Champps Entertainment Announces Full Year 2005 Earnings and Fourth Quarter Results

Highlights included:

-- Early stage implementation of strategic initiatives announced in May 2005 by Michael O'Donnell, recently appointed Chief Executive Officer;

-- New management team appointments including Rich Scanlan as Chief Operating Officer and Dave Womack as Chief Financial Officer;

-- Operating cash flow of $19.8 million in fiscal 2005, enabling the reduction of $4.1 million in long-term debt;

-- Assessment of underperforming restaurants, resulting in non-cash asset impairment charges of $6.6 million in fiscal 2005.

Full Year 2005 Results

Fiscal year 2005 revenues grew 5.6 percent to $218.4 million,compared with revenues of $206.9 million for fiscal 2004. The revenuegrowth was driven by an increase in the number of restaurants as wellas one additional week of operating results included in fiscal 2005'sresults and not in those of fiscal 2004.

Net loss for fiscal year 2005 was ($0.2) million, or ($.02) pershare, compared with net income of $4.3 million, or $0.33 per dilutedshare, in 2004. This net loss was due to the $6.6 million non-cashasset impairment charge associated with four underperformingrestaurants, recorded in the third quarter of 2005. Total cost ofsales and operating expenses were relatively flat at 85.7 percent ofsales versus 85.4 percent of sales in 2004 despite lower comparablestore sales of 3.6% for the year. However, earnings were also impactedby an increase in general and administrative expenses. This increasein general and administrative expenses from $11.7 million, or 5.7percent of revenues, to $13.9 million, or 6.4 percent of revenues, in2005 was primarily due to higher personnel costs associated withbeginning of the year growth plans, additional accounting andconsulting expenses related to the implementation of Sarbanes-Oxleyrequirements and our lease accounting restatement, and non-cashrestricted stock expense.

"While our results for the year did not meet our expectations, ourrevenue grew 6 percent and we generated operating cash flow of almost$20 million," said Michael O'Donnell, Chief Executive Officer. "Fromour strong operating cash flow, we were able to reduce our debtbalances by over $4 million in fiscal 2005. As a result, we had nooutstanding balances under our credit facility at year end. Ourorganization remains focused on reversing the recent negative samestore sales trends by executing on the initiatives announced this May.To that end, we have taken some important steps in meeting theseobjectives during the past several months."

Mr. O'Donnell continued: "First, we recently reduced the number offield supervisors in our organization. In an effort to furtherstreamline our operations, these supervisors will report directly toour Chief Operating Officer. Our supervisors and restaurant generalmanagers have been retrained and are now focused on educating othersin the field at the restaurant level. Our education process will beextended to our bar operations in a short time which will complementother changes we are making to that side of our business. We have alsoimplemented a new bonus strategy to reward managers for cash flowimprovements on a year over year basis. These managers feel a newsense of ownership and opportunity under this bonus plan and theinitial response has been extremely positive. It is our intent toreview and modify this bonus plan in mid-fiscal year to furtherenhance its partnering features. We believe these initiatives arecritical to achieving high levels of customer service, by maintaininglower levels of turnover at our restaurants and creating theopportunity to recruit quality, like-minded employees.

"We have also made strides in streamlining our menu and providingthe customer with new, higher quality menu items. We have completedfurther market research that validates many of our beta menu changesand other initiatives. One of our new COO's top priorities will berolling out the menu improvements to all of our locations in themonths to come. As the new menu is leveraged nationwide, it shouldallow for better execution, increased quality, and greater guestsatisfaction.

"While the strategic initiatives I outlined in May will not becompleted overnight, we have made important progress. I firmly believethat the recent additions of Rich Scanlan as Chief Operating Officerand Dave Womack as Chief Financial Officer will help us achieve ourgoals of increasing customer satisfaction, and ultimately improvedcorporate profitability and cash flow," said Mr. O'Donnell.

Mr. O'Donnell went on to add that "work had also begun on anotherimportant strategic initiative: a new real estate growth strategyinvolving the development of a new smaller prototype restaurant and animproved site selection model. The new prototype store underdevelopment is approximately 6,500 to 7,500 square feet in size and webelieve it will be well-suited to complement our future growth." Healso noted that "franchise development continues to be a long-termstrategic goal. However, we will focus on this secondary objectiveupon completion of our other initiatives, after developing a solidfoundation upon which to grow."

Fourth Quarter 2005 Results

Total revenues for the fourth quarter increased 2.5 percent to$53.7 million versus $52.4 million for the fourth quarter of the prioryear. The revenue increase was primarily due to additional restaurantsopen this period compared with the fourth quarter of 2004, partiallyoffset by a decline in comparable store sales.

Net loss for the fourth quarter of 2005 was ($0.5) million, or($0.04) per share, compared with net income of $0.4 million, or $0.03per diluted share, in the comparable quarter a year ago. Thisquarter's net loss was primarily due to higher general andadministrative expenses and other operating expenses.

Comparable same store sales decreased 5.0 percent for the fourthquarter of fiscal 2005 versus the fourth quarter of last year.Comparable food sales decreased 4.9 percent while comparable alcoholsales decreased 5.3 percent. Comparable store revenues were negativelyimpacted by the weak restaurant traffic during the traditionallypopular NHL playoff season, which did not occur this year because ofthe strike.

Product costs marginally improved to 28.7 percent from 28.8percent last year and labor costs only modestly increased to 32.7percent this year from 32.6 percent last year despite the lowercomparable sales. However, other operating expenses increased from14.2 percent of sales in the fourth quarter of 2004 to 15.7 percent inthe fourth quarter of 2005 as a result of the impact of lowercomparable sales on fixed costs and higher utility, repair andmarketing costs. Occupancy expense increased to 10.1 percent comparedwith 10.0 percent in the prior year's quarter. Preopening expenseincreased from 0.5 percent to 0.9 percent this quarter when comparedwith 2004 due to timing associated with openings. The Company openedone restaurant in the current quarter in Baton Rouge, Louisiana.

General and administrative expenses for the fourth quarter were$4.2 million or 7.9 percent of revenues compared with $2.9 million or5.6 percent of revenues in the comparable period last fiscal year.This increase was primarily due to the implementation costs associatedwith Sarbanes-Oxley, non-cash restricted stock expense and costsassociated with our new strategic initiatives.

Our operating cash flow in the fourth quarter was sufficient torepay another $1.0 million of debt and finish the year with nooutstanding bank debt.

Information for Fiscal 2006

The year-over-year revenue comparison for the first fiscal quarterof 2006 will be negatively impacted by one week of sales that occurredin the first quarter of 2005 that will not occur in the first quarterof 2006. Additionally, as a result of the SEC's requirement to complywith the Financial Accounting Standard Board's Statement of FinancialAccounting Standards No. 123R, net income will be negatively impactedby non-cash stock option expenses beginning in the first fiscalquarter of fiscal 2006.

The Company has already opened one restaurant in the first fiscalquarter of 2006 in Toledo, Ohio, and plans to open up to two to fourtotal restaurants in 2006. Specific plans include opening anadditional restaurant in September or October through a licensingarrangement in the new international terminal in the Dallas Fort WorthTexas airport, and a location in Princeton, New Jersey, in the secondhalf of 2006.

Previously Announced Management Changes

As announced on August 18, 2005, Michael O'Donnell, ChiefExecutive Officer, named two key additions to the Company's managementteam. Rich Scanlan was appointed to the position of Chief OperatingOfficer and Dave Womack was promoted from Controller/Vice President toChief Financial Officer.

Scanlan, a restaurant operations veteran, has returned to Champpsas the Company's newly appointed Chief Operating Officer. Scanlanpreviously worked for Champps as a Director of Operations from 1997 to2000. Scanlan most recently served as one of the creators and the VicePresident of Operations for Carmela's, the full-service Italiandivision of Sbarro, Inc. Prior to Carmela's, Scanlan served as aSenior Director of Operations for the Hard Rock Cafe and also spentapproximately 14 years in various operating positions with TGIFriday's.

Womack has nearly 20 years of restaurant industry experience inaccounting and financial management. He previously was Controller atChampps for over two years and worked for almost 12 years at VICORPRestaurants, Inc., the parent of Village Inn and Bakers Square, invarious capacities including Vice President/Controller. Womack hasalso served in a variety of other restaurant financial, accounting andmanagerial roles including Chief Executive Officer and Chief FinancialOfficer at the Wynkoop Brewing Company, a privately held Denver-basedcompany.

Webcast Information

The Company's management will discuss the results of the fiscal2005 fourth quarter and year end on a conference call and simultaneouswebcast on September 1, 2005, at 10:00 a.m. ET. To hear the call in alisten-only mode, participants must dial 866-814-1914 or 703-639-1358(International) at least ten minutes prior to the start of the calland refer to conference identification number 763499. To hear a liveWeb simulcast of the call, visit the company's Web site atwww.champps.com, click on the Investor Relations icon and refer toconference identification number 763499.

If unable to participate at the time of the call, the archivedwebcast can be accessed until October 1, 2005, by visitingwww.champps.com, clicking on the Investor Relations icon and referringto conference identification number 763499.

About Champps Entertainment, Inc.

Littleton, Colo.-based Champps Entertainment, Inc. owns andoperates 53 and franchises 12 Champps restaurants in 23 states.Champps, which competes in the upscale casual dining segment, offersan extensive menu consisting of freshly prepared food, coupled withexceptional service. Champps creates an exciting environment throughthe use of videos, music, sports and promotions.

Safe Harbor Statement

Certain statements made in this press release are forward-lookingstatements based on management's current experience and expectations.These forward-looking statements are made pursuant to the safe harborprovisions of the Private Securities Litigation Reform Act of 1995.Such statements involve certain risks and uncertainties that couldcause actual results to differ materially from those in theforward-looking statements. Such forward-looking statements includestatements regarding our strategic initiatives; new management teammembers; improved profitability and cash flow; revenues; stockcompensation expenses; and restaurant openings, among others. Amongthe factors that could cause future results to differ materially fromthose provided in this press release are: the ability of the Companyto open and operate additional restaurants profitably, the ability ofthe Company to successfully implement our strategic initiatives toimprove revenues and profitability, the ability of the company's newmanagement team to implement new strategic initiatives successfully;the impact of intense competition in the casual dining restaurantindustry, the Company's ability to control restaurant operating costs,which are impacted by commodity prices, minimum wage and otheremployment laws, fuel and energy costs, consumer perceptions of foodsafety, changes in consumer tastes and trends, and general businessand economic conditions. Information on significant potential risksand uncertainties that may also cause such differences include, butare not limited to, those mentioned by the Company from time to timein its filings with the SEC. The words "may," "believe," "estimate,""expect," "plan," "intend," "project," "anticipate," "should" andsimilar expressions and variations thereof identify certain of suchforward-looking statements, which speak only as of the dates on whichthey were made. The Company undertakes no obligation to publiclyupdate or revise any forward-looking statements, whether as a resultof new information, future events, or otherwise. Readers are cautionedthat any such forward-looking statements are not guarantees of futureperformance and involve risks and uncertainties, and, therefore,readers should not place undue reliance on these forward-lookingstatements.
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended and Twelve Months Ended July 3, 2005
and June 27, 2004
(Dollars in thousands, except per share data)
(Unaudited)

Three Months Ended Twelve Months Ended
------------------ -------------------
July 3, June 27, July 3, June 27,
2005 2004 2005 2004
---- ---- ---- ----
Revenue
Sales $53,510 $52,287 $217,735 $206,361
Franchising and royalty, net 184 149 621 579
------ ------ ------- -------
Total revenue 53,694 52,436 218,356 206,940
------ ------ ------- -------
Costs and expenses
Cost of sales and operating
expenses
Product costs 15,341 15,035 62,157 58,851
Labor costs 17,524 17,054 69,495 67,269
Other operating expense 8,395 7,436 32,181 28,453
Occupancy 5,436 5,212 21,248 19,864
Pre-opening expense 471 258 1,455 1,898
------ ------ ------- -------
Total cost of sales and
operating expenses 47,167 44,995 186,536 176,335
General and administrative
expense 4,230 2,934 13,889 11,719
Depreciation and amortization 2,692 2,666 11,012 9,896
Severance 108 - 655 -
Impairment charges - - 6,567 -
Other (income) expense 19 (11) (76) 135
------ ------ ------- -------
Income (loss) from operations (522) 1,852 (227) 8,855
Other (income) expense
Interest expense and income,
net 344 351 1,444 2,101
Expenses related to
predecessor companies 43 912 358 1,171
Debt extinguishment costs - 583 - 587
------ ------ ------- -------
Income (loss) before income
taxes (909) 6 (2,029) 4,996
Income tax expense (benefit) (387) (374) (1,780) 724
------ ------ ------- -------
Net income (loss) $(522) $380 $(249) $4,272
====== ====== ======= =======
Basic income (loss) per
share: $(0.04) $0.03 $(0.02) $0.33

Diluted income (loss) per
share: $(0.04) $0.03 $(0.02) $0.33

Basic weighted average
shares outstanding 12,981 12,811 12,887 12,793

Diluted average shares
outstanding 12,981 13,116 12,887 13,000
Supplemental Information -- Restaurant Operating Expenses
(Stated as a percentage of restaurant sales)

Three Months Ended Twelve Months Ended
------------------ -------------------
July 3, June 27, July 3, June 27,
2005 2004 2005 2004
---- ---- ---- ----
Product costs 28.7% 28.8% 28.5% 28.5%
Labor costs 32.7% 32.6% 31.9% 32.6%
Other operating expenses 15.7% 14.2% 14.8% 13.8%
Occupancy 10.1% 10.0% 9.8% 9.6%
Pre-opening expenses 0.9% 0.5% 0.7% 0.9%
---- ---- ---- ----
Total cost of sales and
operating expenses 88.1% 86.1% 85.7% 85.4%

Depreciation and amortization 5.1% 5.1% 5.0% 4.8%

Total cost of sales,
operating expenses and
depreciation and
amortization 93.2% 91.2% 90.7% 90.2%
---- ---- ---- ----

General and administrative
expense 7.9% 5.6% 6.4% 5.7%
---- ---- ---- ----
(Stated as a percentage of
revenue)



Champps Entertainment, Inc.
Selected Balance Sheet Information
(In thousands)
(Unaudited)

July 3, June 27,
2005 2004
---- ----
Cash and cash equivalents $2,702 $1,449
Total assets 137,311 133,749
Debt 14,649 18,563
Equity 76,061 75,008



Champps Entertainment, Inc.
Selected Cash Flow Information
(In thousands)
(Unaudited)

Twelve Months Ended
-------------------
July 3, June 27,
2005 2004
---- ----
Net cash provided by operating
activities $19,835 $21,179
Net cash used in investing
activities (15,792) (14,852)
Net cash used in financing
activities (2,790) (9,933)
------- -------
Net change in cash and cash
equivalents $1,253 $(3,606)
======= =======