Champps Entertainment Announces Fourth Quarter and Full Year Results for Fiscal 2007

Business Wire, Sept 4, 2007

LITTLETON, Colo. -- Champps Entertainment, Inc. (Nasdaq:CMPP) today announced results for its fourth quarter and fiscal year ending July 1, 2007.

Total revenues for the fourth quarter decreased 4.7 percent to $47.1 million, compared with revenues of $49.4 million for the fourth quarter of last year. Comparable same store sales decreased 4.0 percent for the fourth quarter of fiscal 2007 compared to the fourth quarter of fiscal 2006. Comparable food sales decreased 3.8 percent, while comparable alcohol sales decreased 5.1 percent for the fourth quarter 2007 compared to the fourth quarter of fiscal 2006.

The Company ended the fiscal year with $19.4 million of cash, reflecting a $9.9 million increase in cash during the fiscal year. No borrowings are outstanding under the Company's credit facility and no share repurchases were made during the quarter. The $15.0 million of convertible notes due December 2007 have been called for redemption subject to the completion of the merger transaction discussed below and the availability of sufficient funds. If the merger is not completed for any reason, the Company expects to repay the notes either with available cash, the proceeds from credit facility borrowings, new term debt, or a combination of these sources.

The average dining room guest check, excluding alcoholic beverages, was approximately $13.91 for the fourth quarter of fiscal 2007 compared to $13.65 for the fourth quarter of fiscal 2006, a 1.9 percent increase. During the fourth quarter of fiscal 2007, food sales and alcoholic beverage sales represented 71.7 percent and 28.3 percent of total sales, respectively. During the fourth quarter of fiscal 2006, food sales and alcoholic beverage sales represented 71.6 percent and 28.4 percent of total sales, respectively.

The Company closed three underperforming locations in May 2006 and another in January 2007. The results for these locations along with associated closure and exit costs have been classified as discontinued operations for all periods presented.

The net loss for the fourth quarter 2007 was $0.7 million, or $0.06 loss per diluted share compared to net loss of $2.0 million, or $0.15 loss per diluted share in the same quarter last year. An additional income tax expense of $0.3 million was recorded in the fourth quarter of fiscal 2007 related to a charge to establish a valuation allowance on certain income tax credits, the full realization of which is no longer considered more likely than not based on the income trends of the Company. The Company also incurred in the fourth quarter of this year $0.2 million (pre-tax) of potential company sale expenses related primarily to legal costs associated with the potential sale of the Company as discussed below. A discontinued operations loss of $14,000 (net of tax), or $0.01 loss per diluted share, was recorded in this year's fourth quarter compared to a discontinued loss of $1.3 million (net of tax), or $0.10 loss per diluted share recorded in last year's fourth quarter.

"We were happy to be able to lower our operating loss compared to the prior year quarter despite the continued softness in sales," noted Mike O'Donnell, Champps' Chairman, President, and Chief Executive Officer. "Our restaurant managers have been working very hard to play defense in this tough sales and cost environment with a renewed focus on cost controls and improving productivity. Additionally, we benefited from significantly lower general and administrative expense during the quarter resulting primarily from lower legal costs (excluding those associated with the potential sale of the Company) and other savings."

O'Donnell added, "While our April sales improved over the prior year, a weakening of June's sales more than offset the improvement. June's sales were negatively impacted by the shorter and less popular NBA playoff finals and did not have the benefit of the World Cup soccer tournament which occurred in the prior year."

Adjusted diluted loss per share from continuing operations without the income tax valuation expense and potential company sale expenses and impairment items, would have been $0.03 for the fourth quarter of fiscal 2007 compared with the diluted loss per share from continuing operations of $0.05 in last year's fiscal fourth quarter. The preceding sentence is considered a non-GAAP presentation of financial measures and a reconciliation of non-GAAP financial measures is provided in the financial schedules accompanying this press release. Unadjusted, the diluted loss per share for the fourth quarter of fiscal 2007 included $0.03 of income tax valuation expense and potential company sale expenses, while the diluted loss per share for the fourth quarter of fiscal 2006 did not include any such expenses.

Product costs increased to 28.8 percent of sales in the most recent quarter from 28.6 percent of sales compared to the fourth quarter of the last fiscal year. The product cost increase was due largely to higher dairy prices. Labor costs increased to 33.3 percent of sales from 33.0 percent of sales for the same period last fiscal year due to higher bonus costs as a result of the rollout of the partnership bonus program, which started in March 2006, and higher wage costs as a result of an increase in the tipped minimum wage in certain states, primarily Ohio and Colorado, partially offset by productivity improvements.