J. Alexander’s Holdings, Inc. reported financial results for the fourth quarter and fiscal year ended January 1. Fiscal 2016 included 52 weeks as compared to 53 weeks in fiscal 2015 and the fourth quarter of fiscal 2016 included 13 weeks as compared to 14 weeks in the same quarter of fiscal 2015.

Fourth Quarter 2016 Highlights Compared To The Fourth Quarter Of 2015

Net sales amounted to $57,323,000, a decrease of 3.3 percent from $59,304,000 recorded in the fourth quarter a year ago. On a comparable 13-week basis, net sales in the fourth quarter of 2016 increased by an estimated $1,919,000, or 3.5 percent, compared to those recorded in the fourth quarter of 2015. Factors that affected sales during the comparable quarters of the two years included the following:

The fourth quarter of fiscal 2015 included one extra week compared to the fourth quarter of fiscal 2016. The estimated impact on sales due to the additional week in the final quarter of 2015 was $3,900,000, including $3,200,000 in the J. Alexander’s/Redlands Grill restaurants and $700,000 in the Stoney River Steakhouse and Grill restaurants. 

On December 12, 2016, the company opened a J. Alexander’s restaurant in Raleigh, North Carolina. The fourth quarter of 2016 reflects results of operations of this restaurant for the three weeks it was open.

The fourth quarter of 2016 includes the operations of a Stoney River Steakhouse and Grill opened in Germantown, Tennessee, in the first quarter of 2016.

For the J. Alexander’s/Redlands Grill restaurants, average weekly same store sales per restaurant were $113,000, an increase of 1.8 percent from $111,000 reported in the fourth quarter of 2015, and for the Stoney River Steakhouse and Grill restaurants, average weekly same store sales were $76,000, down 1.7 percent from $77,300 reported in the fourth quarter of 2015.

Income from continuing operations before income taxes totaled $3,679,000 during the fourth quarter of 2016 compared to income from continuing operations before income taxes of $4,033,000 in the fourth quarter of 2015. The results for the fourth quarter of 2015 were impacted by non-recurring transaction and integration expenses of $870,000 associated with the abandonment of a planned initial public offering, and the ultimate spin-off from Fidelity National Financial Ventures, LLC (FNFV) in 2015, both described in previous quarters. Excluding these non-recurring transaction and integration expenses, income from continuing operations before income taxes would have totaled $4,903,000 for the fourth quarter of 2015. The results also included income tax expense of $852,000 in the fourth quarter of 2016 compared to income tax expense of $1,600,000 in the fourth quarter of 2015.

Net income for the fourth quarter of 2016 totaled $2,721,000 compared to net income of $2,321,000 achieved in the comparable quarter of 2015.

Stock Repurchase Program

During the fourth quarter of fiscal 2015, the company’s Board of Directors authorized a share repurchase program for up to 1.5 million shares of the company’s outstanding common stock over a period of three years. Share repurchases under the program have been made, and are expected to be made, solely from cash on hand and available operating cash flow. Repurchases will be made in accordance with applicable securities laws and may be made from time to time in the open market. The timing, prices, and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations. The repurchase program does not obligate the company to acquire any particular amount of stock. During the fourth quarter of 2016, the company purchased 5,000 shares under the program. Since inception of the stock repurchase program, 305,059 shares have been purchased by the Company under the program at an aggregate purchase price of $3,203,000.

Chief Executive Officer’s Review/Fourth Quarter

“We were encouraged by our results in the fourth quarter,” says Lonnie J. Stout II, president and chief executive officer of J. Alexander’s Holdings, Inc. “We concluded the year with steadily improving sales trends, driven by a strong performance in all of our restaurant concepts during the holiday season. Same store sales advanced 6.2 percent in our J. Alexander’s/Redlands Grill restaurant locations and rose 7.8 percent in our Stoney River Steakhouse and Grill restaurants during this period, which began November 28, 2016 and continued through January 1, 2017. We were particularly pleased with the higher sales at Stoney River because sales and guest counts had trended down in October and November.”

Stout noted that the persistence of a slow growth rate in the overall economy was more evident in both the company’s small-to-mid market locations as well as the higher density markets, with sales results up slightly compared to the final quarter a year ago. He said that sales from locations in Ohio were more robust, showing positive response to the company’s plan of action to build sales and guest counts implemented at the beginning of the year.

For the fourth quarter of 2016, average weekly sales in the J. Alexander’s/Redlands Grill restaurants increased 1.6 percent while average weekly sales in the Stoney River Steakhouse and Grill locations gained 2.6 percent. Average weekly guest counts on a same store base in the J. Alexander’s/Redlands Grill restaurants were up 2.0% while average weekly guest counts on a same store base in the Stoney River Steakhouse and Grill restaurants decreased 1.5 percent.

Stout said an easing in beef prices also benefitted the company during the fourth quarter, estimating that beef costs decreased by 10 percent within the J. Alexander’s/Redlands Grill locations and by 8.9 percent within the Stoney River Steakhouse and Grill restaurants compared to the fourth quarter of 2015. Another favorable indicator relative to fourth quarter results involved gift card sales, which were up 4.0% at the J. Alexander’s/Redlands Grill restaurants and 14.5 percent at the Stoney River Steakhouse and Grill locations.

The company’s consolidated operating income for the fourth quarter of 2016 was $3,794,000 compared to consolidated operating income of $4,192,000 recorded in the comparable quarter a year earlier. The company’s effective tax rate for the fourth quarter of 2016 was 23.8 percent compared to 40.8 percent in the fourth quarter of 2015.

Restaurant labor and related costs as a percentage of net sales was 29.7 percent for the fourth quarter of 2016 as compared to 29.3 percent in the corresponding quarter a year earlier. Other restaurant operating expenses were 19.1 percent of net sales for the fourth quarter of 2016 as compared to 18.6 percent of net sales in the corresponding quarter of the previous year.

Average guest checks, which include alcoholic beverage sales, for the combined J. Alexander’s/Redlands Grill concepts decreased 0.1 percent to $31.10 in the fourth quarter of 2016 compared to $31.13 in the same quarter of 2015. Average guest checks for the Stoney River Steakhouse and Grill concept were down 4.7 percent to $44.90 in the fourth quarter of 2016 from $47.12 in the fourth quarter of 2015. The effect of menu price adjustments for the most recent quarter was estimated to be a 0.6 percent increase for the J. Alexander’s/Redlands Grill restaurants and a 0.6% decrease for the Stoney River Steakhouse and Grill restaurants compared to the same quarter a year earlier. Deflation in food costs for the fourth quarter of 2016 was estimated to total 3.8 percent for the J. Alexander’s/Redlands Grill restaurants and 5.3 percent for the Stoney River Steakhouse and Grill restaurants, respectively, compared to the fourth quarter a year ago.

During the fourth quarter of 2016, the company incurred consulting fees of $249,000 related to its management agreement with Black Knight Advisory Services, LLC (“Black Knight”) compared to $262,000 in the final quarter in 2015. The Company also recognized $881,000 of non-cash profits interest compensation expense for Black Knight in the fourth quarter of 2016, compared to $661,000 in the fourth quarter of the previous year.

Full Year Highlights For 2016

For the 52 weeks of fiscal 2016, the company posted net sales of $219,582,000, up 0.8 percent from $217,914,000 recorded during the 53 weeks of fiscal 2015. The New Year’s Eve week, traditionally one of the Company’s strongest sales weeks, occurred twice during fiscal 2015 and had a positive impact on both the first and fourth quarters of that year. Fiscal 2016 began January 4, 2016 and, as such, included the benefit of only one New Year’s Eve week.

The estimated impact on sales due to the additional New Year’s Eve week in 2015 was $4,815,000, including $3,975,000 in J. Alexander’s/Redlands Grill restaurants and $840,000 in Stoney River Steakhouse and Grill restaurants. The estimated impact on net income related to the additional week in 2015 was $590,000 while the estimated impact on Adjusted EBITDA was $800,000.

Income from continuing operations before income taxes was $9,539,000 for fiscal 2016 as compared to $7,339,000 for fiscal 2015. Included in the results were non‐recurring transaction and integration expenses of $64,000 in 2016 and $7,181,000 in the prior year. Excluding these non-recurring transaction and integration expenses, income from continuing operations before income taxes would have totaled $9,603,000 for 2016 and $14,520,000 for 2015. Results also included income tax expense of $2,062,000 in 2016 and income tax expense of $1,555,000 in 2015.

Within the J. Alexander’s/Redlands Grill restaurants, average weekly same store sales per restaurant totaled $110,100 for 2016, down 0.5 percent from $110,600 in 2015. For the Stoney River Steakhouse and Grill restaurants, average weekly same store sales totaled $70,400 in 2016, up 0.3% from $70,200 in 2015.

Guest counts within the same store base of restaurants increased by 1 percent within the J. Alexander’s/Redlands Grill restaurants for 2016, and rose by 0.4 percent within the Stoney River Steakhouse and Grill restaurants in 2016. The average guest check at the combined J. Alexander’s/Redlands Grill locations decreased by 1.3 percent from $30.82 for 2015 to $30.41 for 2016, while the Stoney River average guest check decreased by 4 percent from $45.99 for 2015 to $44.13 for 2016. The effect of menu price changes for 2016 was estimated to be a 0.4 percent decrease at J. Alexander’s/Redlands Grill locations and a 0.3 percent decrease at the Stoney River restaurants compared to 2015.