Silver Diner sales rise, but net income suffers

Nonrecurring charges hurt profit

attention goes to labor, marketing

April 01, 1999|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Silver Diner Inc. reported a fourth-quarter net loss yesterday of $743,586, or 6 cents per share, along with an upswing in sales.

Both marked an improvement over past quarters, one analyst said.

The Rockville-based company, which operates 11 Silver Diner restaurants in the Baltimore, Washington and Philadelphia metropolitan areas, said the fourth-quarter loss, which exceeded the same quarter's loss a year earlier, was due to $635,000 in nonrecurring charges, both administrative expenses and depreciation.

Taking those charges into account, the company's financial results were in line with expectations, said Mitchell B. Pinheiro, a vice president of equity research for Janney Montgomery Scott Inc.

"It was a good quarter. They're making progress," Pinheiro said. "Same-store sales are coming back; customer counts are higher; food quality and service have improved. Now we need to see new units open. That's where they are."

In the company's fourth quarter that ended Jan. 3, net sales rose 17.5 percent to $6.98 million. Net sales for the year increased by 17.7 percent to $28.5 million, which included $4 million due to the impact of a full year of sales for four restaurants opened in Virginia and New Jersey in 1997, the company said.

Restaurant operating margin -- sales minus the cost of goods, labor and operations -- also increased, by 8 percent in the fourth quarter, and decreased as a percentage of net sales, to 22.7 percent. The company said the decrease in its operating margin stemmed from its decision to invest in labor, restaurant repairs and direct marketing.

Sales at restaurants open at least a year rose 4.5 percent, compared with the fourth quarter a year earlier, marking the company's third consecutive quarter of comparable-store sales increases.

"Our "110% Guarantee Program" is working, generating a higher level of customer satisfaction and increasing customer traffic," Robert Giaimo, Silver Diner's founder, president and chief executive officer, said yesterday.

The company has suffered losses because of costly overhead for such a small chain and past quarters in which sales had declined, Pinheiro said.

"Until they get more units open, they can't overcome their overhead," he said.

Silver Diner also said it has signed a lease to open its 12th restaurant, in Montgomeryville, Pa., late this year. The new diner will be a lower-cost prototype designed to improve operating efficiency, Giaimo said.

Pub Date: 4/01/99

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