Contact:

Maura C. Tobias Friendly's Restaurants 413-543-2400, ext. 2814

FRIENDLY ICE CREAM CORPORATION REPORTS THIRD QUARTER 2005 RESULTS

Wilbraham, MA (November 9, 2005) - Friendly Ice Cream Corporation (AMEX:FRN) today reported results for the third quarter and nine months ended October2, 2005.

Third Quarter Results
Net income for the three months ended October 2, 2005 was $3.4 million, or $0.43 per share, compared to $3.5 million, or $.44 per share, reported for the three months ended September 26, 2004.

 

Comparable restaurant sales decreased 4.0% for company-operated restaurants and 2.6% for franchised restaurants for the quarter ended October 2, 2005 compared to the quarter ended September 26, 2004. This was the first decline in comparable sales for franchised restaurants since the first quarter of 2001.

 

Total company revenues were $143.6 million in the third quarter of 2005, a decrease of $9.5 million, or 6.2%, as compared to total revenues of $153.1 million for the third quarter of 2004. Restaurant revenues decreased by $11.4 million, which was partially offset by a $1.7 million increase in foodservice revenues and a $0.2 million increase in franchise revenues. The re-franchising of 19 company-operated restaurants over the last fifteen months resulted in a $5.5 million decline in restaurant revenues when compared to the same quarter in the prior year.

 

During the first three weeks of September 2005, the Company experienced double-digit declines in comparable company-operated restaurant revenues compared to the same period in 2004. The Company believes that higher gasoline prices, especially during the first three weeks of September 2005, may have had a negative impact on customer visits during all day-parts with the afternoon and evening snack periods experiencing the greatest declines.

 

Nine Month Results
Net income for the nine months ended October 2, 2005 was $2.9 million, or $0.37 per share, compared to a net loss of $3.2 million, or $0.42 per share, reported for the nine months ended September 26, 2004. Included in the 2004 results were $8.2 million in expenses ($4.8 million after-tax or $0.64 per share) for debt retirement and restructuring costs, which were partially offset by a gain on litigation settlement.

 

Comparable restaurant sales decreased 1.3% for company-operated restaurants and increased 1.4% for franchised restaurants for the nine months ended October 2, 2005 compared to the nine months ended September 26, 2004.

 

For the nine months ended October 2, 2005 total company revenues were $416.6 million as compared to total revenues of $431.3 million for the nine months ended September 26, 2004. Restaurant revenues decreased by $21.3 million, which was partially offset by a $5.6 million increase in foodservice revenues and a $1.1 million increase in franchise revenues. The re-franchising of 37 company-operated restaurants over the last twenty-one months resulted in a $15.0 million decline in restaurant revenues when compared to the same period in the prior year.

 

In addition to the negative impact from higher gasoline prices during the first three weeks of September 2005, restaurant revenues were also impacted by an unfavorable shift in the timing of the year-end holiday period. New Year's Day was included in the prior year first quarter and is not included in the current year. The estimated impact on company-operated restaurants due to the timing of the holiday reduced the nine month comparable sales by 0.8%.

Performance Highlights
In the third quarter of 2005, Friendly's continued to pursue its key strategic objectives to 1) enhance the dining experience, 2) expand through franchising and re-franchising and 3) grow higher margin revenues. Key business highlights for the quarter include:

 

Ongoing improvements to the Friendly's dining experience based on feedback from the new Internet-based guest feedback system. 

• Execution of a long-term development agreement with the Company's second largest franchisee for 33 new franchise restaurants over the next 27 years with four new franchise restaurants to open by 2010.
• Continued growth in the number of supermarket chains that carry Friendly's decorated cakes, which are now being sold in close to 700 supermarket locations.
• Completion of a revised strategic plan review, with the focus on improving results.

 

Business Segment Results
In the third quarter of 2005, pre-tax income in the restaurant segment was $5.8 million, or 5.3% of restaurant revenues, compared to $8.0 million, or 6.6% of restaurant revenues, in the third quarter of 2004. The decrease in pre-tax income was mainly the result of a 4.0% decrease in comparable company-operated restaurant sales, the re-franchising of nineteen restaurants over the past fifteen months along with increased expenses for pension, other fringe benefits, maintenance and utilities. Partially offsetting these increases were reduced labor and benefit costs due to the restructuring of the restaurant management team, fewer free dessert promotions and lower expenses for advertising, bonuses and pre-opening costs.

 

Pre-tax income in the Company's foodservice segment was $3.5 million in the third quarter of 2005 compared to $2.5 million in the third quarter of 2004. The increase in pre-tax income was mainly due to increased product sales to both franchised restaurants and to retail supermarket customers and lower commodity costs. Case volume in the Company's retail supermarket business increased 0.3% for the third quarter of 2005 when compared to the third quarter of 2004.

 

Pre-tax income in the franchise segment increased in the third quarter of 2005 to $2.7 million from $2.4 million in the third quarter of 2004. The improvement in pre-tax income is mainly due to increased royalty revenue from the opening of five new franchised restaurants and the re-franchising of 19 restaurants over the past fifteen months. Increased rental income from leased and sub-leased franchised locations also contributed to the revenue growth in the third quarter of 2005.

 

Corporate expenses of $9.6 million in the third quarter of 2005 decreased by $0.5 million as compared to the third quarter of 2004 primarily due to decreases in corporate bonus and audit fees. Partially offsetting these decreases were increased pension costs and other professional fees.

 

John L. Cutter, Chief Executive Officer and President of Friendly Ice Cream Corporation stated, "After reporting second quarter comparable sales growth of 3.4% for company-operated restaurants and 5.4% for franchised restaurants, the third quarter was a disappointment. In early September, our company restaurants experienced double-digit declines in comparable sales, we believe in part due to higher energy costs and reduced consumer spending. We were able to partially offset the impact of higher utility and benefit costs with improved labor productivity. We continued our focus on improving the guest experience and improving our facilities, resulting in higher than normal maintenance costs and steadily improving guest satisfaction ratings. Our tighter spans at the multi unit management level has brought a much greater attention to detail in every restaurant."

 

Cutter continued, "This year we plan to open two new company restaurants and our franchisees plan to open six new franchise restaurants. Our previous guidance had been for four new company restaurants and ten new franchise restaurants. On average, new restaurants perform at higher average unit volumes than the system average. We plan to complete twelve re-imaging projects this year. With improved focus on operational consistency in the restaurants, we are well positioned to pursue our goal of aggressively growing through franchising."

 

Investor Conference Call
An investor conference call to review 2005 third quarter results will be held on Thursday, November 10, at 10:00 A.M. Eastern Time. The conference call will be broadcast live over the Internet and will be hosted by John Cutter, Chief Executive Officer and President. To listen to the call, go to the Investor Relations section of the Company's website located at friendlys.com, or go to streetevents.com. An online replay will be available approximately one hour after the conclusion of the call.

 

About Friendly's
Friendly Ice Cream Corporation is a vertically integrated restaurant company serving signature sandwiches, entrees and ice cream desserts in a friendly, family environment in over 525 company and franchised restaurants throughout the Northeast. The company also manufactures ice cream, which is distributed through more than 4,500 supermarkets and other retail locations. With a 70-year operating history, Friendly's enjoys strong brand recognition and is currently remodeling its restaurants and introducing new products to grow its customer base. Additional information on Friendly Ice Cream Corporation can be found on the Company's website (friendlys.com).

 

Forward Looking Statements
Statements contained in this release that are not historical facts constitute "forward looking statements" as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements include statements relating to the expected number of re-imaging projects and new company-operated and franchised restaurant openings during 2005 and early 2006, and the anticipated impact of the Company's key strategic objectives. All forward looking statements are subject to risks and uncertainties which could cause results to differ materially from those anticipated. These factors include risks and uncertainties arising from accounting adjustments, the Company's highly competitive business environment, exposure to fluctuating commodity prices, risks associated with the foodservice industry, the ability to retain and attract new employees, new or changing government regulations, the Company's high geographic concentration in the Northeast and its attendant weather patterns, conditions needed to meet restaurant re-imaging and new opening targets, the Company's ability to service its debt and other obligations, the Company's ability to meet ongoing financial covenants contained in the Company's debt instruments, loan agreements, leases and other long-term commitments, and costs associated with improved service and other similar initiatives. Other factors that may cause actual results to differ from the forward looking statements contained herein and that may affect the Company's prospects in general are included in the Company's other filings with the Securities and Exchange Commission. As a result the Company can provide no assurance that its future results will not be materially different from those projected. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such forward looking statement to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.

 

-- Financial Statements to follow --

 

Investment Contact: Deborah Burns (413) 543-2400 x3317
Media Contact: Maura Tobias (413) 543-2400 x2814