Hard Rock International announced its earnings for 2005 as part of a report issued by its parent company, The Rank Group Plc (RNK.L).
Hard Rock's total revenues for the year were $452.6 million compared to $426.1 million in 2004 -- a growth of 6.2 percent. Operating profit increased 23.0 percent to $63.0 million in 2005 compared to $51.2 million in 2004. Hard Rock's hotel and gaming interests and continued improvement at company-owned cafes drove overall performance.
"Hard Rock Cafe's like-for-like sales continue to improve and this was supported by exceptional performance in the hotel and casino division with revenue continuing to exceed projections," said Hamish Dodds, president and CEO of Hard Rock International. "In 2005, we also successfully relocated our New York cafe from 57th Street to our new flagship location at the Paramount Theatre in Times Square. As we look forward to 2006, we will be commemorating our 35th anniversary with a global music celebration. We are also already engaged in a number of exciting new projects, including the opening of Hard Rock Hotel Madrid, the first Hard Rock Hotel in Europe."
In the company-owned cafes, like-for-like sales for the year were up 4.1 percent, driven by improved performances in food and beverage and merchandise, as well as strong performances in Europe and North America, up 6.5 percent and 3.3 percent, respectively.
Profits from company-owned cafes increased 13.5 percent. In the summer of 2005, Hard Rock Cafe revamped and re-launched its menu in all company-owned cafes, and as a result of its success, Hard Rock is currently introducing the new menu at franchise cafe locations. The combination of improved product offering and creative menu repositioning allowed Hard Rock to realize a pricing opportunity in many of North American cafes in the second half of the year. These actions contributed to an increase of 5.5 percent in like-for-like food and beverage sales throughout company-owned cafes.
In merchandise, the company developed a more diverse range of Hard Rock apparel and branded goods, expanding the product offerings to incorporate more fashion- and artist-inspired, branded logo apparel. At the same time, Hard Rock has sharpened its retail focus through more efficient inventory management and the redesign of Rock Shops. These actions have helped to stabilize an eroding like-for-like trend in merchandise and generate a positive like-for-like sales growth, 1.3 percent, for the first time in 10 years.
Franchise royalties and fees increased to $11.4 million in 2005 compared to $9.6 million in 2004.
In August, in one of the most significant strategic moves in the company's history, Hard Rock International relocated its New York cafe. After more than 20 years on West 57th Street, Hard Rock Cafe moved to a new flagship location in the legendary Paramount Theatre in the heart of Times Square, featuring a 708-seat cafe, 1,800-square-foot Rock Shop and a Hard Rock Live! concert venue for performances and special events.
Hard Rock continues to upgrade the quality of its cafe portfolio through selective new openings, relocations and the closure of under-performing sites. Four new franchise cafes opened in 2005. In Europe, new cafes opened in Gran Canaria and Oslo in December. South/Central America also had franchise growth with the openings of Caracas in May and Belo Horizonte in December. Additionally, five to seven new franchise cafes are scheduled to open in 2006, including Santo Domingo, Bucharest, Narita, Ocho Rios and Mumbai, with additional franchise deals in various stages of development. Additionally, the company-owned San Juan cafe reopened at its original location in January, after closing in 2003 because of a fire.
Numerous external and weather-related issues impacted performance of company-owned and franchised cafes. Hurricane Katrina forced an extended closure of the New Orleans cafe. Soon after, two franchise cafe locations, Cozumel and Cancun, were closed because of significant damage caused by Hurricane Wilma and are expected to re-open in 2006. Additionally, the flagship cafe in London closed for nearly three months during the peak summer season due to a fire in July. In 2005, closures of company-owned cafes included St. Thomas, Newport Beach and the Choctaw Beach Club, along with one franchise cafe in Reykjavik. Additionally, a company-owned cafe in Austin and the Hard Rock Bar in Bristol were closed in early 2006, and the company will evaluate selectively closing additional under-performing cafes during the balance of 2006.
Hotel and Casino Performance
Hotel and casino income increased 65.0 percent from the prior year, as a full-year contribution of fees from the two Hard Rock Hotel and Casinos operated by the Seminole Tribe of Florida have helped drive an improvement in operating profit for Hard Rock's hotel and casino division. The Hard Rock Hotel and Casino brand continues to evolve into one of the world's premiere hospitality and gaming brands.
In 2006, Hard Rock also plans to open the 192-bedroom Hard Rock Hotel Madrid, through Lifestar Hotels LLC, the joint-venture between Hard Rock International and Sol Melia Hotels and Resorts. Additional hotels in development include the Paramount Hotel in New York and the first Hard Rock condo-hotel in San Diego, California, which are expected to open under the Hard Rock brand between 2007 and 2008. These openings will bring Hard Rock's global estate to a total of 11 hotels. Additionally, under its strategic alliance, Hard Rock and Intrawest have announced their first condo-hotel project. The hotel, located at the Copper Mountain resort in Colorado, will feature approximately 320 residences.
In late 2006, Hard Rock hopes to open the 318-bedroom Hard Rock Hotel and Casino in Biloxi, Mississippi. This hotel was in the middle of its opening program in September 2005 when it sustained major damage from Hurricane Katrina.
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