Restaurant Sales. Of the $154.6 million year-to-year increase in restaurant
sales, $62.8 million resulted from sales by 103 company-operated stores opened in 2004, $50.3 million resulted from additional sales in 2004 by 74 company-operated stores opened in 2003
and $41.5 million was due to comp store sales increases. A substantial majority of the comp store sales growth was due to an increase in the number of transactions. Average store sales for 2004
increased 6.8% to $1,361,000 from $1,274,000 for 2003, driven primarily by comp store sales growth of 13.3% that reflected increasing nationwide awareness of our brand, which also enabled new stores
to open with higher average store sales.
Food, Beverage and Packaging Costs. Food, beverage and packaging costs increased because we used more ingredients and
packaging as a result of comp store sales increases, increasing sales at 74 stores opened in 2003 that were not in operation for 12 full months in the first six months of 2004 and sales at new stores
opened in 2004. As a percentage of total revenue, food, beverage and packaging costs decreased to 32.7% in 2004 from 33.3% in 2003. This decrease was largely driven by a menu price increase that was
partially offset by higher chicken, beef, cheese and tomato costs.
Labor Costs. The year-to-year increase in labor costs was due to the growth in our store base, as our
average number of hourly employees increased to about 8,100 in 2004 from about 5,100 in 2003. The effect was particularly significant in 2004, when we opened a large number of stores and experienced
the full-year impact of staff hired for stores opened throughout 2003. As a percentage of total revenue, labor costs decreased slightly to 29.6% in 2004 from 29.8% in 2003, largely due to
improved employee efficiency resulting from an increase in the number of transactions, which did not require a corresponding increase in staff.
Occupancy Costs. The year-to-year increase in occupancy costs was primarily due to an increase in
rental costs resulting from the large number of stores opened in 2004 and the full-year impact in 2004 of such costs for stores opened throughout 2003. As a percentage of total revenue,
occupancy costs decreased from 8.1% in 2003 to 7.7% in 2004, largely as a result of the effect of higher average store sales on a largely fixed-cost base.
Other Operating Costs. The year-to-year increase in operating costs was driven by the large number of
stores opened in 2004 and the full-year impact in 2004 of stores opened throughout 2003. As a percentage of restaurant sales, other operating costs declined
slightly to 13.7% in 2004 from 13.8% in 2003, largely as a result of the effect of higher average store sales on a partially fixed-cost base.
General and Administrative Expenses. The increase in general and administrative expenses primarily resulted from a
$4.0 million charge to set up a reserve related to potential credit card liabilities and hiring more employees as we grew. As a percentage of total revenue, these expenses decreased to 9.5% in
2004 from 10.8% in 2003 as a result of our ability to further leverage our existing corporate infrastructure over more stores.
Depreciation and Amortization. Depreciation and amortization increased primarily due to stores opened in 2004 and the
full-year impact in 2004 of stores opened throughout 2003. As a percentage of total revenue, depreciation and amortization decreased from 4.8% in 2003 to 4.6% in 2004, largely as a result
of the effect of higher average store sales on a largely fixed-cost base.
Pre-Opening Costs. The increase in pre-opening costs was principally due to the opening of 103
company-operated stores in 2004, an increase of 29 company-operated store openings from 2003.
Loss on Disposal of Assets. The decrease in loss on disposal of assets was largely due to a $2.0 million
write-off associated with the closing of three stores in 2003.
Net Interest Income. The decrease in interest income (net of interest expense) was due to reduced earnings on average excess
cash deposits in 2004 as compared to 2003.