J. Alexander’s Holdings, Inc., owner and operator of the J. Alexander’s Restaurants, Redlands Grill, Stoney River Steakhouse and Grill and Lyndhurst Grill collection of restaurants, announced financial results for the second quarter and first six months ended July 2.

Second Quarter 2017 Highlights Compared To The Second Quarter Of 2016

Net sales increased 8 percent to $58,216,000 in the most recent quarter from $53,921,000 in the second quarter of 2016.

For the J. Alexander’s/Grill restaurants, average weekly same store sales per restaurant were $114,000, up 4.4 percent from $109,200 in the second quarter of 2016. For the Stoney River Steakhouse and Grill restaurants, average weekly same store sales amounted to $70,400, an increase of 2.5 percent from $68,700 posted in the comparable quarter a year ago.

Income from continuing operations before income taxes in the second quarter of 2017 was $42,000, compared to $1,684,000 achieved in the second quarter of 2016, a decrease of $1,642,000. This decrease was primarily due to the impact of the quarterly valuation of the profits interest grant issued in October 2015 to Black Knight Advisory Services, LLC (“Black Knight”). For the most recent quarter, Black Knight profits interest expense was $1,714,000, an increase of $1,396,000 compared to expense of $318,000 recorded in the second quarter of 2016. The non-cash expense associated with this grant is required to be recognized over the three-year vesting period of the grant and is calculated each quarter based upon the most recent valuation performed using the Black-Scholes valuation model, with any cumulative change associated with the most recent valuation impacting the current quarter. Primarily due to the $12.25 closing price of the company’s stock at the end of the most recent quarter, the grant’s valuation increased from $5,347,000 as of April 2, 2017 to $7,533,000 at July 2, 2017. Also during the second quarter of 2017, the Company incurred consulting fees of $174,000 from its management agreement with Black Knight. This compares to consulting fees of $158,000 in the second quarter of the prior year. In addition, the second quarter of 2017 reflects transaction and integration expenses of $460,000 related to the company’s planned acquisition of the Ninety Nine Restaurant and Pub concept as discussed further below.

On August 4, 2017, the company announced that it had entered into a definitive agreement with Fidelity Newport Holdings, LLC (“FNH”), a majority-owned subsidiary of Fidelity National Financial, Inc. (“FNF”) and Fidelity National Financial Ventures, LLC (“FNFV”), a direct wholly-owned subsidiary of FNF, to acquire 99 Restaurants, LLC (“99 Restaurants”) in an all-stock transaction valued at approximately $199 million, including the assumption of approximately $20 million in net debt. The transaction is expected to close in the fourth quarter of 2017 and, in conjunction therewith, the company negotiated a termination of the consulting agreement currently in place with Black Knight Advisory Services, LLC (“Black Knight”) effective upon the transaction’s closing. Once the consulting agreement is terminated, Black Knight will have 90 days in which to exercise the exchange of their rights under the profits interest grant into Class A Common Stock of J. Alexander’s Holdings, Inc. Subsequent to such an election, or the expiration of the 90 day period, the company will no longer be required to perform a quarterly valuation relative to this grant.

• Net income for the second quarter of 2017 was $186,000, a decrease from $1,087,000 recorded in the corresponding quarter a year ago.
• Adjusted EBITDA in the second quarter of 2017 was $5,465,000, an increase of 11.0% from $4,922,000 for the second quarter of 2016.
• Basic and diluted earnings per share totaled $0.01 for the second quarter of 2017 and $0.07 for the second quarter of 2016.
• Restaurant Operating Profit Margin(3) was 12.1 percent for the second quarter of 2017 compared to 12.4 percent in the second quarter of 2016.
• Cost of sales as a percentage of net sales in the second quarter of 2017 amounted to 33 percent compared to 32.2 percent in the second quarter of 2016.

Chief Executive Officer’s Review/Second Quarter

“We were pleased with results of the second quarter in the face of a very difficult operating environment,” says Lonnie J. Stout II, President and Chief Executive Officer. “Guest counts and same store sales increased in all of our restaurant collections, and we continue to be encouraged with progress of our new J. Alexander’s and Stoney River restaurants.”

Stout said the company’s cost of sales was under intense pressure during the second quarter due to sharply higher beef costs (up an estimated 5.1 percent at the J. Alexander’s/Grills restaurants and an estimated 6.9 percent at the Stoney River restaurants). Produce prices were also under pressure at the beginning of the second quarter and had an unfavorable impact on cost of sales.

“As we enter the third quarter,” Stout continues, “produce prices have normalized while beef prices continue to be a concern. While there have been glimpses of encouraging news during the first few weeks of the current quarter, we remain concerned about trends in beef costs for the remainder of the year and, unless the market shifts significantly in a favorable direction, we will likely take a modest increase in menu pricing between now and year-end to partially offset the impact of increased beef costs.”

“During the final half of 2017,” Stout adds, “we will continue to be tightly focused on growing sales through traffic while delivering superior dining experiences for our restaurant guests.”

For the second quarter of 2017, the company’s consolidated operating income totaled $215,000 compared to $1,822,000 recorded in the corresponding quarter a year earlier.

For the quarter ended July 2, 2017, the company’s restaurant labor and related costs as a percent of net sales were 30.8 percent, consistent with the second quarter a year ago. Other restaurant operating expenses were 19.8 percent of net sales in the second quarter of 2017 compared to 20.5 percent of net sales in the second quarter of 2016.

The average weekly guest counts within the same store base of the company’s J. Alexander’s/Grills collection increased 1 percent for the second quarter of 2017 compared to the corresponding quarter of 2016. Guest counts within the same store base at the company’s Stoney River Steakhouse and Grill restaurants were up 4.5 percent for the second quarter of 2017 compared to the same quarter of 2016. With respect to average guest checks, which include alcoholic beverage sales, the average guest check within the J. Alexander’s/Grills same store base of restaurants during the second quarter of 2017 totaled $30.80, up 3.4 percent from $29.80 during the second quarter of 2016. The average guest check within the same store base of Stoney River Steakhouse and Grill restaurants totaled $44.10, a 2.0% decrease from $44.99 for the second quarter of 2016.

On a consolidated basis, average weekly guest counts within the company’s J. Alexander’s/Grill locations rose 1 percent for the second quarter of 2017 compared to the second quarter of the prior year. On a consolidated basis, average weekly guest counts within the Company’s Stoney River Steakhouse Grill locations increased 2.5% for the second quarter of 2017 compared to the second quarter of 2016. Average guest checks for the combined J. Alexander’s/Grills concepts rose 3.3 percent from $29.86 in the second quarter of 2016 to $30.85 in the most recent quarter. The average guest check for the Stoney River Steakhouse and Grill restaurants decreased 2.2 percent to $42.17 in the second quarter of 2017 compared to $43.13 in the second quarter of 2016.

The effect of menu pricing for the quarter just ended was estimated to be a 2.3 percent increase for the J. Alexander’s/Grills restaurants and a 0.4 percent decrease for the Stoney River Steakhouse and Grill restaurants compared to the same quarter a year earlier. Inflation in food costs for the second quarter of 2017 was estimated to total 3.5 percent for the J. Alexander’s/Grill restaurants, with beef costs increasing by an estimated 5.1 percent compared to the second quarter of 2016. For the Stoney River Steakhouse and Grill restaurants, inflation for the second quarter of 2017 was an estimated 4.4 percent, with beef costs up approximately 6.9 percent.

Stock Repurchase Program

The company’s Board of Directors has authorized a share repurchase program for up to 1.5 million shares of the Company’s outstanding common stock through October 29, 2018. The Company has funded and expects to fund any future share repurchases from cash on hand and operating cash flow. Repurchases have been and will continue to be made in accordance with applicable securities laws and may be made from time to time in the open market. The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations. The repurchase program does not obligate the Company to acquire any particular amount of stock. No shares have been repurchased by the Company in fiscal 2017. Since inception of the stock repurchase program, 305,059 shares have been repurchased by the Company under the program at an average purchase price of $10.50 per share.

Restaurant Development

During the second quarter of 2017, the company signed leases to build a new J. Alexander’s Restaurant in King of Prussia, PA and a new Stoney River Steakhouse and Grill in Troy, MI. Construction on these two new restaurants is scheduled to begin in the third quarter of 2017 with completion targeted for 2018.

First Half Highlights For 2017

For the first 26 weeks of 2017, the company posted net sales of $118,038,000, up from $110,800,000 recorded during the comparable first half of 2016. Within the J. Alexander’s/Grill restaurants, average weekly same store sales per restaurant were $116,900 for the first six months of 2017, up 4 percent from $112,400 posted in the same two quarters of the prior year. For the Stoney River Steakhouse and Grill restaurants, average weekly same store sales totaled $72,900, an increase of 1.4% from $71,900 reported in the comparable two quarters of 2016. Income from continuing operations before income taxes was $3,683,000, down from $4,683,000 achieved in the first half of 2016.

The company recorded net income of $2,870,000 for the first six months of 2017 compared to $3,377,000 achieved in the first half of the previous year. Adjusted EBITDA for the first half of 2017 totaled $13,066,000, an increase from $11,650,000 recorded in the first two quarters of 2016. Basic and diluted earnings per share were $0.20 and $0.19 for the first six months of 2017, respectively, and $0.23 for the comparable six months of 2016.

The company’s consolidated operating income for the most recent six months was $4,009,000 compared to $4,994,000 recorded in the corresponding six months of 2016.

For the two quarters ended July 2, 2017, the company’s restaurant labor and related costs as a percent of net sales were 30.4 percent compared to 30.3 percent in the first six months of 2016. Other restaurant operating expenses were 19.6 percent of net sales in the first half of 2017 compared to 19.9 percent of net sales in the first half of 2016.

The average weekly guest counts within the same store base for the Company’s J. Alexander’s/Grills collection increased 1.2 percent for the first six months of 2017 compared to the corresponding six months of 2016. Guest counts within the same store base at the Company’s Stoney River Steakhouse and Grill restaurants were up 3.0% for the first two quarters of 2017 compared to the same two quarters of 2016. With respect to average guest checks, the average guest check within the J. Alexander’s/Grills same store base of restaurants during the first six months of 2017 totaled $30.95, up 2.7 percent from $30.15 during the same six months of the prior year. The average guest check within the same store base of Stoney River Steakhouse and Grill restaurants totaled $44.93, a 1.6 percent decrease from $45.68 for the first six months of 2016.

On a consolidated basis, average weekly guest counts within the company’s J. Alexander’s/Grill locations advanced 1.3% for the first half of 2017 compared to the first half of 2016. With respect to the Stoney River Steakhouse and Grill locations, consolidated average weekly guest counts increased 2.4 percent for the first two quarters of 2017 compared to the same two quarters of 2016. Average guest checks for the combined J. Alexander’s/Grills concepts increased 2.6 percent from $30.20 in the first two quarters of 2016 to $31.00 in the first half of 2017. The average guest check for the Stoney River Steakhouse and Grill restaurants decreased 2.7% to $42.88 in the first two quarters of 2017 from $44.05 in the same two quarters of 2016.

The effect of menu pricing for the first six months of 2017 was estimated to be a 2.2 percent increase for the J. Alexander’s/Grills restaurants and a 0.3 percent decrease for the Stoney River Steakhouse and Grill restaurants compared to the first half a year ago. Inflation in food costs for the first six months of 2017 was estimated to total 0.3 percent for the J. Alexander’s/Grills restaurants, with beef costs down by an estimated 2.4 percent compared to the same six months of the previous year. For the Stoney River Steakhouse and Grill restaurants, inflation for the first half of 2017 was an estimated 0.4 percent, with beef costs down approximately 0.3 percent.