SOURCE: The Smith & Wollensky Restaurant Group

November 15, 2006 16:05 ET

Smith & Wollensky Reports Third Quarter 2006 Financial Results

NEW YORK, NY -- (MARKET WIRE) -- November 15, 2006 -- The Smith & Wollensky Restaurant Group, Inc. (NASDAQ: SWRG) today announced financial results for the third quarter and nine months ended October 2, 2006.

--  For the third quarter of 2006, comparable consolidated restaurant
    sales increased 2.9% as compared to the third quarter of 2005. Comparable
    consolidated restaurant sales include only units that have been open for 15
    months or longer and do not include the results from the Smith & Wollensky
    in New Orleans, the Manhattan Ocean Club, which was closed on January 1,
    2006, or our newest concept, Quality Meats, which opened in April 2006.
    
--  For the third quarter of 2006, total consolidated restaurant sales
    increased $744,000 to $27.6 million, as compared to $26.8 million in the
    third quarter of 2005. Results for the third quarter of 2006 reflect no
    sales contribution from the Smith & Wollensky in New Orleans, but do
    include sales from Quality Meats.
    
--  Net loss for the third quarter of 2006 was ($1.9 million), or ($0.22)
    per basic and diluted share, vs. a net loss of ($3.2 million), or ($0.35)
    per basic and diluted share in 2005.
    
--  Results for the third quarter of 2006 include an impairment charge of
    $828,000 relating to the write-down of the Smith & Wollensky in New Orleans
    property to its estimated fair market value less any commissions and other
    expenses that would be associated with a potential sale of the property. In
    addition, the results for the third quarter of 2006 also include $156,000
    of insurance proceeds, net of fees, related to the insurance recovery of
    business interruption at the Smith & Wollensky in New Orleans. Total
    insurance proceeds, which include building, contents and business
    interruption, net of fees, received to date are approximately $1.6 million.
    The property was put up for sale at the beginning of April 2006. Results
    for the third quarter of 2006 also include approximately $68,000 of share-
    based compensation charges related to the adoption of Statement of
    Financial Accounting Standards No. 123R.
    
--  Pro forma net loss for the third quarter of 2006 was ($957,000) or
    ($0.11) per basic and diluted share, as compared to a net loss of ($3.2
    million), or ($0.35) per basic and diluted share in 2005. Pro forma net
    loss reflects the exclusion of approximately $828,000 of asset impairment
    charges related to the Smith & Wollensky in New Orleans and approximately
    $68,000 of share-based compensation charges related to the adoption of
    Statement of Financial Accounting Standards No. 123R (reconciliation of pro
    forma net income to GAAP net income are included in the financial tables
    that follow).
    
--  Operating loss, which includes the impairment of asset charge of
    $828,000, the insurance proceeds of $156,000 and the share-based
    compensation charge of $68,000, was ($1.6 million) as compared to ($2.9
    million) in the third quarter of 2005.
    
--  Food and beverage costs as a percentage of consolidated restaurant
    sales increased approximately 33 basis points, primarily due to higher beef
    costs during the quarter as compared to the prior year.
    
--  Salaries and related benefit expenses as a percentage of consolidated
    restaurant sales decreased approximately 290 basis points primarily due to
    the concentrated efforts made by management in comparable units to reduce
    raw payroll and to decreases in employee medical claims under the self
    insured health plan.
    
--  Restaurant operating expenses as a percentage of consolidated
    restaurant sales decreased 87 basis points primarily due to a decrease in
    operating supply expense at comparable units, partially offset by an
    increase in utilities.
    
--  General and administrative expenses decreased by 345 basis points
    primarily due to a decrease in payroll expense, professional fees and
    consulting fees.
    

Results for the nine months ended October 2, 2006 are as follows:

--  For the first nine months of 2006, comparable consolidated restaurant
    sales increased 1.0% as compared to the first nine months of 2005.
    Comparable consolidated restaurant sales include only units that have been
    open for 15 months or longer and do not include the results from the Smith
    & Wollensky in New Orleans, the Manhattan Ocean Club, which was closed on
    January 1, 2006, or our newest concept, Quality Meats, which opened in
    April 2006.
    
--  For the first nine months of 2006, total consolidated restaurant sales
    decreased $3.2 million to $88.6 million, as compared to $91.8 million in
    the first nine months of 2005. Results for the first nine months of 2006
    reflect no sales contribution from the Smith & Wollensky in New Orleans or
    the Manhattan Ocean Club, but do include sales from Quality Meats.
    
--  Net loss for the nine months ended October 2, 2006 was ($773,000), or
    ($0.09) per basic and diluted share, vs. a net loss of ($2.7 million), or
    ($0.29) per basic and diluted share in 2005.
    
--  Pro forma net loss for the nine months ended October 2, 2006 was
    ($302,000) or ($0.04) per basic and diluted share, as compared to a net
    loss of ($2.7 million), or ($0.29) per basic and diluted share in 2005. Pro
    forma net loss reflects the exclusion of $828,000 of asset impairment
    charges related to the Smith & Wollensky in New Orleans, $546,000 of
    insurance proceeds related to the insurance recovery of building and
    contents at the Smith & Wollensky in New Orleans and approximately $189,000
    of share-based compensation charges related to the adoption of Statement of
    Financial Accounting Standards No. 123R (reconciliation of pro forma net
    income to GAAP net income are included in the financial tables that
    follow).
    

The Company still plans on opening three to four Wollensky Grills during 2007-2008; however, to date, no leases have been signed. The Company anticipates the first opening will not occur before December 2007.

Chairman and CEO Alan Stillman said, "Despite incurring a loss in the third quarter of 2006, the company has made significant improvements from the comparable period in 2005. We continue to be encouraged by the operational efficiencies that our managers have identified."

Conference Call

Alan Stillman, Chairman & CEO, and Sam Goldfinger, CFO, will conduct a conference call to review the Company's financial results for the third quarter ended October 2, 2006 on Wednesday, November 15, 2006 at 5:00 p.m. ET. Interested parties may listen to the live call over the Internet via http://www.smithandwollensky.com. To listen to the live call, please go to the website at least 15 minutes early to register and to download and install any necessary audio software. If you are unable to listen live, the conference call will also be archived on the website listed above. An audio recording of the conference call, which may contain material non-public information regarding the Company's results of operations or financial condition for the third quarter of 2006, is expected to be posted on the Company's website under the heading Investor Relations immediately following the conference call.

About Smith & Wollensky Restaurant Group

The Smith & Wollensky Restaurant Group develops and operates high-end, high-volume restaurants in major cities across the United States. The original Smith & Wollensky, a traditional New York steakhouse, opened in 1977 and is currently believed to be the largest-grossing à la carte restaurant in the country. Since its inception, the company has grown to include 16 restaurants, including Smith & Wollensky in New York, Miami Beach, Chicago, New Orleans, Las Vegas, Washington, D.C., Philadelphia, Columbus, Dallas, Houston, and Boston. SWRG also operates five other restaurants in New York, including Cité, Maloney & Porcelli, Park Avenue Café, The Post House, and Quality Meats.

Except for historical information contained herein, the statements made in this press release regarding the Company's business, strategy and results of operations are forward-looking statements which are based on management's beliefs and information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from such statements. Factors that may cause such differences include changes in economic conditions generally or in each of the markets in which the Company is located, unanticipated changes in labor or food costs, the ability to identify locations for and open restaurants as planned; the dependence of our operating results on a small number of restaurants, our geographic concentration in New York, changes in consumer preferences, the level of competition in the high-end segment of the restaurant industry and the success of the Company's growth strategy. For a more detailed description of such factors, please see the Company's filings with the Securities and Exchange Commission. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



               THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
                             AND SUBSIDIARIES
              Unaudited Consolidated Statements of Operations
          (dollar amounts in thousands, except per share amounts)


                          Third Quarter Ended         Nine Months Ended
                        October 2,   October 3,   October 2,   October 3,
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
                        (unaudited)  (unaudited)  (unaudited)  (unaudited)

Consolidated
 restaurant sales       $    27,557  $    26,813  $    88,611  $    91,778
Cost of consolidated
 restaurant sales:
  Food and beverage
   costs                      8,484        8,167       27,428       27,823
  Salaries and related
   benefit expenses           8,350        8,903       25,463       27,841
  Restaurant operating
   expenses                   4,973        5,073       14,942       15,716
  Occupancy and related
   expenses                   2,112        1,866        6,371        5,616
  Marketing and
   promotional expenses       1,113        1,412        3,450        4,015
  Depreciation and
   amortization
   expenses                   1,049        1,040        3,172        3,570
  Impairment of assets
   impacted by
   hurricane                    828            —          828            —
  Insurance proceeds,
   net                         (156)           —       (1,125)           —
                        -----------  -----------  -----------  -----------
   Total cost of
    consolidated
    restaurant sales         26,753       26,461       80,529       84,581
                        -----------  -----------  -----------  -----------
  Income from
   consolidated
   restaurant
   operations                   804          352        8,082        7,197
Management fee income           217          216          689          715
                        -----------  -----------  -----------  -----------
Income from
 consolidated and
 managed restaurants          1,021          568        8,771        7,912
General and
 administrative
 expenses                     2,232        3,095        7,070        7,562
Royalty expense                 404          403        1,333        1,379
                        -----------  -----------  -----------  -----------
Operating income
 (loss)                      (1,615)      (2,930)         368       (1,029)
Interest expense               (172)        (170)        (475)        (938)
Amortization of
 deferred debt
 financing costs                (11)          (3)         (32)         (58)
Interest income                  31           41           96           63
                        -----------  -----------  -----------  -----------
Interest expense net
 of interest income            (152)        (132)        (411)        (933)
                        -----------  -----------  -----------  -----------
Loss before provision
 for income taxes            (1,767)      (3,062)         (43)      (1,962)
Provision for income
 taxes                          127          115          341          290
                        -----------  -----------  -----------  -----------
Loss before (income)
 loss of consolidated
 variable interest
 entity                      (1,894)      (3,177)        (384)      (2,252)
(Income) loss of
 consolidated variable
 interest entity                 41          (53)        (389)        (427)
                        -----------  -----------  -----------  -----------
Net loss                $    (1,853) $    (3,230) $      (773) $    (2,679)
                        ===========  ===========  ===========  ===========
Net loss per share:
  Basic and diluted     $     (0.22) $     (0.35) $     (0.09) $     (0.29)
                        ===========  ===========  ===========  ===========
Weighted average
 common shares
 outstanding:
  Basic and diluted       8,590,643    9,342,232    8,593,400    9,365,338
                        ===========  ===========  ===========  ===========



                THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
                             AND SUBSIDIARIES
            Pro Forma Net Loss and Pro Forma Net Loss Per Share (1)
          (dollar amounts in thousands, except per share amounts)


                          Third Quarter Ended         Nine Months Ended
                        October 2,   October 3,   October 2,   October 3,
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
                        (unaudited)  (unaudited)  (unaudited)  (unaudited)

Net loss                $    (1,853) $    (3,230) $      (773) $    (2,679)

Insurance proceeds,
 net (building and
 contents only)                   —            —         (546)           —
Impairment of assets
 impacted by hurricane          828            —          828            —
Share based employee
 compensation charge             68            —          189            —
                        -----------  -----------  -----------  -----------

Pro forma net loss
 (1)                    $      (957) $    (3,230) $      (302) $    (2,679)
                        ===========  ===========  ===========  ===========

Pro forma net loss per
 share:

   Basic and diluted    $     (0.11) $     (0.35) $     (0.04) $     (0.29)
                        ===========  ===========  ===========  ===========
Weighted average common
 shares outstanding:
   Basic and diluted      8,590,643    9,342,232    8,593,400    9,365,338
                        ===========  ===========  ===========  ===========


(1) Pro forma net loss excludes insurance proceeds, net, impairment of
    assets impacted by hurricane and share-based employee compensation
    charges. The exclusion of insurance proceeds and impairment of assets
    provides meaningful information regarding the Company's operating
    results on a basis comparable with those in future periods when the
    Company does not expect to receive insurance proceeds and incur
    impairment charges, whereas the exclusion of share-based employee
    compensation expense provides meaningful information to investors
    regarding the Company's operating results on a basis comparable with
    those of prior periods before the Company’s adoption of FAS 123R.



              THE SMITH & WOLLENSKY RESTAURANT GROUP, INC.
                             AND SUBSIDIARIES
                        Consolidated Balance Sheet
          (dollar amounts in thousands, except per share amounts)

                                                   October 2,   January 2,
                                                      2006         2006
                                                  -----------  -----------
                     Assets                       (unaudited)
Current assets:
  Cash and cash equivalents                       $     1,839  $     2,362
  Short-term investments                                  279          265
  Accounts receivable, net                                774          549
  Credit card receivable, net                           1,700        1,990
  Due from managed units                                  371          750
  Merchandise inventory                                 4,556        4,589
  Prepaid expenses and other current assets             2,010        1,486
                                                  -----------  -----------
  Total current assets                                 11,529       11,991
Property and equipment, net                            54,541       54,952
Assets held for sale                                    3,785        4,681
Goodwill                                                6,886        6,886
Licensing agreement, net                                3,207        3,471
Long-term investments                                   3,417        4,417
Other assets                                            4,160        4,208
                                                  -----------  -----------
  Total assets                                    $    87,525  $    90,606
                                                  ===========  ===========
           Liabilities and Stockholders’ Equity
Current liabilities:
  Current portion of long-term debt               $       953  $       202
  Current portion of obligations under capital
   lease                                                  148          139
  Current portion of deferred gain                        367          365

  Due to managed units                                    356          538
  Accounts payable and accrued expenses                12,081       13,578
                                                  -----------  -----------
  Total current liabilities                            13,905       14,822
Obligations under capital leases                        7,637        7,749
Deferred gain on sales leasebacks                      12,688       12,958
Long-term debt, net of current portion                  2,220        3,113
Deferred rent                                           9,123        9,133
                                                  -----------  -----------
  Total liabilities                                    45,573       47,775

Interest in consolidated variable interest
 entity                                                  (599)        (668)
Commitments and contingencies
Stockholders’ equity:
  Common stock                                             94           94
  Additional paid-in capital                           70,260       70,066

  Accumulated deficit                                 (23,276)     (22,503)
  Accumulated other comprehensive income                  153          143

  Treasury stock                                       (4,680)      (4,301)
                                                  -----------  -----------
                                                       42,551       43,499
                                                  -----------  -----------
  Total liabilities and stockholders’ equity      $    87,525  $    90,606
                                                  ===========  ===========

Contact Information

  • Investor Contact:
    Allison Good
    The Smith & Wollensky Restaurant Group
    Phone: 212-838-2061 x2379
    Email: Email Contact