Lakewood, Colorado-based Einstein Noah Restaurant Group, Inc. (BAGL) recently reported first quarter 2011 adjusted earnings of 8 cents per share, which missed the Zacks Consensus Estimate of 12 cents per share. The lower-than-expected results were due to soft same-store sales and commodity cost inflation.

Earnings on a GAAP basis increased to 7 cents per share from 3 cents per share posted in the prior-year quarter.

Total revenue inched up 0.4% year over year to $100.8 million, but was below the Zacks Consensus Estimate of $103 million. The revenues were below expectation due to lower comparable store sales.

System-wide same-store sales tumbled 0.8% due to store closures arising from inclement weather conditions.

Segment wise, company-owned restaurant sales dipped 1% to $90.7 million, while Manufacturing and commissary revenue climbed 12.6% to $8.0 million and Franchise and license related revenues were up 14.8% to $2.2 million.

Gross margin contracted 110 basis points (bps) year over year to 17.6% primarily due to a spike in commodity cost and sales deleveraging, partially offset by lower labor expense.

Marketing cost escalated 16.7% to $2.8 million on account of higher marketing initiatives to drive traffic and build brand awareness.

At the end of the quarter, the company had 733 restaurants, out of which 432 restaurants are company owned, 93 are franchised and 208 are licensed.

Financial Position

At the end of the quarter, Einstein Noah had cash and cash equivalents of approximately $11.8 million and free cash flows of $7.6 million. The company also reduced its debt burden by $5 million to $82.7 million.

Outlook

For fiscal 2011, the company plans to open 75 to 90 restaurants, which includes 10 to 14 company-owned, 20 to 26 franchised restaurants and 45 to 50 licensed restaurants. Einstein Noah also expects cost inflation to be higher in 2011 than 2010. Capital expenditures are estimated between $28 million and $30 million.

Our Take

We expect estimates to go down in the coming days, as the company’s results belied expectation. It continues to face commodity pressure. However, in the long term, we expect the company to benefit from sales-driven initiatives such as introduction of new products and promotion of premium products to attract customers. To further drive traffic, the company continues to emphasize on marketing initiatives.

The company also remains committed to enhancing shareholder value and expanding margin by controlling its expenses. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 86 cents and 98 cents, respectively.

One of Einstein Noah’s prime competitors, Panera Bread Co. (PNRA) posted first quarter 2011 earnings of $1.09 per share, surpassing the Zacks Consensus Estimate of $1.07 on the back of double-digit top-line growth.

 
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