McCormick & Schmick's Reports Financial Results
McCormick & Schmick’s Seafood Restaurants, Inc. today reported financial results for its first quarter ended March 30, 2011.
Financial results for the first quarter 2011 compared to the first quarter 2010:
- Revenues decreased 1 percent to $84 million from $84.8 million.
- Comparable restaurant sales decreased 3.2 percent.
- Total restaurant operating costs increased 120 basis points to 90.5 percent of revenues.
- Net loss of $0.7 million, or $0.04 per diluted share, compared to net loss of $0.4 million, or $0.03 per diluted share.
Revenues for the first quarter of 2011 were virtually flat at $84 million from $84.8 million in the first quarter of 2010. Comparable restaurant sales decreased 3.2 percent. Of this decline, abnormal adverse weather, a change in a key promotional program and more normalized performance at Canadian locations, which benefited from the Olympics last year, accounted for approximately 200 basis points.
Bill Freeman, CEO, says: “Earlier this year, we announced a comprehensive revitalization plan to position our restaurants and our company for future success. As we execute the revitalization plan, we have adjusted elements of the plan to ensure that we are investing in targeted properties to improve top-line sales and restaurant level margins in those locations.
“As a result, we have increased our annual earnings guidance, inclusive of the remodel program, from previous company expectations. As economic conditions improve and diners continue to return to the upscale affordable and fine dining segments, we are confident that the initiatives we are putting in place will drive long-term traffic gains and higher guest frequency.”
Earlier this year, following a comprehensive review of McCormick & Schmick’s business, the company announced a strategic revitalization plan that includes a multi-year service, hospitality and portfolio upgrade program designed to increase restaurant revenue and profitability, while also enhancing the overall guest experience.
This plan includes refreshing and remodeling restaurants, continuing to elevate the company’s culinary program and better aligning the McCormick & Schmick’s brand with local market guest preferences, among other initiatives. The company expects the plan will improve revenue per location and provide strong returns on invested capital.
The company is also continuing to consider expanding The Boathouse Restaurants concept in Canada, as well as using it as a complementary concept within the United States.
As the company’s management prepared for the revitalization program, it made adjustments and refinements based on a number of factors, including permitting, code-related issues, scope and the specific timing of work to be done.
In particular, the company is now planning to focus on eight remodels in 2011, for an aggregate cost of approximately $6.5 million, some of which will be offset by landlord contributions, instead of the previously announced $10 to $15 million.
This will allow McCormick & Schmick’s to roll out its revitalization plan with a view toward focusing on the locations that have the best potential to deliver solid top-line growth. As a result, the expected cost of this year’s remodel program is significantly lower than the company’s original guidance.
With the refined cost structure of these remodels and modest sales increases, the company expects it can deliver returns in excess of 20 percent. In addition, the company expects to have significantly less downtime during the 2011 remodels.
McCormick & Schmick’s now estimates the temporary closure of impacted locations for approximately twenty operating weeks during the scheduled remodels, which is roughly half the earlier estimate, as the company has shifted the implementation process to minimize both closure times and adverse impacts on guests.
Without including any reduction in restaurant operating weeks from the remodel projects previously announced, the company reiterated its annual revenue guidance for 2011 to be between $345 million and $355 million, and for fully diluted earnings per share to be between $0.35 and $0.40.
As noted above, the company has refined its strategic revitalization plan and now intends to complete eight projects in 2011, which are estimated to result in a reduction of approximately 20 restaurant operating weeks, compared to what previous estimates of approximately 40 to 45 weeks. As a result, the company is increasing its previously announced annual guidance, adjusted to take into account the impact of the revitalization plan, to between $0.31 and $0.36 per diluted share, which reflects a $0.05 increase from the company’s previous expectations. These estimates include the significant investments in training, bench strength and the hiring of key executives.
McCormick & Schmick’s guidance does not include costs related to the Landry’s/Fertitta-led unsolicited tender offer for all outstanding shares of common stock that Landry’s/Fertitta does not already own or their related proxy solicitation seeking to prevent the company from holding its 2011 annual meeting.
During the second quarter of 2011, the company will begin work on four of the planned eight projects, which will result in an estimated reduction of five restaurant operating weeks during the quarter.
Capital expenditures are now expected to be between $12 million and $14 million, which includes approximately $6.5 million attributable to the remodel program, not including landlord contributions. This compares to the company’s previous capital expenditures projection of $17 to $21 million for fiscal 2011. Operating cash flows are expected to cover projected capital expenditures.
The company reiterated the following guidance for 2011: An annualized effective tax rate of between 15 percent and 20 percent, depreciation and amortization of approximately $15 million, and G&A of between $19.5 million and $20.5 million, which does not include costs related to the Landry’s/Fertitta-led unsolicited tender offer.
McCormick & Schmick’s also announced that it has closed two restaurants located in Schaumburg, Illinois, and in Boca Raton, Florida. The effect of these restaurant closures is included in the aforementioned earnings guidance.