UPDATED 9:20 a.m.: O'Charley's shares (Ticker: CHUX) are down more than 17 percent in the first hour of trading this morning and are at their lowest level since mid-February.

As originally reported:

O’Charley’s lost $4.3 million in the first quarter, surprising analysts who had been looking for a profit of about the same number. Sales at the Nashvile-based restaurant chain fell 7 percent to $271 million.

Per diluted share, O’Charley’s lost 21 cents even though the Street had expected a proft of 20 cents. CEO Jeff Warne said the big shortfall was due in large part to customers trading down to smaller and cheaper menu items without replacing their spending with appetizers or desserts. The average O’Charley’s concept guest check fell more than 5 percent versus a year ago to $12.45.

That pushed restaurant margins down to 15.5 percent from 17.3 percent and resulted in an operating profit of just $450,000 versus almost $12 million a year ago. Warne said his team is shifting strategies to emphasize growth.

“During these past two years, our management team focused on controlling margins, managing overhead costs, maximizing cash flow, and reducing debt,” he said. “Now we are refocusing our efforts on positioning each of our brands to drive profitable improvement in sales.”

Warne also said the Nashville flood will cost his company about $500,000 in second-quarter sales and between $200,000 and $300,000 in operating profits.

Shares of O’Charley’s (Ticker: CHUX) closed Wednesdy trading up 4 percent to $9.30. Year to date, they’ve gained about 40 percent.

Revenues also fell at iPayment – 6 percent to $159 million in the first quarter – but the payment processor reversed a small year-ago loss to post a $2.2 million profit.
Operating income rose 16 percent to $14.9 million. Helping the bottom line was an 8 percent drop in operating costs – including a 6 percent drop in interchange spending – and a $1.5 million income tax benefit. A year ago, the company also had to take a $1.4 million loss on its investment in a since-sold joint venture.