Denver / CO. (spf) Spicy Pickle Franchising Inc., fast casual restaurant operator serving all natural premium meat and poultry and other fresh products and franchisor under its Spicy Pickle and Bread Garden Urban Café brands announced its results for the third quarter and nine months ended September 30, 2009.
The Company reported that its cost cutting in these difficult economic times have significantly reduced its net loss and coupled with its recent financing have helped to greatly improve its balance sheet as of September 30, 2009 despite lower revenues being recognized by the operating restaurants.
Chairman and CEO Marc Geman: «The last three quarters have been stable in terms of system-wide sales which include both the Bread Garden Urban Cafes and the Spicy Pickle Restaurants with a very slight increases so hopefully with the addition of a few new restaurants both at Spicy Pickle and Bread Garden going into next year we will start 2010 with positive momentum. Moreover our royalty collection does not include all the system-wide revenues because a few of the newer restaurants that have opened were not paying royalties immediately upon opening but will now be reflected in coming quarters. We are working hard to improve sales at existing restaurants by providing a comprehensive catering program for the restaurants along with some new marketing and branding materials to distinguish Spicy Pickle as the premier sandwich shop in the country along with similar efforts for the Bread Garden Urban Cafes in British Columbia. Our lower overhead and significantly strengthened balance sheet have us much better prepared to weather the continuing weak economy and push out an aggressive marketing program. Our overhead reductions have minimized our losses and we will continue to closely monitor our costs. We ended the quarter with 1,228,000 in cash and we believe we have the necessary funds to continue to execute our plan».
For the third quarter, total revenue amounted to 954’188 USD versus 1’368’295 USD in the year ago quarter. For the nine months, revenue totaled 3’181’641 USD compared with 3’219’502 USD.
Seven of the 37 Spicy Pickle restaurants are Company owned as of this quarter but the Company had eight restaurants for the quarter ending September 30, 2008. Comparable sales were consequently affected in the quarter as it operated one less restaurant than a year ago. In 2008 the Company operated and included in its Company owned store numbers the interim operation of the Chicago store which was resold to a franchisee in late 2008 who is successfully operating it now. In addition, sales at existing restaurants were off due to nationwide economic conditions.
Bakery sales dropped as it was selling to fewer customers. The company arranged for three restaurants to get bread from other sources where distance made it impractical to service them from the Company´s bakery. In addition, due to lower restaurant sales, franchisees and Company owned, bread sales were lower.
Royalty fees from franchisees, an important ongoing component of revenue, increased to 219’434 USD in this year´s third quarter from 204’054 USD in the year ago quarter due primarily to the inclusion of the Bread Garden Urban Cafe restaurants since late 2008. However, total «franchise fees and royalty revenue» decreased in the quarter due to minimal restaurant openings in that period which resulted in just a small portion of «deferred franchise fees» to be included in revenue. For the nine months of 2009, franchise fees and royalty revenue increased to 1’094’367 USD from 913’216 USD in the nine months of 2008.
General and administrative expenses in the quarter were reduced to 707’149 USD from 1’568’461 USD in the quarter a year ago and to 2’055’138 USD for this year´s nine months versus 5’046’315 USD for the nine months of 2008. Restaurant and bakery operating costs were also lower at 771’530 USD in the quarter this year compared with 1’149’443 USD in last year´s same quarter. Those costs were down to 2’349’511 USD in the nine months this year from 2’719’404 USD for the same period last year.
The loss from operations for the third quarter of 2009 was reduced to 554’550 USD from 1’356’774 USD in 2008, and for the nine months in 2009 it was reduced to 1’314’514 USD from 4’566’620 USD in 2008. The net comprehensive loss (after foreign currency exchange gain and dividends on preferred stock) for the third quarter was greatly reduced to 608’190 USD from 1’429’355 USD in the year ago quarter. For the nine months, the net comprehensive loss was 1’563’840 USD, down sharply from 4’756’579 USD in the first three quarters last year.
At September 30, 2009, the company had working capital of 312’150 USD versus a working capital deficit of almost a million USD at the same point a year ago. Among key ingredients were an asset of 1’228’000 USD cash and equivalents and a liability of 668’329 USD of deferred franchise revenue which does not represent a cash liability. The company had total assets of 6’187’720 USD on September 30, 2009 and shareholders´ equity of 3’679’478 USD. The balance sheet improvement was due to a 2,2 million USD equity offering in September of this year. Also, in the first nine months of this year two company directors increased their line of credit to the company to 800’000 USD and then converted that plus interest into a convertible promissory note.