Prime Restaurants Inc.
TSX : EAT

Prime Restaurants Inc.

August 10, 2011 16:01 ET

Prime Restaurants Inc. Announces Continuing Solid Performance in Q2 2011 and Declares Quarterly Dividend

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 10, 2011) - Prime Restaurants Inc. ("PRI" or the "Company") (TSX:EAT) today reported its results for the 13 and 26 weeks ended July 3, 2011. Effective April 5, 2010 Prime Restaurants Royalty Income Fund (the "Fund") was reorganized (the "Reorganization") into a public corporation named Prime Restaurants Inc. The 26-week period ended July 4, 2010 includes the operations of the Fund for the three months ended March 31, 2010, and the 13-week period ended July 4, 2010, of PRI. As PRI's operations are substantially different from the operations of the Fund, much of the information in this press release is not directly comparable. In addition, effective January 3, 2011 the Company began incorporating International Financial Reporting Standards ("IFRS") in its reporting. For more information relating to the impact of the transition to IFRS on the Company's reported financial position, financial performance and cash flows, please refer to the Company's Management Discussion and Analysis ("MD&A") for the 13 and 26 week periods ended July 3, 2011 available on the Company's web site or at www.sedar.com.

2011 HIGHLIGHTS:

  • Solid Same Store Sales Growth ("SSSG")1 of 2.5% through first six months of 2011
  • SSSG across all brands and geographic regions through first six months of 2011
  • SSSG in second quarter muted by unusually cool and wet spring weather
  • Two new East Side Mario's and one new pub opened in second quarter
  • Earnings per share of $0.17 in second quarter
  • Quarterly dividend declared of $0.12 per Class A Share

PRI generated a solid 2.5% increase in SSSG through the 26 week period ended July 3, 2011. SSSG for the 13 weeks ended July 3, 2011 was 0.3% as growth was muted due to unusually cool and wet weather during the spring season, more intense competition, and continuing consumer caution regarding the North American economic outlook. In addition, PRI generated significant year-over-year growth in the second quarter of the prior year.

For the 26 weeks ended July 3, 2011, all of the Company's brands posted positive SSSG, with East Side Mario's restaurants up 3.0%, Casey's restaurants rising 1.3% and the pubs up 1.2%. All of PRI's geographic regions in Canada posted positive SSSG, with Ontario up 3.1%, Atlantic Canada rising 2.8%, Western Canada posting SSSG of 0.6% and Québec flat compared to the prior year. For the 13 weeks ended July 3, 2011, the Company posted positive SSSG through the majority of its brands and geographic regions.

"Despite the cool wet weather impacting guest visits during the spring of 2011, we were pleased to have posted generally solid performance in the second quarter," commented John Rothschild, Chief Executive Officer of PRI. "We were also pleased to have opened two new East Side Mario's restaurants and one pub in the quarter. Going forward, we will continue to prudently expand our restaurant and pub network and extend our multi-brand presence in key markets across North America."

East Side Mario's management remains focused on utilizing larger format restaurants to maximize revenues, supported by a four-fold increase in television advertising during 2011 compared to 2010. New menus have been introduced and new promotions have been launched, including Canada's largest sponsorship of 8-10 year old youth soccer. Casey's restaurants continue to focus on new marketing programs launched in 2011, including e-mail and direct mail campaigns, and a new summer menu introduced in July that included gluten-free items aimed at meeting the specific needs of all guests. PRI's pub locations introduced a new seasonal summer menu in June emphasising its innovative quick reference code directing guests to a mobile web site suggesting recommended beer and food pairings.

Operational Review

During the 13 weeks ended July 3, 2011, the Company opened one new pub and two new East Side Mario's restaurants in Ontario, in addition to the East Side Mario's restaurant that re-opened under new management in Ontario during the first quarter of 2011. One East Side Mario's restaurant in Ontario was closed during the quarter, the only restaurant closed year to date. As at July 3, 2011 there were 140 franchised and 12 corporate-owned restaurants in Canada and five franchised restaurants in the USA compared to 139 franchised and 10 corporate-owned restaurants in Canada and five franchised restaurants in the USA at July 4, 2010.

Reorganization

Effective April 5, 2010 the Fund was reorganized into a public corporation named Prime Restaurants Inc. The new corporate structure includes the combination of the businesses of Prime Restaurants of Canada Inc. ("PRC"), the Fund and PRC Trademarks Inc. ("TradeMarkCo"). The Fund was dissolved and unitholders and limited voting unitholders of the Fund received, for each unit and limited voting unit of the Fund, one class A limited voting share ("Class A Limited Voting Shares") of PRI.

FINANCIAL HIGHLIGHTS:
13 weeks ended July 3, 2011 13 weeks ended July 4, 2010 26 weeks ended July 3, 2011 26 weeks ended July 4, 2010
Entity PRI PRI PRI PRI / Fund
System sales – reported by PRI restaurants 86,832 86,339 169,640 86,339
Total revenue 15,283 13,885 25,823 14,693
Costs and expenses 13,148 11,840 22,595 11,909
Income before the undernoted 2,135 2,045 3,228 2,784
Depreciation expenses 94 99 181 99
Stock-based compensation expense 136 - 252 -
Share of loss from associate - 5 - 5
Reorganization adjustments - 11,905 - 11,905
Reorganization transaction costs - 2,381 - 2,381
Operating income/(loss) 1,905 (12,345 ) 2,795 (11,606 )
Interest income 10 8 23 8
Interest expense 15 16 38 16
Income/(loss) before taxes 1,900 (12,353 ) 2,780 (11,614 )
Income taxes 513 2,749 775 2,749
Total comprehensive income/(loss) 1,387 (15,102 ) 2,005 (14,363 )
Total comprehensive income/(loss) attributable to:
Owners of parent 1,381 (15,109 ) 1,998 (14,370 )
Non-controlling interest 6 7 7 7
1,387 (15,102 ) 2,005 (14,363 )
Basic earnings per Class A Limited Voting Share $ 0.171 ($1.86)1 $ 0.241 ($1.77)1
Diluted earnings per Class A Limited Voting Share $ 0.172 ($1.86)2 $ 0.242 ($1.77)2
Dividend paid per Class A Limited Voting Share $ 0.12 $ 0.12 $ 0.24 $ 0.24
26 weeks 52 weeks
ended ended
July 3, 2011 January 2, 2011
Entity PRI PRI
Total assets 52,706 52,190
Total liabilities 11,121 11,066
Shareholder's Equity 41,558 41,094
Non-controlling interest 27 30
1 The basic earnings per share were calculated based on the following weighted average number of Class A Limited Voting Shares and class B limited voting shares ("Class B Limited Voting Shares") of PRI that were outstanding for the: 13 weeks ended July 3, 2011, 8,321,238; 26 weeks ended July 3, 2011, 8,225,000 and 13 and 26 weeks ended July 4, 2010, 8,117,571.
2 The diluted earnings per share were calculated based on the following diluted weighted average number of Class A Limited Voting Shares of PRI for the: 13 weeks ended July 3, 2011, 8,334,072; 26 weeks ended July 3, 2011, 8,238,561; and 13 and 26 weeks ended July 4, 2010, 8,117,571.

The increase in revenue reported by PRI for the 13 weeks ended July 3, 2011, which includes royalties and franchise-related income, sales from corporate-owned restaurants, and reimbursements from franchisees of restaurant development costs, was due primarily to the increase in the number of restaurants compared to the prior year and the increase in SSSG in the period. Prior to the Reorganization, the Fund's revenues comprised mainly of interest income on a promissory note issued by TradeMarkCo.

The increase in costs and expenses for the 13 weeks ended July 3, 2011, which include costs incurred by company-owned restaurants such as cost of sales, general and administrative expenses as well as expenses associated with managing the activities of PRI and providing services to the corporate and franchised restaurants including employees' salaries, wages and benefits and recoverable development costs incurred to build restaurants on behalf of franchisees, was due primarily to the increase in restaurant count. Prior to the Reorganization, costs and expenses reflected only the fees paid to Trustees and other expenses associated with managing the activities of the Fund.

Depreciation expense is comprised of depreciation on property, plant and equipment. Prior to the Reorganization, the Fund did not have any depreciable assets.

PRI has a Restricted Share Plan (the "Plan") that provides for the grant of Restricted Share Units ("RSUs") to officers, employees and directors of PRI and its affiliates, as well as consultants engaged by PRI or its affiliates. Stock-based compensation expense is comprised of the value of RSUs that have vested and straight-line amortization of individual tranches over their respective vesting periods. The total value of the RSUs granted was based on the market price of the Class A Limited Voting Shares on the grant date.

Interest income represents interest earned on cash balances maintained and interest earned on promissory notes from franchisees. Prior to the Reorganization, the Fund did not maintain cash balances.

Interest expense for the 13 weeks ended April 3, 2011 includes interest arising from a loan agreement that was assumed by PRI as part of the Reorganization. The proceeds from the loan were used by PRC to finance the construction and opening of a second Bier Markt location in downtown Toronto. The loan bears interest at the banker's acceptance rate plus 3.25% per annum and will mature in September 2015. Prior to the Reorganization, the Fund did not have any outstanding loans.

Non-controlling interest relates to a partnership interest formed on August 4, 2008 between PRC and a third party to open a Bier Markt location in Toronto, and the Company is entitled to 95% of the profits. A third party holds the remaining 5% investment and is reflected as a non-controlling interest on the Company's interim consolidated statement of financial position.

Quarterly Dividend

PRI declared today a quarterly dividend of $0.12 per Class A Limited Voting Share payable to shareholders of record on September 30, 2011. The dividend will be paid on October 17, 2011 and will be considered an eligible dividend for income tax reporting.

PRI's financial statements and MD&A for the 13 and 26 weeks ended July 3, 2011, as well as historical financial statements and MD&As of PRC and the Fund, are available at www.primerestaurants.com and www.sedar.com.

About Prime Restaurants Inc.

PRI franchises, owns and operates one of Canada's leading networks of casual dining restaurants and pubs. With such well-respected brands as East Side Mario's, Casey's, Fionn MacCool's, D'Arcy McGee's, Paddy Flaherty's, Tir nan Óg, and Bier Markt, Prime has been delivering quality, value and a superior guest experience for more than thirty years. Prime's Class A Limited Voting Shares are listed on the Toronto Stock Exchange under the symbol "EAT".

Forward-Looking Statements

The public communications of PRI often include written or oral forward-looking statements. Statements of this type are included in this news release, and may be included in filings with Canadian securities regulators, or in other communications. Forward-looking statements may involve, but are not limited to, comments with respect to our objectives for 2011 and beyond, our strategies or planned future actions, and our targets or expectations for our financial performance and condition. All statements, other than statements of historical fact, contained in this news release are forward-looking statements, including, without limitation, statements regarding the future financial position and operations, business strategy, plans and objectives of or involving PRI. Readers can identify many of these statements by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" and similar words or the negative thereof. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

By their nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties including those discussed in the MD&A and the Annual Information Form (the "AIF") under "Narrative Description of the Business – Risk Factors" which are available at www.sedar.com. There is significant risk that predictions and other forward-looking statements will not prove to be accurate. We caution readers of this news release not to place undue reliance on our forward-looking statements because a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements.

The information set forth in the MD&A and AIF identifies factors that could affect operating results and performance. We caution that the list of factors discussed in the MD&A and the AIF is not exhaustive, and that, when relying on forward-looking statements to make decisions with respect to PRI, investors and others should carefully consider the factors discussed, as well as other uncertainties and potential events, and the inherent risks and uncertainties of forward-looking statements.

The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release. Except as required by applicable securities laws, PRI does not undertake to update any forward-looking statement, whether written or oral, that may make or that may be made, from time to time.

1 Same store sales growth is not an earnings measure recognized by IFRS and therefore may not be comparable to similar measure presented by other issuers. The Company believes this non-IFRS operating measure provides useful information to both management and investors as it is a key driver of growth in PRI's operations.

Contact Information