Search the web
Welcome, Guest
[Sign Out, My Account]

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BAGL > SEC Filings for BAGL > Form 10-K on 28-Feb-2014All Recent SEC Filings




Annual Report



We have a 52/53-week fiscal year ending on the Tuesday closest to December 31. Fiscal years 2012 and 2013 ended on January 1, 2013 and December 31, 2013, respectively, and each contained 52 weeks. Fiscal year 2011 ended on January 3, 2012 and contained 53 weeks. Comparable store sales percentages presented for fiscal 2011 in this Item 7 are calculated excluding the 53rd week.


We are the largest owner/operator, franchisor and licensor of bagel specialty 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 sandwiches on a variety of bagels, breads or wraps, gourmet soups and salads, assorted pastries, premium coffees and an assortment of snacks. Our manufacturing operations and network of independent distributors deliver high-quality ingredients to our restaurants.

This Overview will review 2013 Highlights and Trends and provide a 2014 Outlook.

2013 Highlights and Trends

Our results for 2013 reflect the continued soundness of our business model, the underlying strength of our brands and the talent and dedication of our employees. We continued to focus on our key strategies and tactics which are to:

• Drive same-store sales growth;

• Manage and enhance corporate margins through supply chain, manufacturing and store level efficiency; and

• Accelerate unit growth primarily through franchise and license expansion. We opened a record 61 restaurants in 2013.

For fiscal 2013, our system-wide and company-owned comparable store sales were -0.3% and -0.6%, respectively, with a quarterly distribution as follows:

                                        Q1          Q2          Q3          Q4         Year
     System-wide comparable sales       -0.6 %      +0.7 %      -1.4 %      +0.1 %      -0.3 %
     Company-owned comparable sales     -1.0 %      +0.4 %      -1.4 %      -0.5 %      -0.6 %

While system-wide transaction decline was -2.4% for fiscal 2013, the fourth quarter posted a transaction decline of only -1.0%. During fiscal 2013, we focused on stimulating comparable transactions by improving our value layer deals coupled with innovative features on our premium sandwiches. Average check increased +2.1% for fiscal 2013 on a system-wide basis.

Our focus on our online ordering system, online search engine and online marketing resulted in growth of our catering business by approximately 18%. Our catering business now makes up approximately 9% of our company-owned restaurant revenues. Coffee and blended beverage sales also represent approximately 9% of our menu mix and continue to grow.

Our margin as a percentage of restaurant revenues declined at our company-owned restaurants by 1.5% primarily due to sales deleveraging. Our prime costs (combined costs of sales and total labor) increased 0.6% to

Table of Contents

57.4% of company-owned restaurant sales as a result of our investment in value-driven discounting. Our marketing expenses declined 0.2% to 2.8% of company-owned restaurant sales.

Revenues from our manufacturing facility grew by $2.5 million, or 8.2%, to $33.6 million as a result of additional sales to our third-party wholesalers and additional sales to our franchisees and licensees. Gross margin increased 29.5% to $8.8 million on the strength of incremental sales.

We again made progress in balancing our unit portfolio toward our goal of having at least 50% of our system-wide units being franchise and license units. The proportion of units opened in our franchise and license channels was approximately 84% of total openings in 2013 as we opened 51 franchise and license units in addition to 10 company-owned restaurants during fiscal 2013. Total net units increased in fiscal 2013 to 852 from 816 at the end of fiscal 2012, with 46% being franchised and licensed units, up from 43% at the end of fiscal 2012. Thus far in fiscal 2014, we have opened eight licensed units and two franchised units.

Our Recapitalization - Fiscal 2012 and 2013

In 2012, our Board authorized a review of strategic alternatives to maximize value for all stockholders. This review was initiated in May and culminated in December with a recapitalization of the Company, including the payment of a one-time special cash dividend of $4.00 per share of common stock on December 27, 2012.

The recapitalization included the amendment and restatement of the Company's existing Senior Credit Facility, which consists of a Term Loan A and a revolver with a syndicate of banks ("Senior Credit Facility"). The amendment and restatement of the Senior Credit Facility increased the Company's Term Loan A from $75 million to $100 million, increased the revolver availability from $50 million to $75 million, and extended the maturity date from December 20, 2015 to December 6, 2017. The additional borrowing capacity was used to fund the one-time special dividend of $68.1 million, as well as our ongoing quarterly dividends, working capital needs, capital expenditures, and other general corporate purposes.

On June 27, 2013, the Facility was further amended and restated to lower its applicable interest rate and extend its maturity date without increasing its borrowing capacity. The Senior Credit Facility matures on June 6, 2018. We have also entered into two cash flow hedges in an effort to mitigate our variable interest rate risk. For a complete description of the terms for the Senior Credit Facility and our cash flow hedges, see Note 8 and Note 9, respectively, to our consolidated financial statements set forth in Item 8 of this Form 10-K.

Secondary Offering

As of December 31, 2013, Greenlight beneficially owned approximately 38% of our common stock. This represents a decrease from Greenlight's beneficial ownership of approximately 63% as of January 1, 2013. In August 2013, Greenlight sold 1.5 million shares of our stock in a secondary offering. In November 2013, Greenlight sold an additional 2.5 million shares of our stock in another secondary offering. As a result of these transactions, we are no longer a controlled company. We did not receive any proceeds from these sales of shares and all costs associated with this transaction were charged to Greenlight.

2014 Outlook

Our execution plan to grow comparable store sales includes:

• Building traffic by:

• Promoting innovative and effective value

• Enhance our healthy options

• Focusing on fresh baked bagels and beverage innovation

• Delivering relevant, reliable and valuable guest experiences

Table of Contents
• Building average check through bulk bagels, and accelerating catering growth

• Increasing media and brand awareness with a balanced approach of local ("grass roots") and mass marketing:

• Local brand activation

• Directional outdoor and radio support

• Digital marketing/social media

We expect that our catering channel will benefit from new initiatives in fiscal 2014 that include an enhanced call center, expanded search engine marketing, utilization of sales coordinators in smaller markets and database activation.

Our plan is to improve corporate margins by focusing on strategic contract renegotiations, distribution optimization, improving packaging quality and costs, and improving marketing and construction materials purchases.

Our emphasis on acceleration of unit growth includes the opening of 75 to 85 units in 2014. We will seek to accomplish this objective by continuing to focus on a franchise first growth model, asset light unit economics, penetration into new key channels and opportunistic refranchising and acquisition efforts. We see refranchising our units as an opportunity to attract high quality franchisees that will support our accelerated growth initiatives.

The airport channel currently consists of sixteen licensed locations with an average unit volume of $1.9 million and a total of $24.3 million in sales for 2013, on which we receive a royalty. We opened units in Dallas/Fort Worth, Denver, San Diego and Atlanta in fiscal 2013 and were recently awarded additional locations in the San Diego, Atlanta, La Guardia (New York), Miami and San Jose (California) airports.

We currently have a robust pipeline of existing franchise development agreements and new license locations. As of February 21, 2014, we have 27 development agreements in place for 186 total restaurants, 47 of which have already opened. Based upon the development agreements, we expect the remaining 139 new restaurants will open on various dates through 2021.

We expect to spend between $24 million and $26 million in capital expenditures in 2014 which includes the opening of company-owned restaurants and the relocation of additional company-owned restaurants. We also intend to deploy our capital into areas such as the remodeling or refreshing of existing stores, installing drive-thru lanes and adding new exterior signage at certain locations.

Our free cash flow is expected to continue to provide us with the financial resources to execute on our fiscal 2014 plan, including the continued servicing of our elevated level of debt.

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 non-GAAP total revenues excluding the extra week in fiscal 2011; adjusted earnings before interest, taxes, depreciation and amortization, restructuring expenses, strategic alternative expenses, and other operating expenses/income ("Adjusted EBITDA"); net income adjusted for the extra 53rd week in fiscal 2011, restructuring expenses, strategic alternatives expense, incremental interest expense on additional credit facility borrowings and other operating expenses/income ("Adjusted Net Income"); earnings per share adjusted for the extra 53rd week in fiscal 2011, restructuring expenses, strategic alternatives expense, incremental interest expense on additional credit facility borrowings and other operating expenses/income ("Adjusted Net Income Per Share"); and "Free Cash Flow", which we define as net cash provided by operating activities less net cash used in investing

Table of Contents

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, 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 definitions of these terms based on historical activity. We have reconciled the non-GAAP financial information to the nearest GAAP measure on pages 31, 37, 42 and 46.

We include in this report information on system-wide comparable store sales percentages. Restaurants included in our comparable store sales percentages include those restaurants in operation for a full six fiscal quarters. 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, relocations, 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 store 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 the restaurant in our open store count, but exclude its sales from our comparable store sales. As of December 31, 2013, there are four stores that are currently closed but that we intend to relocate, and are thus considered to be temporarily closed.

We use company-owned 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 appreciate 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.

Table of Contents

Results of Operations for Fiscal 2013 as compared to Fiscal 2012

Financial Highlights

• Total revenues increased $7.5 million, or 1.8%, which was driven by an increase in company-owned restaurant revenue of $3.6 million, an increase of $3.0 million from our manufacturing operations and an increase in franchise and license related revenue of $1.3 million, partially offset by a decline in revenue of $0.5 million from commissaries that were closed by the end of the first quarter of fiscal 2012.

                                                Fiscal Year Ended            (Decrease)
                                          January 1,       December 31,         2013
                                             2013              2013           vs. 2012
                                                 (in thousands)
Company-owned restaurant sales           $    384,783     $      388,362             0.9 %
Manufacturing and commissary revenues          31,037             33,585             8.2 %
Franchise and license related revenues         11,186             12,534            12.1 %

Total revenues                                427,006            434,481             1.8 %

• System-wide comparable store sales decreased -0.3%, primarily due to a company-owned comparable store sales decrease of -0.6%. During fiscal 2013, we focused on stimulating comparable transactions by improving our value layer deals coupled with innovative features on our premium sandwiches. While we faced challenging economic headwinds in fiscal 2013, we believe that the investment in value and additional discounting had a positive impact on transactions for the year and that we are well positioned for fiscal 2014.

• Our overall gross margin (excluding depreciation and amortization) for fiscal 2012 was $88.6 million for fiscal 2013, a decrease of 1.9%. We attribute this decrease to the deleveraging of company-owned restaurant costs resulting from our investment in discounting.

                                              Fiscal Year Ended            (Decrease)
                                        January 1,       December 31,         2013
                                           2013              2013           vs. 2012
                                               (in thousands)
  Total revenues                       $    427,006     $      434,481             1.8 %
  Company-owned restaurant costs            312,402            321,072             2.8 %
  Manufacturing and commissary costs         24,236             24,779             2.2 %

  Gross Margin                         $     90,368     $       88,630            (1.9 %)

• Interest expense increased $2.6 million due to an increase of $50.6 million in our average debt balance and a 0.4% increase in our weighted average interest rate. In fiscal 2012, we funded a special dividend through an amendment of our Senior Credit Facility.

• Net income was $14.6 million for fiscal 2013, an increase of 14.3% from net income of $12.7 million for fiscal 2012.

• Diluted earnings per share ("EPS") were $0.82 for fiscal 2013 compared to $0.74 in fiscal 2012. The increase in diluted EPS is primarily due to an increase in earnings from operations and the elimination of one-time expenses incurred in fiscal 2012 towards a strategic alternatives review process and restructuring, partially offset by an increase in interest expense in fiscal 2013 resulting from a higher amount of third party debt incurred for the funding of a special dividend in fiscal 2012. Diluted EPS for fiscal 2012 was impacted by approximately $0.15 per share for strategic alternative transaction expenses and restructuring charges. For fiscal 2013, increased interest expense impacted diluted EPS by approximately $0.10 per share.

Table of Contents
• Adjusted EBITDA was $47.2 million for fiscal 2013, a decrease of 5.0% from Adjusted EBITDA of $49.7 million for fiscal 2012. In fiscal 2012, we expensed $3.7 million towards the strategic alternatives review process. We did not incur similar costs in fiscal 2013.

Consolidated Results - Fiscal 2013 vs Fiscal 2012

                                                    Fiscal Year Ended
                                             (in thousands)               (Decrease)
                                      January 1,       December 31,          2013
                                         2013              2013            vs. 2012
  Revenues                           $    427,006     $      434,481              1.8 %
  Cost of sales                           336,638            345,851              2.7 %
  Operating expenses                       66,140             60,766             (8.1 %)

  Income from operations                   24,228             27,864             15.0 %
  Interest expense, net                     3,384              5,970             76.4 %

  Income before income taxes               20,844             21,894              5.0 %
  Total provision for income taxes          8,103              7,329             (9.6 %)

  Net income                         $     12,741     $       14,565             14.3 %
  Adjustments to net income:
  Interest expense, net                     3,384              5,970             76.4 %
  Provision for income taxes                8,103              7,329             (9.6 %)
  Depreciation and amortization            19,707             18,203             (7.6 %)
  Restructuring expenses                      480                 -                 * *
  Strategic alternatives expenses           3,677                 -                 * *
  Other operating expenses, net             1,592              1,138            (28.5 %)

  Adjusted EBITDA                    $     49,684     $       47,205             (5.0 %)

** Not meaningful

To stimulate transaction growth in fiscal 2013, we concentrated on value bundling to our customers. Our discounting, which is recorded against revenue, increased $7.7 million from fiscal 2012. While fiscal 2013 proved to be challenging, we believe that this investment in discounting has had a positive impact on transaction growth for the year and that we are well positioned for fiscal 2014. Strong third-party sales from our manufacturing operation and an increase in comparable store sales from our franchise and license operations of
+0.4% helped mitigate the impact of this discounting at our company-owned restaurants.

Our income from operations increased by $3.6 million in fiscal 2013 to $27.9 million primarily as a result of the reversing effect of expenses incurred with the strategic alternatives review process we undertook in 2012, improved manufacturing results and increased franchise and license revenue, partially offset by a decline in operations at our company-owned restaurants resulting from the deleveraging of costs associated with our investment in discounting.

Net income was $14.6 million for fiscal 2013, an increase of $1.8 million, or 14.3%, from fiscal 2012. We attribute this increase to an improvement in overall income from operations, the reversing effect of one-time expenses related to the strategic alternatives review process incurred by us in fiscal 2012 and a lower effective tax rate, partially offset by increased interest expense due primarily to a larger amount of debt in fiscal 2013.

Table of Contents

Company-Owned Restaurant Operations

                                                                              Fiscal Year Ended
                                                                                Increase/                 Percentage of company-owned
                                             (in thousands)                    (Decrease)                      restaurant sales
                                    January 1,           December 31,             2013               January 1,               December 31,
                                       2013                  2013               vs. 2012                2013                      2013
Company-owned restaurant
sales                              $    384,783         $      388,362                 0.9 %
Percent of total revenues                  90.1 %                 89.4 %
Cost of sales (exclusive of
depreciation and
Cost of goods sold                 $    106,925         $      109,122                 2.1 %                 27.8 %                    28.1 %
Labor costs                             111,784                113,849                 1.8 %                 29.0 %                    29.3 %
Rent and related expenses                41,993                 44,233                 5.3 %                 10.9 %                    11.4 %
Other operating costs                    40,320                 42,962                 6.6 %                 10.5 %                    11.1 %
Marketing costs                          11,380                 10,906                (4.2 %)                 3.0 %                     2.8 %

Total company-owned
restaurant costs                   $    312,402         $      321,072                 2.8 %                 81.2 %                    82.7 %

Total company-owned
gross margin                       $     72,381         $       67,290                (7.0 %)                18.8 %                    17.3 %

In fiscal 2013, we opened ten restaurants, acquired three restaurants from a franchisee, closed ten restaurants and sold six restaurants to franchisees.

Company-owned restaurant sales for fiscal 2013 increased $3.6 million. We attribute this increase to net incremental revenue of $3.9 million from new company-owned restaurants opened in 2013, $6.9 million from stores opened in fiscal 2012 that are not yet eligible to be included in our comparable store base and $0.4 million from stores we acquired from franchisees, partially offset by a $2.8 decline in year-over-year sales at restaurants closed during 2013, a $3.3 million decline in year-over-year sales from restaurants that were sold to franchisees and a decline in company-owned comparable store sales.

Company-owned comparable store sales decreased -0.6% in fiscal 2013. The decrease in company-owned comparable store sales is due to a decrease in transactions (-2.7%) and the impact of discounting (-1.9%), partially offset by an increase from pricing (+0.9%) and a shift in product mix (+3.1%). We took two price increases in fiscal 2013, totaling approximately 1.4%.

Comparable store sales for our company-owned restaurants for each quarter in fiscal 2012 and 2013 were as follows:

                               Fiscal 2012        Fiscal 2013       Change
             First Quarter             +1.1 %             -1.0 %       -2.1 %
             Second Quarter            +1.2 %             +0.4 %       -0.8 %
             Third Quarter             +0.2 %             -1.4 %       -1.6 %
             Fourth Quarter            +1.1 %             -0.5 %       -1.6 %
             Annual                    +0.9 %             -0.6 %       -1.5 %

Total costs for company-owned restaurants, as a percentage of company-owned restaurant sales, increased 150 basis points primarily due to our investment in discounting, minimum wage increases and the initial ramp up of 21 stores opened since the start of the fourth quarter 2012. Our prime costs, consisting of costs of goods sold and labor costs, increased 60 basis to 57.4% of company-owned restaurant revenues.

Table of Contents

As a percentage of company-owned restaurant sales, we saw an increase in our food costs from 27.8% for fiscal 2012 to 28.1%. The following items affected the comparability of our cost of sales for fiscal 2013 compared to fiscal 2012:

            Cost of Goods Sold - 2012                                27.8 %
            Inflation                                    0.2 %
            Investment in value and discounting          0.6 %
            Shift in product mix                         0.1 %
            Savings from initiatives ($1.1 million)     (0.3 %)
            Price increases                             (0.3 %)       0.3 %

            Cost of Goods Sold - 2013                                28.1 %

As of December 31, 2013, we have secured price protection on the following commodity needs for fiscal 2014:

                           Commodity        % Locked
                           Coffee                  92 %
                           Wheat                  100 %
                           Butter                  84 %
                           Class III Milk         100 %

. . .

  Add BAGL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BAGL - All Recent SEC Filings
Copyright © 2015 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.