Einstein Noah's 3Q profit rises despite soft traffic

Cost cutting and operational improvements contributed to a 20-percent increase in third-quarter net income for Einstein Noah Restaurant Group, but declines in transactions remain a challenge, the company said Monday.

However, initiatives put in place this year should help drive traffic in 2013, said Jeff O’Neill, president and chief executive of the company that is parent to the Einstein Bros. Bagels, Noah’s New York Bagels and Manhattan Bagels brands. Among the new initiatives is a coffee program with baristas, a line of specialty beverages and a Smart Choices platform with more healthful offerings.

Next year, the company plans to roll out extended hours to further drive traffic, as well as special offers for the 3 p.m. slow period — initiatives that showed promising results when tested in two markets earlier this year.

Earlier this year, Einstein Noah announced it was exploring strategic options, such as a possible merger, sale or debt recapitalization. O’Neill said the company has no update but pledged to reveal the strategic direction the company will take before the end of the year.

Meanwhile, Einstein Noah is looking to build revenues further by expanding its licensing program for retail products. The company has rolled out to about 800 Walmart Supercenter stores a line of bakery-case Thintastic Bagels, available in plain and honey wheat, for $2.59 under the Einstein Bros. brand. The company already has its bagels in some Costco stores.

“When Walmart comes and asks, you have to be interested in it because they’re such a big player, and we were,” said O’Neill. “It could help us overall from an awareness point of view.”

Breakfast, catering drive growth

Breakfast remains a “buoyant” daypart, with breakfast sandwiches and hot beverages showing meaningful growth. O’Neill said hot beverages have grown to about 10 percent of sales, and he hopes to drive that to 15 percent over time. “Hot beverages will become more of a destination for us,” he said.

Einstein Noah has also continued to grow its catering business, which now accounts for close to 8 percent of its sales. O’Neill said catering sales grew by about 20 percent during the quarter, due in part to a new, more user-friendly online system.

For the Oct. 2-ended quarter, Einstein Noah reported net income of $3.4 million, or 20 cents per share, compared with $2.8 million, or 17 cents per share, a year ago. During the quarter, the company incurred about 1 cent per share in expenses related to the strategic review.

Systemwide same-store sales rose 0.2 percent, reflecting a 4.1-percent increase in average check offset by a drop in transactions.

The company's revenue increased nearly 2 percent to $105.5 million.

Traffic for the 797-unit system under the various brands was soft in July, O’Neill said, in part because of the July 4th holiday falling in the middle of the week. But trends improved in August and September, he noted. “We expect to finish the year in a good position,” he said.

For the year, Lakewood, Colo.-based Einstein Noah is on track to reach the previously stated goal of opening 66 to 72 new locations, including 14 to 15 company-owned units, 12 to 14 franchise locations and 40 to 43 licensed units.

O’Neill said the company has commitments for 120 franchise units, a pipeline that exceeds the 90 agreements signed this time last year.

Contact Lisa Jennings at lisa.jennings@penton.com.
Follow her on Twitter: @livetodineout