Famous Dave's of America reports Q3 net earnings of US$735,000, down 13% from year-ago period amid US$1.2M impairment charge; revenue falls 1.8% to US$39.2M
October 23, 2013
– Income From Operations Grew 65%
Restaurant Level Cash Flow Margins Increased 630 Basis Points
Comparable Sales Outperformed the Industry Index
Famous Dave's of America, Inc. (DAVE) today reported financial results for the third quarter and nine months ending September 29, 2013.
Highlights for the third quarter of 2013 as compared to the third quarter of 2012:
Revenue decreased to $39.2 million from $39.9 million, reflecting a comparable sales decrease and lower franchise fee revenue.
Comparable sales for Company-owned restaurants open 24 months or more decreased 0.8%, however outperformed the casual dining industry as measured by Black Box Intelligence (BBI) by 60 basis points.
Franchise royalty revenue of $4.4 million was essentially flat to the prior year, primarily reflecting revenue contribution from four net new franchise restaurants that opened since the third quarter of 2012, partially offset by a comparable sales decrease of 2.3%.
Restaurant level cash flow margins increased 630 basis points, reflecting year over year improvement in all line items.
Net income was $737,000, reflecting significant operational improvements offset by a $1.2 million, or $0.12 per diluted share, non-cash restaurant asset impairment at a Maryland restaurant and a lease restructuring at a Virginia restaurant. It also includes a bonus accrual of approximately $435,000, or $0.04 per diluted share. In comparison, net income for the third quarter of fiscal 2012 was $845,000 and did not include a bonus accrual.
Earnings for the third quarter of 2012 were favorably impacted by the cumulative impact from a favorable tax rate adjustment for employment tax credits equal to approximately $0.07 per diluted share.
Diluted net income per share was $0.10 compared to $0.11 in the third quarter of 2012.
Diluted adjusted net income per share was $0.21 compared to $0.04 in the third quarter of 2012.
Adjusted EBITDA for the third quarter of 2013 was $3.9 million compared to $2.3 million for the same period in 2012.
Highlights for the nine months ended September 29, 2013 as compared to the nine months ended September 30, 2012:
Revenue increased to $119.2 million from $118.7 million.
Comparable sales for Company-owned restaurants open 24 months or more increased 0.4% compared to a decrease of 0.6% in 2012. Company-owned restaurants also performed 100 basis points better than the casual dining industry as measured by BBI.
Franchise royalty revenue was $13.1 million, compared to $13.4 million, reflecting a franchise comparable sales decrease of 3.4% for the year-to-date period.
Cash flows provided by operations were $11.8 million for the first nine months of fiscal 2013, compared to $6.0 million for the first nine months of fiscal 2012.
Net income decreased to $2.9 million from $3.6 million, reflecting improvements in restaurant level operations partially offset by the unfavorable impact of the non-cash charges.
Net income for the first nine months of fiscal 2013 includes a bonus accrual of approximately $1.4 million, or $0.13 per diluted share and severance costs as a result of a recent reduction in force of approximately $271,000, or $0.02 per diluted share. Net income for the first nine months of fiscal 2012 did not include a bonus accrual.
Diluted net income per share was $0.38 compared to $0.47, for 2012.
Diluted adjusted net income per share was $0.49, compared to $0.43 for the first nine months of 2012, reflecting the year-over-year impact from the non-cash charges and the favorable tax rate adjustment for employment tax credits for 2012.
Adjusted EBITDA was approximately $10.6 million, compared to approximately $10.2 million for the first nine months of 2012.
The Company paid down $7.4 million of debt since the end of fiscal 2012.
The Company used approximately $1.2 million to repurchase approximately 75,000 shares at an average price of $16.13, excluding commissions.
John Gilbert, CEO of Famous Dave's, commented, "I am pleased with our overall performance despite a particularly challenging operating environment for restaurants in general. While many of our competitors appear to have had an equally difficult comparable sales quarter, our solid year to date ranking in BBI's casual dining category is encouraging."
Mr. Gilbert continued, "Throughout this fiscal year we have continued to take several important steps toward improving our business fundamentals. Overall, we have a much more focused, leaner organization executing with urgency on what matters most: optimizing sales at each point of customer interaction (dine-in, To Go, catering and retail), improving store-level operating margins, and extracting unnecessary costs throughout the entire organization. I firmly believe we are a stronger company today than we were one year ago and when the macroeconomic headwinds begin to change in our favor, we will be well-positioned to take advantage of associated growth opportunities."
Marketing and Development
Several initiatives will continue to contribute to improved sales performance. These include:
Continued improvement of the menu, including the introduction of fresh, new products and separate lunch and dinner menus designed to improve per-customer transaction profitability throughout the day.
A more effective, data-driven promotional strategy, resulting in incremental sales with better marketing.
Improved brand awareness with a new advertising campaign emphasizing Famous Dave's best attributes -- unmatched BBQ authenticity and expertise.
Two great new product tests which we expect to improve our menu selection and become customer favorites next year.
Additionally, the company continues to evaluate all aspects of its business, including ways to improve restaurant economics and restructure underperforming assets.
Gilbert added, "During the second and third quarter we took decisive action to address an underperforming restaurant in Salisbury, Maryland and are currently evaluating the best alternatives for this location. As a result, we were required to take a non-cash asset impairment charge in the quarter of approximately $943,000. Though this is a disappointing situation, the Salisbury market is somewhat isolated from the rest of our trade areas and has been particularly hard hit during the economic downturn; we don't anticipate any broader carry-over impact from this decision."
Famous Dave's opened 5 franchise-operated restaurants in Holt, Michigan, Benson Park, Nebraska, Hayward, California, Independence, Missouri, and Union Gap, Washington as well as 1 company-owned restaurant in Germantown, Maryland during the third quarter. We closed 1 franchise-operated location in Overland Park, Kansas, which represented a relocation of the Independence, Missouri location. Additionally, the Company closed a company-owned location in Gaithersburg, Maryland at the end of its lease term, and relocated it to the new Germantown, Maryland location. Famous Dave's ended the quarter with 191 restaurants, including 53 company-owned restaurants and 138 franchise-operated restaurants, located in 34 states, the Commonwealth of Puerto Rico, and 1 Canadian province.
We expect to open 1 company-owned restaurant, as well as 2 franchise-operated restaurants in the fourth quarter, for a total of 10 new restaurants for 2013.
Gilbert concluded by saying, "We will continue to improve our consumer outreach approach by line-of-business in company restaurants and further uncover what's working well within the system at large, with an aim toward improving franchisee results along with company-owned restaurants. I remain confident that our cost reduction measures and strategic initiatives introduced and tested throughout this year will continue to drive improvement for our franchisees over the long-term. To ensure these positive results will endure, we will continue to implement new initiatives aimed at creating a distinct advantage for us within the marketplace.
We will continue to optimize the customer experience within our multiple lines of business (dine-in, To Go, catering and retail) with innovative, profitable solutions and have added the requisite organizational talent to lead these initiatives.
We have begun to allocate additional resources to the exciting quick-casual segment of our brand and recently appointed a new leader responsible for managing this exciting growth initiative.
We continue to test new menus, new products, and new designs in an effort to accelerate our same store sales momentum.
We made decisions during the third quarter regarding G&A reductions, which combined with similar efforts in the second quarter, will result in a total annualized savings of over $3.0 million.
The company will host a conference call tomorrow, October 24, 2013, at 10:00 a.m. Central Time to discuss its third quarter financial results. There will be a live webcast of the discussion through the Investor Relations section of Famous Dave's web site at www.famousdaves.com.
About Famous Dave's
Famous Dave's of America, Inc. develops, owns, operates and franchises barbeque restaurants. As of today, the company owns 53 locations and franchises 138 additional units in 34 states, the Commonwealth of Puerto Rico, and 1 Canadian province. Its menu features award-winning barbequed and grilled meats, an ample selection of salads, side items and sandwiches, and unique made-from-scratch desserts.
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