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Q4 2008 Einstein Noah Restaurant Group Inc Earnings Conference Call - Final.

Article Excerpt
OPERATOR: Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Einstein Noah Restaurant Group 2008 earnings conference call. I would like to turn the conference over to Rick Dutkiewicz, Chief Financial Officer.

RICK DUTKIEWICZ, CFO, EINSTEIN NOAH RESTAURANT GROUP INC: Good afternoon, and welcome to the Einstein Noah Restaurant Group fourth quarter full year 2008 conference call. I am Rick Dutkiewicz, Chief Financial Officer, and with me today is Jeff O'Neill our President and Chief Executive Officer.

Let me start by covering a few regulatory matters. I would like to note during our formal remarks and in our responses to questions certain items may be discussed which are not based on historical facts. Such items including our belief, trends, plans, expectations, assumption, anticipation, guidance, projections, estimates and the like should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, that could cause our actual results to differ materially. For more details please refer to the news release issued today and to the risk factors in our SEC filings.

With that out of the way, I want to acknowledge this is Jeff's inaugural conference call and as a result we thought we would do things a little differently. Unlike prior quarters we thought we would have Jeff talk about the opportunities at Einstein Noah and outline his plan for 2009 and beyond. I will then review our financial highlights for the full year 2008 and talk in depth about the fourth quarter. Afterwards, we would be happy to answer any questions that you might have. With that I will turn it over to Jeff.

JEFF O'NEILL, CEO, EINSTEIN NOAH RESTAURANT GROUP INC: Thanks, Rick. Thank you for joining us today. I know I have had the pleasure of meeting many of you at two investor conferences back in January, but for those who did not attend or listen to the webcast, let me introduce myself and more importantly discuss our plans for continued growth at Einstein Noah.

Before joining the company in December, I was most recently the CEO of a publicly traded company in Canada which is one of the largest KFC franchises in the world. Prior to that I was President of Pepsi Cola in Canada and actually was one of the first Pepsi Cola employees to move to Chicago to work directly on the integration with the Quaker Oats company acquisition. My past experience has taught me to focus the organization, first and foremost, on revenue generating opportunity. Because all good things come from growing the top line. I believe that the role of the CEO, and that of a leadership team is to ignite that focus and ensure key decisions are made from a top line point of view, not that we won't maintain our focus and discipline in cost management because we will. But it's amazing how quickly things fall in place once the top line has the necessary momentum. I learned the value of disciplined operational focus that begins with measurement, consistency and accountability at the store level. That's another area of emphasis that's placed on the organization as we realize our mission of building a best-in-class restaurant company.

My primary objective in leading this organization is to outperform our peer group of company's in the fast casual category and deliver consistent reliable growth category in revenue and EBITDA for our shareholders. From a customer standpoint objective is to ensure the fresh baked products, friendly service and neighborhood atmosphere remains second to none. A brief review of historical metrics proves my point about growing annual unit volume and corresponding affect on restaurant -level contribution margin.

In 2004, the average company-operated restaurant generated $767,000 in sales, and delivered $134,000 in restaurant-level contribution margin, yielding a 17.5% return. Since then the company has more than doubled the number of restaurants it generated in excess of a million dollars in annual volumes, while the number of locations that operate below the $600,000 level has been reduced by 80%. Across the entire system, 2008 average unit volumes were north of $900,000, with restaurant level contribution margins of $183,000 for a 20.2% margin return. This level of performance already places us among the top tier of all restaurant company's from a unit economic perspective and points to the real opportunity we have in upgrading units in higher performance levels. Most importantly the data shows when we can move a restaurant above the million dollar level, the resulting margins exceed 20%. I firmly believe we can raise our average unit volumes to a million dollars over the next three years and generate overall margin reaching the 21% to 22% range by 2012.

To get there we are going the raise the bar on promotional, merchandising and products innovation efforts to increase both trial and frequency of our brands. From a external marketing perspective we're working to increase brand awareness and trial through initiatives such as direct mail coupons and limited time offers. As an example, we recently dropped a coupon targeting lapsed and non-users of the brand with value added coupons focused on Free Coffee Monday and Free Bagel Fridays these initiatives are aimed at driving trial and increasing transactions while addressing the tough economic realities that category consumers are facing. In addition we are contemplating local radio and outdoor advertising in selected DMAs as a means to extend the reach and frequency of our marketing efforts.

Within our stores we are examining merchandising promotions that would drive interest and traffic through loyalty programs...

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