Mexican Restaurants, Inc. Announces 2009 Second Quarter Operating Results

Houston, Texas (August 10, 2009)  For the 2009 second quarter of Mexican Restaurants, Inc. (the “Company”) ended June 28, 2009, the Company reported a net loss of $207,937 or $0.06 per diluted share, compared with a net income of $359,059 or $0.11 per diluted share for the second quarter of fiscal year 2008.  For the 26-week period ended June 28, 2009, the Company reported a net loss of $28,083 or $0.01 per diluted share, compared with net income of $434,576 or $0.13 per diluted share for the 26-week period of fiscal year 2008.    

In the second quarter, the Company sold substantially all of its operating assets and liabilities of its La Senorita restaurant chain (consisting of five site locations) located in Michigan for an adjusted price of $2.6 million.  Proceeds from the sale on April 7, 2009 were used to pay down long-term debt.  The La Senorita sale, which resulted in a gain of $387,083 and an income tax expense of $303,558, was classified as discontinued operations and resulted in net income from discontinued operations of $43,720 for the second quarter of fiscal year 2009.  The higher effective tax rate results from permanent differences and an increase in the valuation allowance related to the La Senorita sale.

Effective June 28, 2009, the Company amended its Credit Agreement with Wells Fargo Bank, N.A., primarily to extend the maturity date from June 29, 2010 to June 29, 2012.  As of June 28, 2009, the Company was in compliance with all debt covenants and as of the date hereof expects to be in compliance with its debt covenants during the next 12 months.

The Company’s revenues for the second quarter of fiscal year 2009 decreased $636,048 or 3.4% to $18.3 million compared with $19.0 million for the same quarter in fiscal year 2008.  Restaurant sales for second quarter 2009 decreased by $609,296 or 3.3% to $18.1 million compared with $18.7 million for the second quarter of 2008.  The decrease in restaurant revenues primarily reflects a decrease in same-store sales, partially offset by new restaurants revenues.  For the second quarter ended June 28, 2009, Company-owned same-restaurant sales decreased approximately 6.6%.  Franchised-owned same-restaurant sales, as reported by franchisees, decreased approximately 1.2% over the same quarter in fiscal 2008.

On a year-to-date basis, the Company’s revenue decreased $16,850 to $37.5 million compared with the same 26-week period in fiscal 2008.  Restaurant sales for the 26-week period ended June 28, 2009 increased $6,703 to $37.1 million compared with the same 26-week period in fiscal 2008.  The flat sales primarily reflects a decline in same-store sales mostly offset by the re-opening of one restaurant that was closed last year due to fire damage and one new Mission Burrito restaurant.  For the 26-week period ended June 28, 2009, Company-owned same-restaurant sales decreased approximately 2.8% and franchised-owned same-restaurant sales, as reported by franchisees, increased approximately 0.2% over the same period in fiscal 2008.

Commenting on the Company’s second quarter results, Curt Glowacki, Chief Executive Officer, stated, “Sales and profit  performance during the second quarter of 2009 was certainly disappointing but not surprising given the impact of the troubled economic environment and of the swine flu on consumers’ discretionary spending habits.  For the near term, we continue to remain cautious regarding the economy and consumer spending.  We will continue to focus on the fundamentals of running great restaurants that offer delicious food at very affordable prices while positioning the Company to exit the recession stronger financially and operationally.”