,526,312 2,819,095
Depreciation and amortization 2,792,259 2,985,929
Total costs and expenses 51,905,494 46,683,816 Earnings from operations 1,397,163 1,829,640 Other income (expense)
Interest expense (2,603,041) (2,388,080)
Debt extinguishment charges (180,181) -
Interest income 36,840 28,192
Other income, net 4,400 19,990
Gain on sale of non-operating property 721,829 750,716
Total other expense (2,020,153) (1,589,182)
(Loss) earnings before income taxes (622,990) 240,458
Income tax benefit 134,000 500,000
Net (loss) earnings (488,990) 740,458
Preferred stock dividends 326,568 26,568 Net (loss) earnings on common shares $(815,558) $713,890 Meritage Hospitality Group Inc. and Subsidiaries
Consolidated Statements of Income
For the Fourth Quarters Ended November 28, 2004 and November 30, 2003
(Unaudited)
2004 2003 Food and beverage revenue $13,669,389 $12,872,659 Costs and expenses
Cost of food and beverages 3,884,975 3,438,764
Operating expenses 8,055,875 7,310,055
General and administrative expenses 1,000,442 666,261
Depreciation and amortization 739,363 934,856
Total costs and expenses 13,680,655 12,349,936 (Loss) earnings from operations (11,266) 522,723 Other income (expense)
Interest expense (642,490) (602,838)
Debt extinguishment charges (180,181) -
Interest income 13,621 83
Other income - 5,431
Gain on sale of non-operating assets 585,029 -
Total other expense (224,021) (597,324)
Loss before income taxes (235,287) (74,601)
Income tax benefit 25,500 500,000
Net (loss) earnings (209,787) 425,399
Preferred stock dividends - 6,642 Net (loss) earnings on common shares $(209,787) $418,757
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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