Champps Entertainment, Inc. (Nasdaq:CMPP) today announced results
for its full fiscal year ending July 3, 2005, and fiscal 2005
fourth quarter. Highlights included: -- Early stage implementation
of strategic initiatives announced in May 2005 by Michael
O'Donnell, recently appointed Chief Executive Officer; -- New
management team appointments including Rich Scanlan as Chief
Operating Officer and Dave Womack as Chief Financial Officer; --
Operating cash flow of $19.8 million in fiscal 2005, enabling the
reduction of $4.1 million in long-term debt; -- Assessment of
underperforming restaurants, resulting in non-cash asset impairment
charges of $6.6 million in fiscal 2005. Full Year 2005 Results
Fiscal year 2005 revenues grew 5.6 percent to $218.4 million,
compared with revenues of $206.9 million for fiscal 2004. The
revenue growth was driven by an increase in the number of
restaurants as well as one additional week of operating results
included in fiscal 2005's results and not in those of fiscal 2004.
Net loss for fiscal year 2005 was ($0.2) million, or ($.02) per
share, compared with net income of $4.3 million, or $0.33 per
diluted share, in 2004. This net loss was due to the $6.6 million
non-cash asset impairment charge associated with four
underperforming restaurants, recorded in the third quarter of 2005.
Total cost of sales and operating expenses were relatively flat at
85.7 percent of sales versus 85.4 percent of sales in 2004 despite
lower comparable store sales of 3.6% for the year. However,
earnings were also impacted by an increase in general and
administrative expenses. This increase in general and
administrative expenses from $11.7 million, or 5.7 percent of
revenues, to $13.9 million, or 6.4 percent of revenues, in 2005 was
primarily due to higher personnel costs associated with beginning
of the year growth plans, additional accounting and consulting
expenses related to the implementation of Sarbanes-Oxley
requirements and our lease accounting restatement, and non-cash
restricted stock expense. "While our results for the year did not
meet our expectations, our revenue grew 6 percent and we generated
operating cash flow of almost $20 million," said Michael O'Donnell,
Chief Executive Officer. "From our strong operating cash flow, we
were able to reduce our debt balances by over $4 million in fiscal
2005. As a result, we had no outstanding balances under our credit
facility at year end. Our organization remains focused on reversing
the recent negative same store sales trends by executing on the
initiatives announced this May. To that end, we have taken some
important steps in meeting these objectives during the past several
months." Mr. O'Donnell continued: "First, we recently reduced the
number of field supervisors in our organization. In an effort to
further streamline our operations, these supervisors will report
directly to our Chief Operating Officer. Our supervisors and
restaurant general managers have been retrained and are now focused
on educating others in the field at the restaurant level. Our
education process will be extended to our bar operations in a short
time which will complement other changes we are making to that side
of our business. We have also implemented a new bonus strategy to
reward managers for cash flow improvements on a year over year
basis. These managers feel a new sense of ownership and opportunity
under this bonus plan and the initial response has been extremely
positive. It is our intent to review and modify this bonus plan in
mid-fiscal year to further enhance its partnering features. We
believe these initiatives are critical to achieving high levels of
customer service, by maintaining lower levels of turnover at our
restaurants and creating the opportunity to recruit quality,
like-minded employees. "We have also made strides in streamlining
our menu and providing the customer with new, higher quality menu
items. We have completed further market research that validates
many of our beta menu changes and other initiatives. One of our new
COO's top priorities will be rolling out the menu improvements to
all of our locations in the months to come. As the new menu is
leveraged nationwide, it should allow for better execution,
increased quality, and greater guest satisfaction. "While the
strategic initiatives I outlined in May will not be completed
overnight, we have made important progress. I firmly believe that
the recent additions of Rich Scanlan as Chief Operating Officer and
Dave Womack as Chief Financial Officer will help us achieve our
goals of increasing customer satisfaction, and ultimately improved
corporate profitability and cash flow," said Mr. O'Donnell. Mr.
O'Donnell went on to add that "work had also begun on another
important strategic initiative: a new real estate growth strategy
involving the development of a new smaller prototype restaurant and
an improved site selection model. The new prototype store under
development is approximately 6,500 to 7,500 square feet in size and
we believe it will be well-suited to complement our future growth."
He also noted that "franchise development continues to be a
long-term strategic goal. However, we will focus on this secondary
objective upon completion of our other initiatives, after
developing a solid foundation upon which to grow." Fourth Quarter
2005 Results Total revenues for the fourth quarter increased 2.5
percent to $53.7 million versus $52.4 million for the fourth
quarter of the prior year. The revenue increase was primarily due
to additional restaurants open this period compared with the fourth
quarter of 2004, partially offset by a decline in comparable store
sales. Net loss for the fourth quarter of 2005 was ($0.5) million,
or ($0.04) per share, compared with net income of $0.4 million, or
$0.03 per diluted share, in the comparable quarter a year ago. This
quarter's net loss was primarily due to higher general and
administrative expenses and other operating expenses. Comparable
same store sales decreased 5.0 percent for the fourth quarter of
fiscal 2005 versus the fourth quarter of last year. Comparable food
sales decreased 4.9 percent while comparable alcohol sales
decreased 5.3 percent. Comparable store revenues were negatively
impacted by the weak restaurant traffic during the traditionally
popular NHL playoff season, which did not occur this year because
of the strike. Product costs marginally improved to 28.7 percent
from 28.8 percent last year and labor costs only modestly increased
to 32.7 percent this year from 32.6 percent last year despite the
lower comparable sales. However, other operating expenses increased
from 14.2 percent of sales in the fourth quarter of 2004 to 15.7
percent in the fourth quarter of 2005 as a result of the impact of
lower comparable sales on fixed costs and higher utility, repair
and marketing costs. Occupancy expense increased to 10.1 percent
compared with 10.0 percent in the prior year's quarter. Preopening
expense increased from 0.5 percent to 0.9 percent this quarter when
compared with 2004 due to timing associated with openings. The
Company opened one restaurant in the current quarter in Baton
Rouge, Louisiana. General and administrative expenses for the
fourth quarter were $4.2 million or 7.9 percent of revenues
compared with $2.9 million or 5.6 percent of revenues in the
comparable period last fiscal year. This increase was primarily due
to the implementation costs associated with Sarbanes-Oxley,
non-cash restricted stock expense and costs associated with our new
strategic initiatives. Our operating cash flow in the fourth
quarter was sufficient to repay another $1.0 million of debt and
finish the year with no outstanding bank debt. Information for
Fiscal 2006 The year-over-year revenue comparison for the first
fiscal quarter of 2006 will be negatively impacted by one week of
sales that occurred in the first quarter of 2005 that will not
occur in the first quarter of 2006. Additionally, as a result of
the SEC's requirement to comply with the Financial Accounting
Standard Board's Statement of Financial Accounting Standards No.
123R, net income will be negatively impacted by non-cash stock
option expenses beginning in the first fiscal quarter of fiscal
2006. The Company has already opened one restaurant in the first
fiscal quarter of 2006 in Toledo, Ohio, and plans to open up to two
to four total restaurants in 2006. Specific plans include opening
an additional restaurant in September or October through a
licensing arrangement in the new international terminal in the
Dallas Fort Worth Texas airport, and a location in Princeton, New
Jersey, in the second half of 2006. Previously Announced Management
Changes As announced on August 18, 2005, Michael O'Donnell, Chief
Executive Officer, named two key additions to the Company's
management team. Rich Scanlan was appointed to the position of
Chief Operating Officer and Dave Womack was promoted from
Controller/Vice President to Chief Financial Officer. Scanlan, a
restaurant operations veteran, has returned to Champps as the
Company's newly appointed Chief Operating Officer. Scanlan
previously worked for Champps as a Director of Operations from 1997
to 2000. Scanlan most recently served as one of the creators and
the Vice President of Operations for Carmela's, the full-service
Italian division of Sbarro, Inc. Prior to Carmela's, Scanlan served
as a Senior Director of Operations for the Hard Rock Cafe and also
spent approximately 14 years in various operating positions with
TGI Friday's. Womack has nearly 20 years of restaurant industry
experience in accounting and financial management. He previously
was Controller at Champps for over two years and worked for almost
12 years at VICORP Restaurants, Inc., the parent of Village Inn and
Bakers Square, in various capacities including Vice
President/Controller. Womack has also served in a variety of other
restaurant financial, accounting and managerial roles including
Chief Executive Officer and Chief Financial Officer at the Wynkoop
Brewing Company, a privately held Denver-based company. Webcast
Information The Company's management will discuss the results of
the fiscal 2005 fourth quarter and year end on a conference call
and simultaneous webcast on September 1, 2005, at 10:00 a.m. ET. To
hear the call in a listen-only mode, participants must dial
866-814-1914 or 703-639-1358 (International) at least ten minutes
prior to the start of the call and refer to conference
identification number 763499. To hear a live Web simulcast of the
call, visit the company's Web site at www.champps.com, click on the
Investor Relations icon and refer to conference identification
number 763499. If unable to participate at the time of the call,
the archived webcast can be accessed until October 1, 2005, by
visiting www.champps.com, clicking on the Investor Relations icon
and referring to conference identification number 763499. About
Champps Entertainment, Inc. Littleton, Colo.-based Champps
Entertainment, Inc. owns and operates 53 and franchises 12 Champps
restaurants in 23 states. Champps, which competes in the upscale
casual dining segment, offers an extensive menu consisting of
freshly prepared food, coupled with exceptional service. Champps
creates an exciting environment through the use of videos, music,
sports and promotions. Safe Harbor Statement Certain statements
made in this press release are forward-looking statements based on
management's current experience and expectations. These
forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Such statements involve certain risks and uncertainties that could
cause actual results to differ materially from those in the
forward-looking statements. Such forward-looking statements include
statements regarding our strategic initiatives; new management team
members; improved profitability and cash flow; revenues; stock
compensation expenses; and restaurant openings, among others. Among
the factors that could cause future results to differ materially
from those provided in this press release are: the ability of the
Company to open and operate additional restaurants profitably, the
ability of the Company to successfully implement our strategic
initiatives to improve revenues and profitability, the ability of
the company's new management team to implement new strategic
initiatives successfully; the impact of intense competition in the
casual dining restaurant industry, the Company's ability to control
restaurant operating costs, which are impacted by commodity prices,
minimum wage and other employment laws, fuel and energy costs,
consumer perceptions of food safety, changes in consumer tastes and
trends, and general business and economic conditions. Information
on significant potential risks and uncertainties that may also
cause such differences include, but are not limited to, those
mentioned by the Company from time to time in its filings with the
SEC. The words "may," "believe," "estimate," "expect," "plan,"
"intend," "project," "anticipate," "should" and similar expressions
and variations thereof identify certain of such forward-looking
statements, which speak only as of the dates on which they were
made. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. Readers are cautioned
that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and,
therefore, readers should not place undue reliance on these
forward-looking statements. -0- *T CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended and Twelve
Months Ended July 3, 2005 and June 27, 2004 (Dollars in thousands,
except per share data) (Unaudited) Three Months Ended Twelve Months
Ended ------------------ ------------------- July 3, June 27, July
3, June 27, 2005 2004 2005 2004 ---- ---- ---- ---- Revenue Sales
$53,510 $52,287 $217,735 $206,361 Franchising and royalty, net 184
149 621 579 ------ ------ ------- ------- Total revenue 53,694
52,436 218,356 206,940 ------ ------ ------- ------- Costs and
expenses Cost of sales and operating expenses Product costs 15,341
15,035 62,157 58,851 Labor costs 17,524 17,054 69,495 67,269 Other
operating expense 8,395 7,436 32,181 28,453 Occupancy 5,436 5,212
21,248 19,864 Pre-opening expense 471 258 1,455 1,898 ------ ------
------- ------- Total cost of sales and operating expenses 47,167
44,995 186,536 176,335 General and administrative expense 4,230
2,934 13,889 11,719 Depreciation and amortization 2,692 2,666
11,012 9,896 Severance 108 - 655 - Impairment charges - - 6,567 -
Other (income) expense 19 (11) (76) 135 ------ ------ -------
------- Income (loss) from operations (522) 1,852 (227) 8,855 Other
(income) expense Interest expense and income, net 344 351 1,444
2,101 Expenses related to predecessor companies 43 912 358 1,171
Debt extinguishment costs - 583 - 587 ------ ------ ------- -------
Income (loss) before income taxes (909) 6 (2,029) 4,996 Income tax
expense (benefit) (387) (374) (1,780) 724 ------ ------ -------
------- Net income (loss) $(522) $380 $(249) $4,272 ====== ======
======= ======= Basic income (loss) per share: $(0.04) $0.03
$(0.02) $0.33 Diluted income (loss) per share: $(0.04) $0.03
$(0.02) $0.33 Basic weighted average shares outstanding 12,981
12,811 12,887 12,793 Diluted average shares outstanding 12,981
13,116 12,887 13,000 *T -0- *T Supplemental Information --
Restaurant Operating Expenses (Stated as a percentage of restaurant
sales) Three Months Ended Twelve Months Ended ------------------
------------------- July 3, June 27, July 3, June 27, 2005 2004
2005 2004 ---- ---- ---- ---- Product costs 28.7% 28.8% 28.5% 28.5%
Labor costs 32.7% 32.6% 31.9% 32.6% Other operating expenses 15.7%
14.2% 14.8% 13.8% Occupancy 10.1% 10.0% 9.8% 9.6% Pre-opening
expenses 0.9% 0.5% 0.7% 0.9% ---- ---- ---- ---- Total cost of
sales and operating expenses 88.1% 86.1% 85.7% 85.4% Depreciation
and amortization 5.1% 5.1% 5.0% 4.8% Total cost of sales, operating
expenses and depreciation and amortization 93.2% 91.2% 90.7% 90.2%
---- ---- ---- ---- General and administrative expense 7.9% 5.6%
6.4% 5.7% ---- ---- ---- ---- (Stated as a percentage of revenue)
Champps Entertainment, Inc. Selected Balance Sheet Information (In
thousands) (Unaudited) July 3, June 27, 2005 2004 ---- ---- Cash
and cash equivalents $2,702 $1,449 Total assets 137,311 133,749
Debt 14,649 18,563 Equity 76,061 75,008 Champps Entertainment, Inc.
Selected Cash Flow Information (In thousands) (Unaudited) Twelve
Months Ended ------------------- July 3, June 27, 2005 2004 ----
---- Net cash provided by operating activities $19,835 $21,179 Net
cash used in investing activities (15,792) (14,852) Net cash used
in financing activities (2,790) (9,933) ------- ------- Net change
in cash and cash equivalents $1,253 $(3,606) ======= ======= *T
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