Meritage Reports Second Quarter 2005 Sales Increase of 4.2%; 27th
Consecutive Quarter of Sales Growth
GRAND RAPIDS, Mich., June 28 /PRNewswire-FirstCall/ -- Meritage Hospitality
Group Inc. (AMEX:MHG), the nation's only publicly traded Wendy's franchisee and
O'Charley's franchisee, today announced net sales for the second fiscal quarter
ended May 29, 2005, increased 4.2% to $14.0 million, compared to $13.5 million
during the same period last year. Meritage reported a net loss for the quarter
of $1,010,000 or $0.21 per share, compared to net earnings of $75,000 or a net
loss on common shares of $0.01 per share for the same period last year.
Six Month Results 2005 Sales for the six month period ended May 29, 2005, increased 5.9% to $27.0
million, compared to $25.5 million during the same period last year. Meritage
reported a net loss for the six month period of $2,813,000 or $0.59 per share,
compared to a net loss of $405,000 or $0.12 per share for the same period last
year.
Meritage's Chief Financial Officer, Gary A. Rose, stated, "We are pleased with
our restaurant growth which delivered our 27th consecutive quarter of sales
increases. These continued sales increases underscore Meritage's long- term
commitment to business growth and value creation for our shareholders. As
originally forecasted, we incurred a loss for the second quarter due to the
rapid expansion of our O'Charley's restaurant brand. Pre-opening costs and
operational inefficiencies related to new stores factored heavily into the net
loss incurred by the O'Charley's business segment. Additionally, our Wendy's
business segment experienced a loss during the first half of the year due to
food cost increases and a same store sales decline caused in part by the now
unfounded but highly publicized claim that a finger was found in a bowl of
Wendy's chili at a California restaurant. We are encouraged, however, with
Wendy's new national marketing efforts and menu pricing that is aimed at
reviving sales and increasing operating margins.
In the second quarter, we continued with our previously reported strategy of
funding a portion of the O'Charley's expansion with real estate sale and
leaseback transactions involving some of our Wendy's restaurants. During 2005,
these transactions resulted in the immediate recognition of debt extinguishment
charges as well as significant state tax expense. However, on the positive
side, the sale and leaseback transactions generated cash proceeds of $13.7
million in the first half of 2005 permitted the Company to pay down $8.3
million of long-term debt and resulted in deferred long-term gains of $5.5
million. Despite these real estate sales, Meritage still owns more than half
of its Wendy's restaurants." Rose continued, "Due to the factors noted above, we continue to believe that
our 2005 results depict an incomplete picture of the Company's progress
relating to its strategic development plans. Through its O'Charley's
development efforts, Meritage is creating a more diversified portfolio that
hedges against isolated events such as increased commodity costs or bad
publicity associated with a brand." Meritage is one of the nation's premier franchise operators currently operating
51 restaurants. The Company is the only publicly traded 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 over the past several years. Meritage is also the
nation's first and only publicly traded O'Charley's franchisee, with three
O'Charley's restaurants in operation and two currently under development that
will be opening later this year. Meritage holds the right to develop
O'Charley's restaurants throughout 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 subjects 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 29, 2005 and May 30, 2004
(Unaudited) May 29, May 30,
2005 2004 Food and beverage revenue $14,031,342 $13,468,262 Costs and expenses
Cost of food and beverages 3,948,101 3,674,025
Operating expenses 8,836,104 7,633,194
General and administrative expenses 954,862 816,267
Depreciation and amortization 650,501 669,266
Total costs and expenses 14,389,568 12,792,752 (Loss) earnings from operations (358,226) 675,510 Other income (expense)
Interest expense (520,023) (609,854)
Debt extinguishment charges (89,243) -
Interest income 39,275 9,005
Other income, net - -
Gain on sale of non-operating property - -
Total other expense (569,991) (600,849)
(Loss) earnings before income taxes (928,217) 74,661 Income taxes 81,321 - Net (loss) earnings (1,009,538) 74,661 Dividends on preferred stock 106,642 106,642 Net loss on common shares $(1,116,180) $(31,981) Net loss per common share - basic and
diluted $(0.21) $(0.01) Weighted average shares outstanding - basic
and diluted 5,343,009 5,266,866 Meritage Hospitality Group Inc. and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended May 29, 2005 and May 30, 2004
(Unaudited) May 29, May 30,
2005 2004 Food and beverage revenue $27,028,508 $25,527,386 Costs and expenses
Cost of food and beverages 7,657,680 6,955,487
Operating expenses 17,274,570 14,909,918
General and administrative expenses 2,007,226 1,634,850
Depreciation and amortization 1,316,115 1,370,707
Total costs and expenses 28,255,591 24,870,962 (Loss) earnings from operations (1,227,083) 656,424 Other income (expense)
Interest expense (1,072,261) (1,213,043)
Debt extinguishment charges (507,716) -
Interest income 72,712 10,474
Other income, net 2,500 4,400
Gain on sale of non-operating property - 136,800
Total other expense (1,504,765) (1,061,369) Loss before income taxes (2,731,848) (404,945)
Income taxes 81,321 - Net loss (2,813,169) (404,945) Dividends on preferred stock 319,926 219,926 Net loss on common shares $(3,133,095) $(624,871) Net loss per common share - basic and
diluted $(0.59) $(0.12) Weighted average shares outstanding - basic
and diluted 5,293,788 5,305,076
DATASOURCE: Meritage Hospitality Group Inc.
CONTACT: Gary A. Rose, Chief Financial Officer of Meritage Hospitality Group Inc., +1-616-776-2600 Web site: http://www.meritagehospitality.com/
|