Pizza Inn Holdings/Inc/MO · 8-K · For 6/8/04 · EX-1

Filed On 6/8/04 6:48pm ET   ·   SEC File 0-12919   ·   Accession Number 718332-4-29

Current Report   ·   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                         2      5K 
 2: EX-1        Underwriting Agreement                                 4±    15K 

EX-1   ·   Underwriting Agreement

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LETTER  TO  PIZZA  INN  SHAREHOLDERS                                            

The  Colony,  Texas  -  June  8,  2004                                          

PIZZA  INN,  INC.  (NASDAQ:PZZI)                                                

Dear  Pizza  Inn  Shareholder,                                                  

This  past  February  we  updated  you  on some of the important changes that we
implemented  during  the preceding months.  I want to take an opportunity now to
follow-up  on  some  of  those  efforts  as well as share several of our current
initiatives  with  you.  While  much  of  the  focus  of  this letter will be on
marketing,  operations, and product initiatives, they are emblematic of a common
theme  at  Pizza  Inn  -  progress  through  the  development,  evaluation,  and
implementation  of new programs and changes to further improve Pizza Inn for our
customers  and franchisees.  Many of these decisions have been difficult, but we
hope  as you read this letter you will agree with Pizza Inn's Board of Directors
and  management  team that we are taking the crucial steps necessary to continue
the  successes  we  have  seen  over  the  last  year.                          

FRANCHISEE  OWNERS'  CONVENTION                                                 

While  there  are numerous other venues and opportunities for communicating with
our  franchisees,  none  are  as  all  encompassing  and  in-depth as our annual
franchisee  owners'  convention.  To  be  held in Biloxi, Mississippi later this
month,  this  convention's  registration  has  been  excellent,  and  we  expect
attendance  to  significantly  exceed last summer's event.  This will be another
opportunity to focus our franchisees on the Company's ongoing marketing efforts,
as  well  as  review  some  of the operational ideas and directions which we see
working  at  the  local  store  level  every  day.                              

This  is  also  where  individual  franchisees  from  throughout  the chain come
together  to  share  their  success  stories.  At this year's convention we will
utilize  some  of these individuals and their success stories in tandem with the
Company's  presentations  to  continue to foster the spirit of communication and
teamwork  which  has  been  a  focus  over  the  last  two  years.              

MARKETING  AND  SALES  GROWTH                                                   

As  I  shared  with  you in last quarter's letter, our marketing initiatives are
making  a  positive  difference  in  comparable  store  sales.  We believe these
improvements  can  be  attributed  in  large  part  to the brand positioning and
subsequent  advertising campaign first initiated in July 2003.  Since this time,
sales  trends have continued to improve, resulting in a third quarter comparable
increase of almost 1%. Results for the most recent six-week period are even more
encouraging,  as  comparable  sales  are  up  nearly  2%  versus  last  year.   

We believe these sales improvements can also be attributed to the support of our
franchisee advertising board and the commitment of our franchisees and marketing
co-ops to a clearly defined vision. There is, however, more to accomplish in the
area  of  marketing.  For example, our new 2004-2005 television, radio and print
campaign  will  be unveiled for use at this month's annual franchisee convention
in  Biloxi,  Mississippi.  Next,  we  will  introduce  a new community marketing
program  and  accompanying  Inn-tranet  site  to franchisees in the near future.
These  programs  were  designed to provide franchisees with sales-building ideas
that  also  create  customer  loyalty  in  the  local  community.  The marketing
department  will  also  work  closely  with  franchisees  to provide the support
necessary  for  successful  execution  of  these  initiatives.                  

STORE  LEVEL  PROFITABILITY                                                     

As noted in our press release of May 24, these are very difficult economic times
for our industry, due primarily to the unusual increase in many of our commodity
prices.  The  price  of  cheese  (our  largest single ingredient cost) increased
approximately  70%  from January 23 to April 14 when its market price reached an
all-time high. In addition, many other items relevant to our industry - soybeans
and  other grains, beef, chicken, and pork, as well as non-food expenses such as
gasoline,  utilities, and insurance - have also increased in price and therefore
reduced  our  chain's  store  level  profitability.                             

Given  these  challenges,  we  are  very focused on assisting our franchisees in
improving  their  profit margins. Satisfactory store level margins are paramount
to  the success of existing franchisees.  We also believe improving margins will
lead  to additional store openings from current operators and provide a stronger
foundation  for attracting new ones.  As always, we are in constant contact with
vendors  to  help  ensure  competitive prices. We also continue working with our
franchisees to help them with their efficiencies regarding all variable expenses
as  well  as  their  implementation  of  equitable,  competitive pricing for our
customers  in  light  of  today's  rising  expenses.                            

LAYOFFS  AND  EXPENSE  REDUCTIONS                                               

One  of our most difficult decisions in recent years was the realization that in
order  to  reduce  the  prices  of  certain key products sold to franchisees and
therefore  improve  their  profitability, the company would be required to enter
into  layoffs for the first time in nearly 14 years.  The layoffs affected about
15%  of our corporate office staff, as well as additional personnel at our Norco
distribution  facility.  In  addition,  the  Company  identified  several  other
expenses  that were reduced or eliminated. These reductions in expenses at Pizza
Inn  and Norco are being passed directly to our franchisees in the form of Norco
price  reductions effective June 1.  We believe these price relief measures will
have  a  long-term  positive  effect on our franchisees and Pizza Inn. While the
month  of  June  could  reflect  one-time  higher  expenses  associated with our
employee layoffs, they may be partially offset by other savings.  These types of
actions  are  always  difficult for the Company and its people, but we recognize
that  the  success  of  this  organization  is  dependent  on the success of its
franchisees,  and the entire company remains strongly committed to this success.

FRANCHISE  DEVELOPMENT                                                          

This  year  we  have  opened 31 new restaurants, which include the  reopening of
three  previously  closed  units,  and we plan to open seven more by June 30. We
have now closed 35 units for this year, of which 16 have ceased operations since
the  beginning  of  March  2004  during a period of significantly increased food
costs and other expenses. These recent closings are disappointing, but we remain
optimistic  that  our  initiatives  on both sales building and franchisee margin
improvements  will  reduce  future  closings.                                   

Our  openings  projected for fiscal 2004 include 14 in our fourth quarter, seven
of which have already opened. These recent openings in addition to those already
on  our  schedule  for  fiscal 2005 make us optimistic about our new unit growth
plans  for  next  year.                                                         

Our  Pizza  Inn restaurant remodeling and  reimaging program will be highlighted
at  our  upcoming franchisee convention in June. As a key component to improving
store  level  sales at individual locations, this program remains a top priority
for  Pizza  Inn.                                                                

OPERATIONS,  TRAINING,  AND  CONCEPT  DEVELOPMENT                               

With  so many new unit openings in the fourth quarter, our team members in these
important  departments  have been very busy assisting new franchisees as well as
working  with  existing operators to improve their operating efficiencies. These
efforts  are making a positive difference for both groups. Our training seminars
in  the  field  continue  to  be  well attended and a positive force in ensuring
franchisee-operating  consistency.                                              

With  regard to new products, our marketing and concept development team members
have  completed  the development, testing and implementation of Pizza Inn's "4 -
pack  sampler."  The  product was a big hit with the stores participating in the
test  phase,  and it is now available in approximately 150 of our domestic Pizza
Inn  restaurants.                                                               

We  are  keeping  a  close eye on our "Take and Bake" pizza, which is still in a
test  phase  in selected markets, and we will keep you informed on these results
as  we  move  forward.                                                          

In  addition,  we  now  offer  a simplified version of our Pizza Inn program for
express  units  at  a lower investment cost which we believe will make it a much
more  attractive  option  for  new  operators.                                  

FINANCIAL  HIGHLIGHTS  AND  TRENDS                                              

Income  Statement                                                         
-----------------                                                         

For  our  third  quarter  ended  March 28, 2004, our revenues were $14.6 million
versus  $14.2  million  last  year.  Net income was $617,000 versus $376,000 the
previous  year,  while earnings per share increased to $.06 from $.04 last year.
All  major  income  statement  variances  were  discussed  in  the "Management's
Discussion  and  Analysis"  section of this quarter's Form 10-Q filed on May 12.

Cash  Flow  and  Debt  Balances                                           
-------------------------------                                           

Pizza  Inn generated $3.4 million in cash flow from operations in the first nine
months  of  this  fiscal  year. As of June 1, our term loan is now paid off, our
line  of  credit  balance owed is only $1.2 million, and the balance owed on our
corporate  facilities  is  down  to  $7.2  million.                             

In  summary,  in  spite  of  the  economic  pressures  of this past quarter, the
Company's  financial  performance  was improved by the implementation of several
focused initiatives to increase sales and decrease expenses. As discussed above,
we  remain  committed  to  the  goals  of  both  improving  our  franchisees'   
profitability  and  encouraging  more  new  unit  growth  in  the  future.  The 
achievement  of  these  goals  will  be  the  foundation  upon  which  increased
shareholder  value  will  be  built.                                            

Sincerely,                                                                      

/s/ Ronald W. Parker                                                            
Ronald  W.  Parker                                                              
President  and  Chief  Executive  Officer                                       

Dates Referenced Herein   and   Documents Incorporated By Reference

This 8-K Filing		Date		Other Filings
		3/28/04		10-Q
Filed On / For The Period Ended		6/8/04		4
Filed As Of		6/9/04
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