O'Charley's says cash flow initiatives will allow company to repay revolver in 2009

By Jennifer Lanning Drey

Portland, Ore., Oct. 30 - O'Charley's Inc. believes its plans to improve cash flow in the balance of 2008 and into next year will allow the company to have a zero balance on its revolving credit facility by the end of 2009, Lawrence Hyatt, chief financial officer of O'Charley's, said during a Thursday conference call held to discuss the company's third-quarter results.

Under its plan to improve cash flow generation, O'Charley's has discontinued its quarterly dividend, avoided repurchasing shares of its common stock during the third quarter and reduced planned investment spending to between $15 million and $20 million in 2009. Planned investment spending was $50 million in 2008.

"We continue to raise the bar in everything that we do and take the strategic actions to maximize cash flow and reduce debt," Gregory Burns, O'Charley's chief executive officer, said during the call.

The company also plans to defer its re-branding initiative in 2009, open just two new restaurants during the year and eliminate positions in its support centers, Hyatt said.

"Taken together, we believe these steps will generate sufficient cash flow to fully pay down revolver balances during 2009 and provide the financial flexibility to compete effectively in the difficult environment that all in the industry will continue to face," he said.

O'Charley's had $36.7 million outstanding under its $100 million revolver at the end of the third quarter.

The company was in compliance with all of the debt covenants related to the revolver at Sept. 30 and, based on its internal forecast, expects to remain in compliance with the covenants, Hyatt said.

However, he added, "As we all know, this is a time of unprecedented uncertainty, which of course places a level of risk on our ability to achieve our internal forecast."

'Downright miserly' consumers

During the third quarter, O'Charley's sales were negatively impacted as higher costs and lower home values caused consumers to go from "cautious to downright miserly" with regard to their spending, Burns said.

The company posted a 5% drop in revenues for the third quarter, with revenue falling to $209.6 million from $220.9 million in the same period of 2007. Same-store sales declined 4% at O'Charley's company-operated restaurants, 8% within the Ninety Nine Restaurant brand and 8% at the Stoney River Legendary Steaks brand.

"No one knows how long this recession will run, but I'm optimistic we'll see improvements in the economy and our sales sometime in 2009, and when we do, you will find that our concepts are well positioned to receive the benefits of increased sales and profitability," Burns said.

Nashville-based O'Charley's is a multi-concept restaurant company that operates or franchises restaurants under three brands: O'Charley's, Ninety Nine Restaurant and Stoney River Legendary Steaks.

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