Cautionary Note Regarding Forward-Looking Statements

We wish to caution our readers that this Quarterly Report on Form 10-Q and certain information incorporated herein by reference contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the Securities Act of 1933, as amended (the "Securities Act"). Forward-looking statements involve risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future performance or achievements expressed or implied by these forward-looking statements. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements may include matters such as future economic performance, general economic conditions, consumer preferences and spending, costs, competition, new product execution, restaurant openings or closings, operating margins, the availability of acceptable real estate locations, the sufficiency of our cash balances, the strategic alternatives review that has been undertaken by the company and cash generated from operating and financing activities for our future liquidity and capital resource needs, growth of franchise and licensing, the impact on our business as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank Act") and the rules promulgated thereunder, future litigation and other matters, and are generally accompanied by words such as: "believes," "anticipates," "plans," "intends," "estimates," "predicts," "targets," "expects," "contemplates" and similar expressions that convey the uncertainty of future events or outcomes. These risks and uncertainties include, but are not limited to, the risk factors described in our annual report on Form 10-K for the fiscal year ended January 3, 2012 as updated in subsequent quarterly reports on Form 10-Q, including Item 1A of Part II of this report. We do not undertake any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as may be required under applicable law.

General

This information should be read in conjunction with the consolidated financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company's Form 10-K for the fiscal year ended January 3, 2012 (the "2011 Form 10-K").

We have a 52/53-week fiscal year ending on the Tuesday closest to December 31. The second quarters in fiscal years 2011 and 2012 ended on June 28, 2011 and July 3, 2012, respectively. Each quarter contained thirteen weeks and each year to date period contained twenty-six weeks. Our current fiscal year ends on January 1, 2013 and consists of 52 weeks.

As used in this report, the terms "Company," "ENRGI," "we," "our," or "us" refer to Einstein Noah Restaurant Group, Inc. and its consolidated subsidiaries, taken as a whole, unless the context otherwise indicates. The terms "fiscal quarter ended," "fiscal quarter," or "quarter ended" refer to the entire fiscal quarter, unless the context otherwise indicates.

Use of Non-GAAP Financial Information

In addition to the results reported in accordance with accounting principles generally accepted in the United States of America ("GAAP") included in this filing, we have provided certain non-GAAP financial information, including adjusted earnings before interest, taxes, depreciation and amortization, restructuring expenses, write-off of debt issuance costs and other operating expenses/income ("Adjusted EBITDA") and "Free Cash Flow", which we define as net cash provided by operating activities less net cash used in investing activities. Management believes that the presentation of this non-GAAP financial information provides useful information to investors because this information may allow investors to better evaluate our ongoing business performance and certain components of our results. In addition, our Board of Directors (the "Board") uses this non-GAAP financial information to evaluate the performance of the company and its management team. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. Not all

of the aforementioned items defining Adjusted EBITDA occur in each reporting period, but have been included in our definition based on historical activity. Our definitions of these non-GAAP disclosures may differ from how others in our industry may define them. We have reconciled the non-GAAP financial information to the nearest GAAP measure on pages 16 and 21.

We include in this report information on system-wide comparable store sales percentages. System-wide comparable store sales percentages refer to changes in sales of our restaurants, whether operated by the company or by franchisees and licensees, in operation for six fiscal quarters including those restaurants temporarily closed for an immaterial amount of time. Some of the reasons restaurants may be temporarily closed include remodeling, road construction, rebuilding related to site-specific catastrophes and natural disasters. Franchise and license comparable store sales percentages are based on sales of franchised and licensed restaurants, as reported by franchisees and licensees. Management reviews the increase or decrease in comparable sales to assess business trends. Comparable store sales exclude permanently closed locations. When we intend to relocate a restaurant, we consider that restaurant to be temporarily closed for up to twelve months after it ceases operations. If a suitable relocation site has not been identified by the end of twelve months, we consider the restaurant to be permanently closed. Until that time, we include that restaurant in our open store count, but exclude its sales from our comparable store sales. As of July 3, 2012, there are five stores that we intend to relocate, and are thus considered to be temporarily closed.

We use company-owned comparable store sales, franchise and license sales and the resulting system-wide sales information internally in connection with restaurant development decisions, planning, and budgeting analyses. We believe system-wide comparable store sales information is useful in assessing consumer acceptance of our brands; facilitates an understanding of our financial performance and the overall direction and trends of sales and operating income; helps us evaluate the effectiveness of our advertising and marketing initiatives; and provides information that is relevant for comparison within the industry.

Comparable store sales percentages are non-GAAP financial measures, which should not be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP, and may not be equivalent to comparable store sales as defined or used by other companies. We do not record franchise or license restaurant sales as revenues. However, royalty revenues are calculated based on a percentage of franchise and license restaurant sales, as reported by the franchisees or licensees.

Overview

We are the largest owner/operator, franchisor and licensor of bagel bakery cafe restaurants in the United States. As a leading fast-casual restaurant chain, our restaurants specialize in high-quality foods for breakfast, lunch and afternoon snacks in a bakery-café atmosphere with a neighborhood emphasis. Our product offerings include fresh bagels and other bakery items baked on-site, made-to-order breakfast and lunch sandwiches on a variety of bagels, breads or wraps, gourmet soups and salads, assorted pastries, premium coffees and an assortment of snacks.

In the context of our key strategies to drive comparable store sales growth, to enhance corporate margins and to accelerate unit growth, we evaluated our financial performance for the second quarter and first-half of 2012 by considering the following key factors:

• Comparable store sales - Our system-wide comparable store sales have been positive in each of the last five quarters with the second quarter of 2012 delivering +1.3%. We have seen sequential improvement in comparable store sales at our restaurants on a company-owned basis over the last six quarters, with an increase of +1.2% for the second quarter of 2012. The primary reasons for this sequential improvement has been strong growth in average check, driven by the strength of our catering sales, favorable menu mix and a slight reduction in customer discounts.

                                        Q2          Q3          Q4          Q1          Q2
                                       2011        2011        2011        2012        2012
     System-wide comparable sales       +0.2 %      +1.0 %      +1.2 %      +1.1 %      +1.3 %
     Company-owned comparable sales     -0.3 %      +0.7 %      +0.8 %      +1.1 %      +1.2 %

Our catering business, on a comparable store basis, grew by approximately 17.3% and 18.3% on a quarterly and year to date basis, respectively, with our focus on our online ordering system and on search engine/online marketing. Our catering business now makes up over 7% of our company-owned restaurant revenues. We have also seen strong growth in our blended beverage line of business. Coffee and blended beverage sales now represent approximately 10% of our menu mix and continue to grow.

• Manufacturing and Commissaries - Revenues for our manufacturing business and commissaries declined by 7.2% reflecting our commissary closures in the first quarter of 2012, while our margin as a percentage of manufacturing and commissary revenue improved to 22.9% from 12.0%. We completed the closure of all five of our commissaries during the first quarter 2012 and we immediately benefited from the resultant lower costs in our supply chain.

• Franchise and License Revenue - Total franchise and license related revenues increased by 3.9% as a result of the royalty streams from 31 net additional units opened since June 28, 2011, together with favorable comparable store sales.

• Margin improvement - Our margin improved in our company-owned restaurants as a percentage of company owned restaurant sales by 150 basis points for the second quarter 2012 when compared to the second quarter 2011, which we attribute to sales leveraging, lower discounts, lower food costs and operational efficiencies in hourly labor. Our food costs decreased as a percentage of company-owned restaurant sales due to the streamlining of our supply chain through the closure of our commissary operations. We saw a slight increase in employee benefits during the quarter.

• Unit development - As of July 3, 2012, we owned/operated, franchised and licensed 783 restaurants. We have added ten net restaurants in the first half of 2012.

2012 Outlook

Our execution plan to grow comparable store sales includes:

• Build traffic by leveraging our strengths in:

• Breakfast (bagels & sandwiches)

• Smart Choice menu options

• Specialty beverages and coffee

• Build average check through bulk bagels, catering and premium sandwich innovation

• Grass roots local brand activation

• Targeted digital/outdoor media

• Targeted outdoor billboard advertising

• Launch loyalty program

Our catering channel will continue to benefit from our online ordering system, an outsourced and expanded call center, focus on online and digital marketing, and an optimized menu.

Our approach to enhancing corporate margins will extend and build on the initiatives that we have already started, namely, managing the sourcing of our commodities, streamlining our network of product distribution, utilizing point of sale technology to drive sustainable cost advantage, and improving restaurant level operating efficiency through targeted initiatives around product costs and labor.

Our acceleration of unit growth will continue to focus on franchising of Einstein Bros., asset light unit economics and penetration into new key licensing channels. Our unit growth plan for 2012 considers our long-term annual growth objective of +10%, or 60 to 80 system-wide openings for 2012. This includes the openings of 8 to 12 company-owned restaurants, 12 to 14 franchised restaurants and 40 to 54 licensed restaurants. We view refranchising opportunistically as a strategy to attract high quality franchisees that will support our accelerated growth initiatives.

We expect to spend between $24 million and $26 million in capital expenditures in 2012 which includes the opening of company-owned restaurants and the relocation of company-owned restaurants, along with the continued roll-out of our new point of sale ("POS") system. We also intend to deploy our capital into areas such as installing drive-thru lanes and adding new exterior signage.

We have a robust pipeline of existing franchise development agreements and new license locations. We will continue to host discovery days for potential franchisees as well as to expand our license footprint.

We believe we are well positioned to execute on our 2012 plan as our free cash flow continues to be consistently robust as a result of a strong balance sheet as well as our utilization of our deferred tax assets, primarily our net operating loss carryforwards. Furthermore, we expect favorable interest rates in 2012 which, coupled with lower debt balances, will further benefit net income.

Results of Operations for the Quarterly and Year to Date Periods Ended June 28, 2011 and July 3, 2012

Financial Highlights for the Second Quarter 2012 as compared to the Second Quarter 2011

• Total revenues increased $2.3 million, or 2.2%, driven by an increase in company-owned restaurant revenue of $2.8 million, or 3.0%, offsetting declines in manufacturing revenue due to the closure of our commissaries.

• Cost of goods sold decreased 210 basis points as a percentage of company owned restaurant sales as a result of our cost saving initiatives.

• Net income decreased by $0.1 million, while Adjusted EBITDA increased $1.3 million, or 13.7%, for the second quarter of 2012.

Consolidated Results



                                                       13 weeks ended                                  26 weeks ended
                                                                        Increase/                                       Increase/
                                              (in thousands)            (Decrease)             (in thousands)           (Decrease)
                                         June 28,        July 3,           2012           June 28,        July 3,          2012
                                           2011           2012           vs. 2011           2011           2012          vs. 2011
Revenues                                 $ 103,677      $ 105,993               2.2 %     $ 204,922      $ 210,866              2.9 %
Cost of sales                               85,358         84,924              (0.5 %)      168,758        167,165             (0.9 %)
Operating expenses                          12,286         15,479              26.0 %        27,242         32,067             17.7 %

Income from operations                       6,033          5,590              (7.3 %)        8,922         11,634             30.4 %
Interest expense, net                          823            778              (5.5 %)        1,733          1,578             (8.9 %)

Income before income taxes                   5,210          4,812              (7.6 %)        7,189         10,056             39.9 %
Total provision for income taxes             2,130          1,856             (12.9 %)        2,941          3,896             32.5 %

Net income                               $   3,080      $   2,956              (4.0 %)    $   4,248      $   6,160             45.0 %
Adjustments to net income:
Interest expense, net                          823            778              (5.5 %)        1,733          1,578             (8.9 %)
Provision for income taxes                   2,130          1,856             (12.9 %)        2,941          3,896             32.5 %
Depreciation and amortization                4,607          5,011               8.8 %         9,147          9,778              6.9 %
Restructuring expenses                          -             (74 )               * *           213            480            125.4 %
Strategic alternatives expense                  -             435                 * *            -             435                * *
Other operating (income) expenses, net        (936 )           75            (108.0 %)         (823 )          259           (131.5 %)

Adjusted EBITDA                          $   9,704      $  11,037              13.7 %     $  17,459      $  22,586             29.4 %

** Not meaningful

During the second quarter of 2012, we maintained our focus on enhancing corporate margins by increasing comparable store sales, managing store level margins by focusing on food costs, and implementing cost saving initiatives.

System-wide comparable store sales were +1.3% and +1.2% for the second quarter and year to date periods ended July 3, 2012, respectively, driven by strong check growth of +3.9% for the quarter and +4.4% on a year to date basis, reflecting price and product mix favorability. At the same time, traffic improved sequentially from -3.9% for the first quarter 2012 to -2.6% for the second quarter 2012 as we continued to rebuild momentum.

Net income decreased for the second quarter of 2012 from the second quarter of 2011 primarily due to lower income from operations, expenses incurred towards the exploration of strategic alternatives and the impact of gains recognized in 2011 on insurance proceeds from a restaurant fire and on the sale of restaurants in Charlotte.

Company-Owned Restaurant Operations



                                                                      13 weeks ended
                                                                                                Percentage of
                                                                       Increase/                company-owned
                                           (in thousands)             (Decrease)               restaurant sales
                                      June 28,         July 3,           2012             June 28,           July 3,
                                        2011            2012           vs. 2011             2011              2012
Company-owned restaurant sales        $  93,613       $  96,399               3.0 %
Percent of total revenues                  90.3 %          91.0 %
Cost of sales (exclusive of
depreciation and amortization):
Cost of goods sold                    $  28,164       $  27,003              (4.1 %)            30.1 %           28.0 %
Labor costs                              27,156          28,208               3.9 %             29.0 %           29.3 %
Rent and related expenses                10,023          10,470               4.5 %             10.7 %           10.9 %
Other operating costs                    10,226          10,176              (0.5 %)            10.9 %           10.6 %
Marketing costs                           2,924           3,486              19.2 %              3.1 %            3.6 %

Total company-owned restaurant
costs                                 $  78,493       $  79,343               1.1 %             83.8 %           82.3 %

Total company-owned restaurant
gross margin                          $  15,120       $  17,056              12.8 %             16.2 %           17.7 %


                                                                      26 weeks ended
                                                                                                Percentage of
                                                                       Increase/                company-owned
                                           (in thousands)             (Decrease)               restaurant sales
                                      June 28,         July 3,           2012             June 28,           July 3,
                                        2011            2012           vs. 2011             2011              2012
Company-owned restaurant sales        $ 183,412       $ 189,846               3.5 %
Percent of total revenues                  89.5 %          90.0 %
Cost of sales (exclusive of
depreciation and amortization):
Cost of goods sold                    $  54,278       $  53,372              (1.7 %)            29.6 %           28.1 %
Labor costs                              54,186          55,076               1.6 %             29.5 %           29.0 %
Rent and related expenses                20,278          20,747               2.3 %             11.1 %           10.9 %
Other operating costs                    19,341          19,503               0.8 %             10.5 %           10.3 %
Marketing costs                           6,226           5,990              (3.8 %)             3.4 %            3.2 %

Total company-owned restaurant
costs                                 $ 154,309       $ 154,688               0.2 %             84.1 %           81.5 %

Total company-owned restaurant
gross margin                          $  29,103       $  35,158              20.8 %             15.9 %           18.5 %

Company-owned restaurant sales for the second quarter and year to date 2012 increased 3.0% and 3.5%, respectively, attributable to unit growth and favorable company-owned comparable store sales of +1.2% and +1.1%, respectively. Catering sales comprised approximately 7.3% of our comparable company-owned restaurant sales for each of the second quarter 2012 and year to date 2012, reflecting year over year increases in comparable sales of 17.3% and 18.3%, respectively. On a year to date basis, coffee sales remain strong and now represent approximately 10% of our comparable company-owned restaurant sales. We have also added a net of sixteen new company-owned stores since June 28, 2011.

As a percentage of company-owned restaurant sales, we saw a decrease in our food costs to 28.0% in the second quarter 2012 from 30.1% in the second quarter 2011. This 210 basis point decrease includes the leveraged impact of our price increases (-90 basis points) and savings from our initiatives (-200 basis points), partially offset by a shift in product mix (+10 basis points) and the impact of inflation in our commodity costs (+70 basis points).

On a year to date basis, we saw a decrease in our food costs from 29.6% to 28.1%. This 150 basis point decrease includes the leveraged impact of our price increases (-100 basis points) and savings from our initiatives (-140 basis points), partially offset by the impact of inflation in our commodity costs (+90 basis points).

We have secured protection for approximately 92% of our wheat needs and approximately 100% of our remaining commodity needs (coffee, butter and Class III milk) for the remainder of 2012.

As a percentage of company-owned restaurant sales, labor costs increased in the second quarter due to higher employee benefit costs and variable incentive compensation accruals. On a year to date basis, overall labor costs (as a percentage of company-owned restaurant sales) have declined due to the leveraged impact of our sales increases.

We invested $0.6 million more in marketing during the second quarter of 2012 than we did for the second quarter of 2011, which is largely a timing related shift in spending. On a year to date basis, marketing expenses have decreased slightly to $6.0 million in 2012 from $6.2 million in 2011.

Manufacturing and Commissary Operations



                                                                      13 weeks ended
                                                                                              Percentage of
                                                                                              manufacturing
                                                                      Increase/               and commissary
                                            (in thousands)            (Decrease)                 revenues
                                        June 28,       July 3,           2012            June 28,         July 3,
                                          2011           2012          vs. 2011            2011            2012
Manufacturing and commissary revenues   $   7,797      $  7,239              (7.2 %)
Percent of total revenues                     7.5 %         6.8 %
Manufacturing and commissary costs      $   6,865      $  5,581             (18.7 %)           88.0 %         77.1 %

Total manufacturing and commissary
gross margin                            $     932      $  1,658              77.9 %            12.0 %         22.9 %


                                                                      26 weeks ended
                                                                                              Percentage of
                                                                                              manufacturing
                                                                      Increase/               and commissary
                                            (in thousands)            (Decrease)                 revenues
                                        June 28,       July 3,           2012            June 28,         July 3,
                                          2011           2012          vs. 2011            2011            2012
Manufacturing and commissary revenues   $  16,774      $ 15,689              (6.5 %)
Percent of total revenues                     8.2 %         7.5 %
Manufacturing and commissary costs      $  14,449      $ 12,477             (13.6 %)           86.1 %         79.5 %

Total manufacturing and commissary
gross margin                            $   2,325      $  3,212              38.2 %            13.9 %         20.5 %

We closed all five of our commissaries by the end of the first quarter 2012. Sales that were previously made to our franchisees and licensees by the commissaries are now being handled directly through our distributors.

. . .