Casual dining chain O’Charley’s Inc. (CHUX) recently reported disappointing third quarter 2010 results. The results were hurt by an impairment charge and lower margins.
The company reported a quarterly loss of 35 cents per share, wider than the Zacks Consensus Estimate of a loss of 23 cents and was substantially down from earnings of 10 cents delivered in the prior-year quarter.
O’Charley’s said that total revenue in the third quarter tumbled 1.2% year over year to $191.7 million. Management now expects total revenue for the fourth quarter in the range of $184 million to $190 million.
O’Charley’s, operating under its namesake along with Ninety Nine Restaurant and Stoney River Legendary Steaks, reported general and administrative expenses of $8.3 million, down 4.6% year over year. The restaurant level margin declined 240 basis points to 11.8%.
The Nashville-based O’Charley’s indicated that adjusted EBITDA in the quarter was $7.6 million compared with $1.0 million in the year-ago quarter. The company now expects EBITDA for the fourth quarter in the range of $5 million to $8 million.
Net loss from operations came in at $5.6 million, compared with net earnings of $0.3 million in the prior-year quarter. The company now expects fourth quarter 2010 loss from operations in the range of $3 million to $6 million.
Segment Details
Same-store sales at the company’s O’Charley restaurants fell 2.2% year over year. A decline in average check of 4.8%, partially offset by a rise in guest count of 2.7%, was largely culpable for the weak same-store sales results.
The company was successful at driving traffic at O’Charley’s restaurants by introducing 2 Meals, which consist of a full meal, beverage and value priced appetizers, priced at $14.99. Restaurant level margin at O’Charley’s restaurants dropped 370 basis points to 11.4%.
Same-store sales at Ninety Nine grew 1.2% as a rise of 1.8% in average check was offset by a 0.6% fall in guest count. Restaurant level margin contracted 30 basis points to 11.4%.
Same-store sales at Stoney River inched up 1.7% in the quarter, given a 15.4% increase in guest count, but was partially offset by a 11.9% decline in average check. Restaurant level margin showed a year-over-year increase of 190 basis points.
Same-store sales rose for the first time in three years at Ninety Nine Restaurant and Stoney River Legendary Steaks.
Financial Aspects
O’Charley ended the quarter with cash and cash equivalents of $22.7 million, long-term debt of $117.4 million and stockholder equity of $198.4 million. Capital expenditure for the quarter under review was $3.2 million.
Our Take
The company is taking initiatives to drive traffic, but it has a long way to go. Estimates have not budged in the last 30 days, implying that the analysts do not see any meaningful catalyst for the time being. The Zacks Consensus Estimate for the fourth quarter of 2010 is a loss of 24 cents per share and remains at 52 cents per share for fiscal 2010.
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