J. Alexanders Corp. (JAX) Misses Q4 EPS by 22c, Revenues Beat; Offers FY19 EPS Guidance Above Consensus, FY19 Revenue Guidance Below Consensus

J. Alexanders Corp. (NYSE: JAX) reported Q4 EPS of $0.06, $0.22 worse than the analyst estimate of $0.28. Revenue for the quarter came in at $63.25 million, versus $61.34 million reported last year.

• Net sales were $63,205,000, an increase of 3.0% from $61,338,000 reported in the fourth quarter of 2017.
• For the J. Alexander’s/Grill restaurants, average weekly same store sales per restaurant(1) were $115,800, a gain of 0.3% from $115,500 reported in the fourth quarter of 2017. For the Stoney River Steakhouse and Grill restaurants, average weekly same store sales per restaurant were $85,400, up 2.4% from $83,400 recorded in the fourth quarter of 2017.
• The Company recorded a loss from continuing operations before income taxes of $470,000 for the fourth quarter of 2018 compared to income from continuing operations before income taxes of $4,340,000 in the corresponding quarter of the prior year. The principal factor impacting income for the fourth quarter of 2018 was the non-recurring transaction expense of $4,560,000 related to the termination of the consulting agreement (“Consulting Agreement”) between Black Knight Advisory Services, LLC (“Black Knight”) and the Company announced on November 30, 2018 (see “Black Knight Consulting Agreement Terminated” below). The Company funded this obligation on January 31, 2019 through use of cash on hand and eliminated the obligation to pay Black Knight 3% of the Company’s Adjusted EBITDA for the remaining 6.8-year term of the Consulting Agreement. According to termination provisions of the Consulting Agreement, the Company is also required to make a separate cash payment of $705,000 to Black Knight for the pro-rata portion of the 2018 consulting fee within ten days of the completion of its 2018 audit.
• The final valuation of the Black Knight profits interest grant was calculated at the completion of the vesting period on October 6, 2018 and resulted in profits interest income of $450,000 in the most recent quarter. This compares to profits interest income of $773,000 in the fourth quarter of 2017. The Company also accrued consulting fees of $116,000 under the Consulting Agreement in the fourth quarter of 2018. This compares to consulting fees of $250,000 recorded in the final quarter of 2017.
• The loss from continuing operations before income taxes for the fourth quarter of 2018 included non-recurring transaction expenses of $4,715,000, up from non-recurring transaction expenses of $1,094,000 in the same quarter a year earlier. Excluding these non-recurring transaction expenses for both periods, the Company’s income from continuing operations before income taxes would have totaled $4,245,000 for the fourth quarter of 2018 compared to $5,434,000 for the fourth quarter of 2017.
• The Company recorded net income of $934,000 for the fourth quarter of 2018. This compares to net income of $5,340,000 in the fourth quarter of 2017. Results included an income tax benefit of $1,524,000 in the fourth quarter of 2018 compared to an income tax benefit of $1,105,000 in the corresponding quarter of the previous year. The tax benefit for 2018 was the result of a (66%) effective tax rate, driven in large part by the impact of FICA tip credits on lower pre-tax income.
• The basic and diluted earnings per share totaled $0.06 for the fourth quarter of 2018 compared to $0.36 for the fourth quarter of 2017.
• Adjusted EBITDA(2) was $7,364,000 in the fourth quarter of 2018, down 9.9% from $8,177,000 in the final quarter of 2017.
• Restaurant Operating Profit Margin(3) as a percent of net sales was 12.8% in the fourth quarter of 2018 compared to 14.9% for the same quarter of 2017.
• Cost of sales as a percentage of net sales in the fourth quarter of 2018 was 32.7% compared to 32.1% in the last quarter of 2017.

Chief Executive Officer’s Comments

“Persistently soft sales from selected new restaurants, coupled with a significant beef price inflation of 4.1%, were primary factors impacting the performance of our J. Alexander’s/Grill restaurant collection in the final quarter of 2018,” said Lonnie J. Stout II, President and Chief Executive Officer of J. Alexander’s Holdings, Inc. “In contrast, we continued to be pleased with the results in our Stoney River Steakhouse and Grill collection, highlighted by another quarter of increased same store sales and higher guest counts.”

Stout said that the soft sales trend in the newer J. Alexander’s/Grill restaurants occurred for much of the final two quarters of 2018. He also stated “this is not unusual to have soft sales in our openings. Our history has been that the ramp up associated with our new restaurants can be slow, especially in markets that are new to us.” The Company is aggressively promoting these new locations through the use of social media.

“We have experienced a modest improvement in guest counts and sales at our newest J. Alexander’s restaurant,” Stout continued. “We do believe that our initiatives will ultimately move the needle related to consistently raising guest traffic in each of our selected underperforming restaurants. We remain convinced from experience that once guests realize what we offer, they will help us build the foundation for long-term success in these newer restaurants.”

Stout noted that at the Stoney River Steakhouse and Grill group, various operational measures implemented over past quarters to build guest counts and sales at specific locations have translated into a steadily improved financial performance. “Stoney River continues to perform well on a comparative basis, although not quite as robust as in recent quarters of 2018 as we bumped up against strong performances in the previous year. We are pleased again to report that most of the sales increases generated within this group have been organic. At the same time, we are continuing to experience solid performances from our newer Stoney River restaurants, the latest opening in the fourth quarter in Troy, Michigan.”

Stout said that beef prices in 2019 are presently trending higher than in 2018. “At this time, we do not know what the impact will be from extreme cold weather. Other commodities are expected to increase modestly in 2019 but we do not anticipate the need at present to pass on any significant price increases.”

GUIDANCE:

J. Alexanders Corp. sees FY2019 EPS of $0.69-$0.76, versus the consensus of $0.59. J. Alexanders Corp. sees FY2019 revenue of $253-256 million, versus the consensus of $264.23 million.

For earnings history and earnings-related data on J. Alexanders Corp. (JAX) click here.

You May Also Be Interested In

• Blackhawk Network (HAWK) Reports Q2 Loss of $0.07; Offers Guidance
• Eikon Therapeutics, Inc. (EIKN) Misses Q2 EPS by 163c
• Companhia de Saneamento Básico do Estado de São Paulo - SABESP (SBS) Tops Q2 EPS by 24c