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Lackluster 4Q for Einstein

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Einstein Noah Restaurant Group Inc.’s fourth-quarter fiscal 2012 adjusted earnings of 34 cents per share were in line with the Zacks Consensus Estimate but fell 8.1% from the year-ago level of 37 cents. A sluggish top line affected the bottom line.

Total revenues fell 3.9% year over year to $110.6 million, missing the Zacks Consensus Estimate of $111.0 million by a slight margin. Decline in revenues can be attributed to the 3.4% drop in company-owned restaurant sales to $99.5 million and 12.9% plunge in manufacturing and commissary revenues to $7.8 million.  

However, excluding the extra week in fiscal 2011, total revenues increased 2.6% for the fourth quarter. This uptick reflects a system-wide comparable restaurant sales increase of 1.4%. Excluding the extra week in 2011, segment-wise, company-owned restaurant sales inched up 3.4%.

Company stores' restaurant gross margin contracted 100 bps year over year to 20.5%, primarily due to increased costs related to rent, other operating costs and marketing.

Fiscal -Year Update   

Adjusted earnings per share increased 21.8% to 95 cents in 2012 beating the Zacks Consensus Estimate by 6.7% driven by top line growth. Total revenues grew 0.8% to $427.0 million but fell short of the Zacks Consensus Estimate by 1.2%.

Store Update

The company exited 2012 with 816 restaurants, out of which 461 were company owned, 97 were franchised and 258 were licensed.


For fiscal 2013, the company plans to open 60–80 restaurants. Capital expenditures are estimated in a range of $20–$22 million. Commodity inflation for the full year is expected to remain in the 2%–3% range.

Our Take

Lakewood, Colo.-based Einstein Group's performance has been faltering in the last few quarters. After missing the earnings estimate in the second quarter, the company just about matched it in the remaining two quarters of 2012. The revenue performance also remained choppy, falling short of the Zacks Consensus Estimate for the last five quarters.

Based on recent performances, we remain cautious on the stock at the current level. Moreover, stiff competition and weak consumer confidence amid a sluggish economy also support our view on the stock.

Einstein Noah Restaurant Group currently carries a Zacks Rank #5 (Strong Sell). Other restaurant industry stocks with a favorable Zacks Rank include AFC Enterprises Inc. , Burger King Worldwide Inc. and Krispy Kreme Doughnuts Inc. , all carrying a Zacks Rank #2 (Buy).

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