Granite City Food & Brewery Ltd. Reports 36% Increase in Second Quarter Revenues

Granite City Food & Brewery Ltd. (Nasdaq: GCFB) a Modern American upscale casual restaurant chain, today reported results for the second quarter ended June 24, 2008. Highlights for the second quarter of 2008 compared to the same quarter last year were as follows: Total revenues increased 36.0% to $25.1 million Comparable restaurant sales increased 0.5% Four consecutive months of restaurant-level EBITDA growth Second Quarter 2008 Financial Results Total revenue for the second quarter 2008 rose by 36.0% to $25.1 million compared to $18.5 million for the second quarter of 2007. Comparable restaurant sales increased 0.5% during the second quarter of 2008 compared to the second quarter of 2007. For all the restaurants, the restaurant-level EBITDA margin was 12.1% for the second quarter of 2008. This represents an increase of 3.7% in restaurant-level EBITDA compared to 8.4% in the first quarter, 2008. All regions showed marked improvement in restaurant-level EBITDA in second quarter of 2008 compared to the first quarter of 2008. Steve Wagenheim, CEO and President commented, "You can see the difference in our store-level operations with the hiring of 16 store partners over the last several months. With strong operators in place we are seeing the results kick in, which is a great sign that we will continue this positive momentum throughout the year.” The overall restaurant-level EBITDA margin was negatively impacted by Region 3 which includes our Kansas City and Wichita stores and by newer restaurants, primarily those that opened during the first quarter of 2008 and fourth quarter of 2007. New restaurants typically take six to twelve months to improve their operating efficiencies as staff members become more experienced in our disciplined production and staffing methods, thereby generating less waste and more productivity. Management believes that as newer restaurants mature and gain efficiencies, overall blended margins will increase. These six new restaurants represent 24% of the Company’s total store base. Without the new stores and Region 3, the Company’s restaurant-level EBITDA margin would have been 15.8%, which was the same as the prior year period. Total cost of sales was $22.1 million in the second quarter or 87.9% of sales compared to prior year cost of sales of $15.7 million or 84.9% of sales. The second quarter cost of sales represented an improvement over the 91.6% first quarter cost of sales. The improvement in the second quarter compared to the prior quarter was due to several factors: First, the Company’s hiring of 16 new managing and culinary store partners will continue impacting its business in a positive manner. As well, the talent level of the partners continues to improve due to overall industry transition; second, the Company is in the midst of transitioning its overall business to include better oversight in its stores via its previously announced steward program; third, the six new store openings in the later part of 2007 and the first quarter of 2008 are beginning to mature. Although the average age of these stores is only 3-4 months old, efficiencies in labor and food are having a positive effect; and finally, while the industry continues to see increases in commodity costs, the Company’s increase in menu pricing of approximately 4% in March 2008 continues to offset these costs. General and administrative expenses were $2.8 million or 11.1% of sales for the second quarter of 2008 compared to $1.9 million or 10.3% of sales for the second quarter of 2007. The overall percentage increase was primarily related to increased staff levels related to growth, costs associated with an increase in recruiting, relocating and training as well as consulting costs. These costs were associated with management changes during the quarter and the Company’s overall oversight initiatives. These costs are expected to subside through the year and management believes overall general and administrative costs will fall below 10% in the final quarter of the year. The net loss for the second quarter of 2008 was $3.3 million or $(0.20) per share. Year-to-Date Financial Results Revenue increased 34.1% to $49.1 million for the twenty-six weeks ended June 24, 2008 compared to $36.6 million for same period in 2007, aided by six new restaurants and a 1.1% increase in comparable restaurant sales. For all the restaurants, the restaurant-level EBITDA margin was 10.3% for the first half of fiscal year 2008, while the restaurant-level EBITDA margin for comparable restaurants was 13.5%. Similar to second quarter margins, the overall restaurant-level EBITDA margin was negatively impacted by newer restaurants open for less than one year. General and administrative expenses were $5.5 million or 11.2% of sales for the twenty-six weeks ended June 24, 2008 compared to $3.6 million or 9.9% of sales for the same period of 2007. The net loss for the first half of fiscal year 2008 was $7.6 million or $(0.47) per share compared to a net loss of $2.8 million or $(0.19) per share for the first half of 2007. "Since the beginning of the year we have articulated and outlined our HR and field initiatives to provide margin enhancement to the stores,” said Steve Wagenheim, CEO and Founder of Granite City Food & Brewery. "While the job is not yet complete, we are very pleased to announce our year-to-date results that provide us with four consecutive months of restaurant level growth. Additionally, we feel the Granite City value proposition continues to hold up well with a 1.1% year-to-date comparable store sales increase—especially with the negative trends overall in the casual dining sector. We have always believed that our polished casual concept has tremendous appeal to the consumer in good and poor economic times.” Investor Conference Call and Webcast A conference call to review the results of the second quarter of 2008 will be held on Wednesday, July 30, 2008 at 10:00 a.m. Central Time and may be accessed by calling 877-741-4251 and referencing code 3465022. An archive of the presentation will be available for 30 days following the call. About Granite City Granite City Food & Brewery Ltd. is a Modern American upscale casual restaurant chain that operates 26 restaurants in twelve (12) states. The menu features affordable yet high quality family favorite menu items prepared from made-from-scratch recipes and served in generous portions. The sophisticated yet unpretentious restaurants, proprietary food and beverage products, attractive price points and high service standards combine for a great dining experience. Granite City opened its first restaurant in St. Cloud, Minnesota in 1999. Forward-Looking Statements, Non-GAAP Financial Measurements, and Comparable Restaurant Data Certain statements made in this press release of a non-historical nature constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Such factors include, but are not limited to, changes in economic conditions, changes in consumer preferences or discretionary consumer spending, a significant change in the performance of any existing restaurants, the ability to obtain financing for, and complete construction of, additional restaurants at acceptable costs, and the risks and uncertainties described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2008. Additionally, this press release contains certain non-GAAP financial measures, including references to restaurant-level EBITDA. As compared to the nearest GAAP measurement for our company, restaurant-level EBITDA represents net loss with the add-back of net interest expense, income tax expense, depreciation and amortization, general and administrative expenses, and pre-opening costs. Alternatively, restaurant-level EBITDA can be calculated as restaurant revenue less all restaurant-level cost of sales, excluding depreciation and amortization. We use restaurant-level EBITDA and restaurant-level EBITDA as a percentage of revenue as internal measurements of restaurant-level operating performance. Restaurant-level EBITDA as we define it may not be comparable to similar measurements used by other companies and is not a measure of performance or liquidity presented in accordance with GAAP. The Company believes that restaurant-level EBITDA is an important component of its financial results because it is a widely used measurement within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance. The Company uses restaurant-level EBITDA as a means of evaluating its restaurants’ financial performance compared with its competitors. This non-GAAP measurement should not be used as a substitute for net loss, net cash provided by or used in operations or other financial data prepared in accordance with GAAP. A reconciliation of restaurant-level EBITDA to net loss, as well as company-wide EBITDA, for the second quarters of 2008 and 2007 is provided herein. Finally, in order to provide supplemental results of operations information, we have included certain adjusted financial measures. In particular, we have presented various financial metrics for comparable restaurants, which are those restaurants that have been open for 18 months or more, and our new restaurants which are those restaurants that have been open for 18 months or less. The contributions of these groups of restaurants to company-wide performance are set forth herein. Granite City Food & Brewery Ltd. Condensed Consolidated Financial Statements     Thirteen Weeks Ended   Twenty-six Weeks Ended June 24,   June 26, June 24,   June 26, 2008 2007 2008 2007   Restaurant revenues $ 25,098,838 $ 18,453,954 $ 49,118,323 $ 36,636,146   Cost of sales: Food, beverage and retail 7,601,146 5,524,901 15,125,214 10,919,623 Labor 9,298,112 6,544,272 18,650,135 13,151,175 Direct restaurant operating 3,553,310 2,491,215 7,133,346 4,934,154 Occupancy   1,618,074     1,103,348     3,164,972     2,274,892   Total cost of sales   22,070,642     15,663,736     44,073,667     31,279,844     Pre-opening 246,701 416,341 830,074 512,182 General and administrative 2,780,362 1,907,641 5,484,887 3,643,946 Depreciation and amortization   1,613,411     1,122,405     3,175,057     2,242,728     Operating loss   (1,612,278 )   (656,169 )   (4,445,362 )   (1,042,554 )   Interest: Income 10,038 70,009 25,246 102,485 Expense   (1,651,127 )   (857,713 )   (3,139,953 )   (1,903,278 ) Net interest expense   (1,641,089 )   (787,704 )   (3,114,707 )   (1,800,793 )         Net loss $ (3,253,367 ) $ (1,443,873 ) $ (7,560,069 ) $ (2,843,347 )   Loss per common share, basic $ (0.20 ) $ (0.09 ) $ (0.47 ) $ (0.19 )   Weighted average shares outstanding, basic   16,197,849     16,004,680     16,190,066     14,975,124   Selected Balance Sheet Information     June 24,   December 25, 2008 2007 Cash $ 3,766,559 $ 7,076,835 Current assets including cash $ 5,101,432 $ 8,423,710 Total assets $ 83,007,348 $ 82,410,790 Current liabilities $ 11,157,482 $ 12,092,007 Total liabilities $ 72,591,658 $ 64,733,429 Shareholders' equity $ 10,415,690 $ 17,677,361 Non-GAAP Reconciliations Q2, 2008 Results     Comparable Restaurants   % of Sales   New Restaurants   % of Sales   Total for AllRestaurants AsReported   % of Sales   Restaurant revenues $ 15,648,772 100 % $ 9,450,066 100 % $ 25,098,838 100 %   Cost of sales: Food, beverage and retail 4,611,692 29.5 % 2,989,454 31.6 % 7,601,146 30.3 % Labor 5,554,218 35.5 % 3,743,894 39.6 % 9,298,112 37.0 % Direct Restaurant Operating Expenses 2,246,975 14.4 % 1,306,335 13.8 % 3,553,310 14.2 % Occupancy   964,159 6.2 %   653,915 6.9 %   1,618,074   6.4 % Total cost of sales 13,377,044 85.5 % 8,693,598 92.0 % 22,070,642 87.9 %           Restaurant-level EBITDA(a) $ 2,271,728 14.5 % $ 756,468 8.0 % $ 3,028,196 12.1 %   Pre-opening 246,701 1.0 % General and administrative   2,780,362   11.1 %   Company-wide EBITDA 1,133   Depreciation and amortization   1,613,411     Operating Loss (1,612,278 )   Interest: Income 10,038 Expense   ( 1,651,127 ) Net interest expense (1,641,089 )   Net loss as reported under GAAP $ (3,253,367 ) (a)See accompanying disclosure regarding use of non-GAAP financial measures. Certain percentages may not foot due to rounding Non-GAAP Reconciliations Q2, 2007 Results     Comparable Restaurants   % of Sales   New Restaurants   % of Sales   Total for AllRestaurants AsReported   % of Sales   Restaurant revenues $ 15,573,003 100 % $ 2,880,951 100 % $ 18,453,954 100 %   Cost of sales: Food, beverage and retail 4,628,079 29.7 % 896,822 31.1 % 5,524,901 29.9 % Labor 5,413,934 34.8 % 1,130,338 39.2 % 6,544,272 35.5 % Direct Restaurant Operating Expenses 2,135,931 13.7 % 355,284 12.3 % 2,491,215 13.5 % Occupancy   924,977 5.9 %   178,371 6.2 %   1,103,348   6.0 % Total cost of sales 13,102,921 84.1 % 2,560,815 88.9 % 15,663,736 84.9 %           Restaurant-level EBITDA(a) $ 2,470,082 15.9 % $ 320,136 11.1 % $ 2,790,218 15.1 %   Pre-opening 416,341 2.3 % General and administrative   1,907,641   10.3 %   Company-wide EBITDA 466,236   Depreciation and amortization   1,122,405     Operating Loss (656,169 )   Interest: Income 70,009 Expense   ( 857,713 ) Net interest expense   (787,704 )   Net loss as reported under GAAP $ (1,443,873 ) (a)See accompanying disclosure regarding use of non-GAAP financial measures. Certain percentages may not foot due to rounding Non-GAAP Reconciliations Q2, 2008 and Q2, 2007 Results Excluding Region 3 and Six Newest Restaurants     Q2 2008   Q2 2007 Without Region   Without Region   3 and Six 3 and Six Newest % of Newest % of Restaurants Sales Restaurants Sales   Restaurant revenues $ 14,342,013 100 % $ 13,949,959 100 %   Cost of sales:   Food, beverage and retail 4,199,007 29.3 % 4,167,365 29.9 % Labor 5,114,428 35.7 % 4,944,016 35.4 % Direct Restaurant Operating Expenses 1,950,119 13.6 % 1,853,910 13.3 % Occupancy   812,822 5.7 %   780,598 5.6 % Total cost of sales 12,076,376 84.2 % 11,745,889 84.2 %         Restaurant-level EBITDA(a) $ 2,265,637 15.8 % $ 2,204,070 15.8 % (a)See accompanying disclosure regarding use of non-GAAP financial measures. Certain percentages may not foot due to rounding Non-GAAP Reconciliations Q2 YTD, 2008 Results     Comparable Restaurants   % of Sales   New Restaurants   % of Sales   Total for AllRestaurants AsReported   % of Sales   Restaurant revenues $ 29,103,667 100 % $ 20,014,656 100 % $ 49,118,323 100 %   Cost of sales: Food, beverage and retail 8,686,676 29.8 % 6,438,538 32.2 % 15,125,214 30.8 % Labor 10,379,227 35.7 % 8,270,908 41.3 % 18,650,135 38.0 % Direct operating expense 4,305,811 14.8 % 2,827,535 14.1 % 7,133,346 14.5 % Occupancy   1,792,930 6.2 %   1,372,042 6.9 %   3,164,972   6.4 % Total cost of sales 25,164,644 86.5 % 18,909,023 94.5 % 44,073,667 89.7 %             Restaurant-level EBITDA(a) $ 3,939,023 13.5 % $ 1,105,633 5.5 % $ 5,044,656   10.3 %   Pre-opening 830,074 1.7 % General and administrative   5,484,887   11.2 %   Company-wide EBITDA (1,270,305 )   Depreciation and amortization   3,175,057     Operating Loss (4,445,362 )   Interest: Income 25,246 Expense   (3,139,953 ) Net interest expense   (3,114,707 )   Net loss as reported under GAAP $ (7,560,069 ) (a)See accompanying disclosure regarding use of non-GAAP financial measures. Certain percentages may not foot due to rounding Non-GAAP Reconciliations Q2 YTD, 2007 Results     Comparable Restaurants   % of Sales   New Restaurants   % of Sales   Total for AllRestaurants AsReported   % of Sales   Restaurant revenues $ 28,787,587 100 % $ 7,848,559 100 % $ 36,636,146 100 %   Cost of sales: Food, beverage and retail 8,515,526 29.6 % 2,404,097 30.6 % 10,919,623 29.8 % Labor 10,050,599 34.9 % 3,100,576 39.5 % 13,151,175 35.9 % Direct operating expense 3,944,393 13.7 % 989,761 12.6 % 4,934,154 13.5 % Occupancy   1,772,434 6.2 %   502,458 6.4 %   2,274,892   6.2 % Total cost of sales 24,282,952 84.4 % 6,996,892 89.1 % 31,279,844 85.4 %             Restaurant-level EBITDA(a) $ 4,504,635 15.6 % $ 851,667 10.9 % $ 5,356,302   14.6 %   Pre-opening 512,182 1.4 % General and administrative   3,643,946   9.9 %   Company-wide EBITDA 1,200,174   Depreciation and amortization   2,242,728     Operating Loss (1,042,554 )   Interest: Income 102,485 Expense   (1,903,278 ) Net interest expense   (1,800,793 )   Net loss as reported under GAAP $ (2,843,347 ) (a)See accompanying disclosure regarding use of non-GAAP financial measures. Certain percentages may not foot due to rounding