J. Alexander’s Holdings, Inc., owner and operator of the J. Alexander’s Restaurants, Redlands Grill, Stoney River Steakhouse and Grill and Lyndhurst Grill collection of restaurants, announced financial results for the first quarter ended April 2.

First Quarter 2017 Highlights Compared To The First Quarter Of 2016

Net sales increased 5.2 percent to $59,822,000 in the most recent quarter from $56,879,000 in the first quarter of 2016. Factors that affected sales during the comparable quarters included the following:

On February 27, the company opened a new Stoney River Steakhouse and Grill in Chapel Hill, North Carolina. The first quarter of 2017 reflects results of operations for the five weeks this restaurant was open during the quarter. The first quarter of 2017 also included a full quarter of operations from the Stoney River Steakhouse and Grill in Germantown, Tennessee, that was opened on January 25, 2016.

On December 12, 2016, the company opened a J. Alexander’s Restaurant in Raleigh, North Carolina. The first quarter of 2017 included a full quarter of operations for this restaurant.

On March 13, 2017, the company opened a J. Alexander’s Restaurant in Lexington, Kentucky. The first quarter of 2017 included results of operations for the three weeks this restaurant was open during the recent quarter.

On January 28, 2017, the company closed its J. Alexander’s Restaurant in Houston, Texas. The first quarter of 2017 reflects results of operations for only the 27 days this restaurant was open during the quarter.

For the J. Alexander’s/Grill restaurants, average weekly same store sales per restaurant were $119,800, up 3.5 percent from $115,700 in the first quarter of 2016. For the Stoney River Steakhouse and Grill restaurants, average weekly same store sales increased 0.4 percent to $75,400 from $75,100 recorded in the comparable quarter a year ago.

Income from continuing operations before income taxes amounted to $3,641,000 during the first quarter of 2017 compared to $2,999,000 in the first quarter of 2016.

Net income for the first quarter of 2017 reached $2,684,000, up 17.2% from $2,290,000 posted in the first quarter of 2016. Results for the first quarter of 2017 reflect the favorable impact of the valuation of the profits interest grant issued in October 2015 to Black Knight Advisory Services, LLC (“Black Knight”) which resulted in a benefit to income from continuing operations before taxes of $39,000 during the first quarter of 2017 compared to an expense of $594,000 during the first quarter of 2016.

Adjusted EBITDA was $7,601,000 in the first quarter of 2017, an increase of 13 percent from $6,728,000 for the first quarter of 2016.

Basic and diluted earnings per share totaled $0.18 for the first quarter of 2017 and $0.15 for the first quarter of 2016.

Restaurant Operating Profit margin was 15.9 percent for the first quarter of 2017 as compared to 15.2 percent in the first quarter of 2016.

Cost of sales as a percentage of net sales in the first quarter of 2017 amounted to 30.8 percent as compared to 31.8 percent in the first quarter of the same quarter in 2016.

“We entered 2017 with positive sales growth and continued our momentum through the quarter, turning in a solid performance in all of our restaurant collections,” says Lonnie J. Stout II, president and chief executive officer of J. Alexander’s Holdings, Inc. “Guest counts were up in our J. Alexander’s/Grills restaurants and in our Stoney River Steakhouse and Grill restaurants, along with our average weekly same store sales. Favorable beef pricing was a benefit throughout the quarter and was a positive factor contributing to our overall results. Beef prices, while continuing to be a benefit, have tightened up somewhat in recent weeks partly due to fires during March in Midwestern cattle states.”

“As mentioned,” Stout says, “we opened one new J. Alexander’s Restaurant and one new Stoney River Steakhouse and Grill in the first quarter of 2017, and have been pleased with sales results in the early weeks of their operation.” Stout pointed out that pre-opening expense in the first quarter, reflecting the opening of these restaurants, was up $538,000 to $876,000 from $338,000 in the comparable quarter of 2016.

The company’s consolidated operating income for the first quarter of 2017 totaled $3,794,000 as compared to $3,172,000 achieved in the corresponding quarter a year ago. The effective tax rate in the first quarter of 2017 was 23.9 percent as compared to 20.8 percent for the first quarter of 2016.

For the quarter ended April 2, 2017, the company’s restaurant labor and related costs as a percent of net sales were 30 percent as compared to 29.8 percent in the first quarter a year earlier. Other restaurant operating expenses were 19.3 percent of net sales in the first quarter of 2017 as compared to 19.4 percent of net sales in the first quarter of 2016.

The average weekly guest counts within the same store base for the company’s J. Alexander’s/Grills collection rose 1.5 percent for the first quarter of 2017 compared to the corresponding quarter of 2016. Guest counts within the same store base at the Company’s Stoney River Steakhouse and Grill restaurants were up 1.5 percent for the first quarter of 2017 compared to the first quarter of 2016. With respect to average guest checks, which include alcoholic beverage sales, the average guest check within the J. Alexander’s/Grills same store base of restaurants during the first quarter of 2017 totaled $31.08, up 1.9 percent from $30.49 during the first quarter of 2016. The average guest check within the same store base of Stoney River Steakhouse and Grill restaurants totaled $45.72, a 1.3 percent decrease from $46.33 for the first quarter of 2016.

On a consolidated basis, average weekly guest counts within the Company’s J. Alexander’s/Grill and Stoney River Steakhouse Grill locations rose 1.5 percent and 2.3 percent, respectively, for the first quarter of 2017 compared to the first quarter of 2016. Average guest checks for the combined J. Alexander’s/Grills concepts rose 2 percent to $31.15 in the first quarter of 2017 compared to $30.54 during the same quarter of 2016 while the average guest check for the Stoney River Steakhouse and Grill restaurants decreased 3.0 percent to $43.60 in the first quarter of 2017 as compared to $44.96 in the first quarter of 2016. The effect of menu pricing for the quarter just ended was estimated to be a 2.1 percent increase for the J. Alexander’s/Grills restaurants and a 0.4 percent decrease for the Stoney River Steakhouse and Grill restaurants compared to the same quarter a year earlier. Deflation in food costs for the first quarter of 2017 was estimated to total 2.9 percent for the J. Alexander’s/Grill restaurants, with beef costs declining by approximately 9.8 percent compared to the first quarter of 2016. For the Stoney River Steakhouse and Grill restaurants, deflation for the first quarter of 2017 was an estimated 3.8 percent, with beef costs declining by approximately 7.6 percent.

During the first quarter of 2017, the company incurred consulting fees of $265,000 from its management agreement with Black Knight as compared to $160,000 during the first quarter of 2016. Stout also noted that the company’s Black Knight profits interest valuation came in significantly under the valuation from the fourth quarter of 2016. The revised valuation decreased the profits interest compensation expense for the first quarter of 2017 by 106.6 percent, or $633,000, from an expense of $594,000 in the same quarter of 2016, resulting in a benefit to the company’s income from continuing operations before income taxes in the most recent quarter of $39,000.

In addition to the opening of a J. Alexander’s Restaurant in Lexington and a Stoney River Steakhouse and Grill in Chapel Hill, in the first quarter, the company has announced plans to build two new restaurants with openings currently projected for 2018. On April 10, the company said leases had been signed to build a new J. Alexander’s Restaurant in King of Prussia, Pennsylvania, and a new Stoney River Steakhouse and Grill in Troy, Michigan. Construction on these two new restaurants is expected to begin in the third quarter.

The company’s Board of Directors has authorized a share repurchase program for up to 1.5 million shares of the company’s outstanding common stock through October 29, 2018. The Company has funded and expects to fund any future share repurchases from cash on hand and operating cash flow. Repurchases have been and will continue to 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. No shares were repurchased by the company in the first quarter of 2017. Since inception of the stock repurchase program, 305,059 shares have been repurchased by the company under the program at an average purchase price of $10.50 per share.

“While there remains a remote possibility that one of our new restaurants may still be able to open during the fourth quarter of 2017, the most likely case based upon what we’re being told by our architects and general contractors is that they will likely fall over into 2018, which will affect the timing of our capital expenditures related to these new restaurants as well as the timing associated with our pre-opening costs,” Stout said. “The impact of the reduction of pre-opening costs that will be incurred in fiscal 2017, coupled with the most recent valuation associated with the Black Knight profits interest grant, are the two most significant items responsible for our updated guidance relative to both net income as well as basic earnings per share.”