O'Charley's reports Q3 loss of US$4M, forecasts weak revenue for holiday period as company struggles with decline in guest counts at its flagship casual dining chain

NASHVILLE, Tennessee , November 3, 2011 (press release) – O’Charley’s Inc. (NASDAQ:CHUX - News) today reported operating results for the 12-week period ended October 2, 2011.

Financial and Operating Highlights

* With 12 fewer restaurants in operation, the Company’s revenue for the third quarter of 2011 declined slightly to $186.6 million from $188.6 million for the third quarter of 2010.

O’Charley’s comparable sales for company-operated restaurants declined 0.9 percent for the third quarter of 2011 from the third quarter last year, as a 4.5 percent decline in guest counts was partially offset by a 3.8 percent increase in average check.

Ninety Nine Restaurants comparable sales for the third quarter of 2011 accelerated for the fifth consecutive quarter, increasing 4.1 percent on a 4.0 percent increase in guest counts and a 0.1 percent increase in average check.

Stoney River Legendary Steaks produced a fifth consecutive quarterly increase in comparable sales, increasing 6.8 percent for the third quarter. The concept’s comparable guest counts increased 6.1 percent, the eighth consecutive quarterly improvement, and average check rose 0.6 percent, the first quarterly improvement in the last 10 quarters.

* Restaurant-level margins declined to 11.5 percent of restaurant sales for the third quarter of 2011 from 12.1 percent for the third quarter of 2010, as a 190 basis point increase in food and beverage costs as a percentage of sales, primarily due to rising commodity costs, more than offset margin improvements in payroll and benefits and restaurant operating costs.

* Loss from operations was $0.6 million, or 0.3 percent of revenues, for the third quarter of 2011 compared with a loss from operations of $5.2 million, or 2.7 percent of revenues, for the third quarter of 2010. Results for the third quarter of 2010 included net impairment and disposal charges of $2.5 million or 1.3 percent of revenues.

* Loss from continuing operations was $4.0 million, or $0.18 per diluted share, for the third quarter of 2011, compared with a loss $7.0 million, or $0.33 per diluted share, for the third quarter
of 2010. Net loss was $4.0 million, or $0.19 per diluted share, for the third quarter of 2011, compared with a net loss of $7.4 million, or $0.35 per diluted share, for the third quarter of 2010.

* Net cash provided by operating activities was $11.1 million for the first 40 weeks of fiscal 2011, and the Company had $30.8 million of cash and no drawings on its revolving credit facility at the quarter’s end.

* As disclosed on October 17, 2011, the Company completed a sale-leaseback transaction for 50 O’Charley’s properties which produced gross proceeds of $105 million. The Company is using the net proceeds, combined with existing cash, to retire all of its outstanding 9% Senior Notes during the fourth quarter. The Company expects the impact of the transaction to be a decrease in annual interest expense of approximately $10.0 million, a decrease in annual depreciation expense of approximately $2.5 million and an increase in annual rent expense of approximately $8.9 million, which includes straight-line rent and the estimated amortization of the deferred gain on the sale and the deferred financing costs. In conjunction with the sale-leaseback transaction, the Company entered into an Amended and Restated Credit Facility with its existing banks, which reduced the facility from $45 million to $30 million. While the terms and conditions are similar to the prior facility, the new facility provides the Company more flexibility regarding capital expenditures and also extends the maturity of the facility to 2016.

David W. Head, president and chief executive officer of O’Charley’s Inc., said, “We are pleased we met our financial guidance for the third quarter and continued the strong comparable sales performance of Ninety Nine Restaurants and Stoney River Legendary Steaks. We did not sustain the positive comparable sales momentum created at O’Charley’s over the previous four quarters. The decline in O’Charley’s guest counts compares to a 2.7 percent increase in guest counts for the third quarter last year, which was driven by the re-launch of the “2 Meals for $14.99” promotion. Although new, high quality menu introductions produced upward migration in guest satisfaction for O’Charley’s for the third quarter, we believe the promotion mis-match coupled with heightened economic uncertainty contributed to the decline in guest counts.

“We are using the substantial guest count and sales progress in two of our three concepts as a blueprint to regain momentum in our O’Charley’s concept. We have undertaken several initiatives designed to grow O’Charley’s guest counts that center on greater clarity and precision in communicating our message of high quality, flavorful food at an everyday value. We intend to keep our focus on improving the guest experience at all three of our concepts. As reflected in our continued increases in guest satisfaction scores, we believe this focus will translate into higher sales, improving margins and increased shareholder value.”

Financial Guidance

For the fourth quarter of 2011, a 12-week quarter ending December 25, 2011, the Company’s guidance includes: total revenues of between $177 million and $182 million; loss from operations of between $3 million and $6 million; and adjusted EBITDA of between $4 million and $7 million. The Company’s guidance for the fourth quarter includes an estimated loss of approximately $1.2 million associated with the sale of certain properties included in the sale-leaseback transaction completed earlier in the quarter. Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of adjusted EBITDA to income from operations is included with the supplementary information to this release. The Company anticipates capital expenditures of between $16 million and $18 million for fiscal 2011.

Conference Call

The Company will hold a conference call to discuss this release today at 9:00 a.m. Eastern Time. The number to call for this interactive teleconference is (719) 325-4810, and the confirmation pass code is 7027043. Please dial in 10 minutes prior to the beginning of the call. A telephonic replay of the conference call will be available through November 17, 2011, by dialing (719) 457-0820 and entering pass code 7027043. A live broadcast of the conference call will also be available online at the Company’s web site, www.ocharleysinc.com, at the following link: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=82565&eventID=4209530 and will also be available at www.streetevents.com and www.earnings.com. An on-line replay of the call will be available at the same sites through November 17, 2011.

Safe Harbor Provisions

The forward looking statements in this press release and statements made by or on behalf of the Company relating hereto, including those containing words like “forecast,” “expect,” “project,” “believe,” “may,” “could,” “anticipate,” and “estimate,” are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the finalization of the Company’s third quarter financial and accounting procedures, and may be affected by certain risks and uncertainties, including, but not limited to, the deterioration in the United States economy and the related adverse effect on the Company’s sales of decreased consumer spending; the Company’s ability to achieve its internal forecasts of sales and profitability; the Company’s ability to comply with the terms and conditions of its financing agreements; the Company’s ability to maintain or increase operating margins and comparable sales at its restaurants; the effect that increases in food, labor, energy, interest costs and other expenses have on our results; the effect of increased competition; the Company’s ability to sell or sublease closed restaurants and other surplus assets; and the other risks described in the Company’s filings with the Securities and Exchange Commission. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by us that our objectives, plans and projected results of operations will be achieved, and the Company’s actual results could differ materially from such forward-looking statements. The Company does not undertake any obligation to publicly release any revisions to the forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

About O’Charley’s Inc.

O’Charley’s Inc., headquartered in Nashville, Tennessee, is a multi-concept restaurant company that operates or franchises a total of 342 restaurants under three brands: O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks. The O’Charley’s concept includes 227 restaurants in 18 states in the Southeast and Midwest, including 221 company-owned and operated O’Charley’s restaurants, and 6 restaurants operated by franchisees. The menu, with an emphasis on fresh preparation, features several specialty items, such as hand-cut and aged USDA choice steaks, a variety of seafood and chicken, freshly baked yeast rolls, fresh salads with special-recipe salad dressings and signature caramel pie. The Ninety Nine concept includes 105 restaurants throughout New England and upstate New York. Ninety Nine has earned a strong reputation as a friendly, comfortable place to gather and enjoy great American food and drink at a terrific price. The menu features a wide selection of appetizers, salads, sandwiches, burgers, entrees and desserts. The Stoney River Legendary Steaks concept includes 10 restaurants in six states in the Southeast and Midwest. This steakhouse concept appeals to both upscale casual-dining and fine-dining guests by offering high-quality food and attentive customer service typical of high-end steakhouses, but at more moderate prices.

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