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AUSTIN-Schlotzsky’s Inc., the Austin-based operator and franchiser of sandwich shops, reported strong third-quarter net income growth of 358%, which it attributed to an improved overhead structure and increased recurring sales. The results, the company said, gives it a strong base from which resume growth in systemwide sales.

The company has freestanding restaurants, usually in a shopping area, and units that are designed into shopping centers. It has 692 stores, of which 29 are company owned.The company posted net income of $659,000, 9 cents per share, in the quarter ending Sept. 30, up from $144,000, 2 cents per share, for the same quarter in 2000. Revenues increased 155% to $15.5 million from $15.1 million.

Some of the extra profit came the improved overhead structure with a 14.4% decrease in general and administrative expenses. The company said recurring revenue from royalties, brand contributions and store sales accounted for 95% of total revenue.

“The results are a clear indication that the strategy to improve our overhead structure and to focus on recurring revenue, which we put in place in the last half of 2000, is yielding positive results,” John Wooley, president and CEO, said in announcing the financial results. The company, he said, is ready to focus on increasing systemwide sales by leveraging what he called the “best store designs and best store operating system that we have had in the history of the company.”

The company has been working to integrate features of its 3,200-sf freestanding restaurants into the shopping center units. “We’re encouraged that many of the features and operating systems we’ve developed…are now working their way into our shopping center design,” Wooley said.

Schlotzsky’s expects earnings growth to continue into the fourth quarter and through 2002 even if the economy remains soft. Investors apparently liked what they heard from Schlotzsky’s, bidding its stock price up 50 cents to $5.89 per share while the general market fell for the second day in a row.

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