BBQ Holdings, Inc.
Q1 2014 Earnings Call Transcript

Published: 24 Apr 2014

[Operator:]

Good day, ladies and gentlemen, and welcome to the Famous Dave's First Quarter 2014 Conference Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Diana Purcel. Ma'am, the floor is yours.

[Diana Garvis Purcel:]

Thank you very much. Good morning, everyone, and thank you for joining us for the Famous Dave's fiscal 2014 first quarter conference call. I'm Diana Purcel, Chief Financial Officer, and with me today is Ed Rensi, Famous Dave's CEO. Before we begin, we'd like to remind those listening that certain matters discussed within are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Famous Dave's believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Famous Dave's expectations include financial performance, restaurant industry conditions, execution of our restaurant development and construction programs, franchisee performance, ability of our franchisees to meet their development commitments, changes in local or national economic conditions, availability of financing and other risks detailed from time to time in the company's SEC reports. Our earnings release, which contains the financial and other statistical information being discussed this morning, was issued yesterday afternoon after market close and can be accessed by clicking on the Investor Relations link on our website at www.famousdaves.com. As a reminder, this call is being recorded and will be available for replay for 7 days. Now I will turn the call over to Famous Dave's CEO, Ed Rensi. Ed?

[Edward H. Rensi:]

Thanks, Diana, and thanks to all of you who've taken your very busy time in joining us today. I'd like to start this call out by saying that I'm even more excited than I was the day I joined the company. Famous Dave's is a terrific company, and its prospects for growth are far more than I thought when I stepped into this role a number of months ago. We are the only national barbecue brand, and that's very exciting. During this past couple months, I've visited a lot of company-owned restaurants and franchise restaurants, and I've gotten to know and appreciate the talent and the dedication for this brand across our base of employees and great franchisees. I've developed a great deal of respect for the quality of the food and the intricacy of its preparation. Most of our guests have no idea that all of our items -- or most all of our items are made from scratch. That's a great opportunity to educate and wow our customers. As a matter of fact, we have a lot of great things happening and a lot of promising opportunities, but we also have things to improve, and we need to do so quickly in a sales and cost environment where things aren't in our favor. We're coming off a first quarter sales performance that was, to say the least, disappointing. There are a couple of reasons for this. As you know, severe weather impacted most of the nation during the first quarter, specifically and significantly impacting guest traffic and sales at most restaurants and retail in general, and we certainly weren't any different. These weather patterns significantly impacted our core regions for a majority of the quarter, particularly in our high-volume East Coast restaurants and particularly on high-volume weekends. I'm not a big believer of making excuses or blaming poor sales performance on weather, but we tried to minimize the number of days that we were actually close or were forced to close early. The reality is that the psychological impact of the impending storms and weather frankly kept a lot of our customers at home. Weather also impacted cost. Snow management, labor and utilities were impacted as well. The other impact to our sales was a more purposeful change to our discounting strategy. Sales for the first quarter of the prior year were heavily, heavily influenced by a large bounce back campaign, which was a residual program coming out of the significant direct mail initiative that took place during the fourth quarter of 2012. Sales in the prior year first quarter also reflected the significant use of our email database to provide heavily discounted offers to our guests, and these were done generally during off periods. We have purposely moved away from using discount as a strategy to drive sales. We have trained our loyal, heavy users to wait for discount offers, and that's hurt traffic and profitability in doing that. We will sporadically use discounting as a tactic, as an example, to reward guests during our upcoming 20th anniversary celebration, but using discounts as a strategy is over and done with. What we will do is to drive traffic through menu innovation and the introduction of exciting, affordable, new menu items that can appeal to a wider audience while still featuring slow-roasted meat, smoked, infused and complex pairings with craft food and craft beer. An example of this is our upcoming promotion of build-your-own barbecue. We call it modern barbecue because it's an example of us taking our phenomenal smoked meats, such as brisket -- including bison brisket I might add, pork and burnt ends and featuring them as an ingredient not only as a center of the plate protein. This allows us to feature our award-winning barbecue in a more contemporary format, utilizing tortillas, burritos, flatbreads and lettuce cups as carriers and enhancing the flavor of meat with new sauces as well as a variety of fast-pickled fruits and vegetables. We will be looking at a variety of ways to feature our barbecue in different and more contemporary way that showcase our different slow-roasted meats as ingredients to the meal as well as introducing unique and bright flavors. As another example, one of our franchisee partners has had great success in his restaurants by featuring a phenomenal barbecue taco at a value price. It's a must, by the way, given this current market of historically high-priced proteins, particularly beef and pork. We need to find ways to combat these high-commodity costs without having to raise prices. Barbecue as an ingredient and an entrée allows us to do that. Speaking of costs, I was pleased that we were able to manage costs for end of [ph] quarter and continued to improve our unit-level economics, especially with the negative sales trend. We know that we need to ultimately achieve a minimum cash flow margin of 15%. And while I'm pleased with the continued focus and progress, we need results and we need them fast. That's why I'm having the team conduct a pivotal test with one of our best restaurants in Bolingbrook, Illinois, which is near Chicago. We're utilizing this location as a test facility to perfect all of our operations including menu, bar, kitchen equipment efficiency, décor, service ware, flexible service and FF&E. We're also looking during this test, as I mentioned, a variety of flex service styles where we can take advantage of lower labor costs during slower periods of time. You name it, and we're going to look at it, and we're testing a variety of ideas and pushing this restaurant to the edge of the envelope. We hopefully can bring all these ideas to the system very soon. In my opening comments, I said I was excited for this brand's prospects for growth, and I truly am. The passion around this brand inside and outside this organization is insurmountable. We've got a national great brand. We can't accelerate our growth until we get the right economic model to grow with. Along these lines, we're working on a series of prototype options ranging from 3,000 and larger square feet. Ultimately, our goal is to have a company restaurant -- our ultimate goal is to have our company restaurants be about 15% of the total stores, which will require us to grow with existing franchisee partners and introduce new franchisees into the system and possibly sell off some company restaurants. We're approaching our future with a strategic mindset, and as a result, we have made and we continue to make tough decisions, some of which we made during the first quarter, including a decision to close down our décor warehouse. We need to make our restaurants more contemporary. We need to reduce the cost as well as the number of décor items, and we need to provide a variety of options with regard to the entire décor package. We should not be a system supplier, I might add. Additionally, as an added result and as we continue to be mindful of G&A costs, the closure of our warehouse will save us approximately $300,000 of operating costs on an annualized basis. During the quarter, we auctioned off the majority items of our warehouse and took an impairment charge on the remaining items not sold. And since we have deemed our existing décor to be obsolete, we also took an impairment charge on the décor in our existing company restaurants, which we plan to convert in the near future. And on a little bit of a side note, we used our million-person email of our most loyal customers to market the material in our warehouse, and it was very gratifying to me that they were so interested and so active and helped drive the sales price on a lot of the products. They were true collectors. They're fans of ours. Going forward, we will be able to provide greater flexibility at auction for our system, including the ability to purchase décor direct from the manufacturer on a real-time basis. And of course, we can now achieve this without operating carrying costs associated with a large warehouse facility. We've also been making some tough decisions in regard to people. We've got a lot of opportunity ahead of us that's going to require top talent and an engaged workforce in order to secure our long-term success. As such, we've had a number of employees, some of which were long-term executives, that have exited the company recently, which is never easy for anybody involved. During the first quarter, we recorded a severance of approximately $518,000 as a result of these departures. This severance was completely offset by the recapture of $878,000 of stock-based compensation for these departures. And lastly, we've been making tough decisions with regard to our system. We have high performance expectations and financial expectations and operational expectations and adherence to policies across the entire restaurant base. This is a nonnegotiable matter, and we're holding our company operators and our franchisees accountable to a strict level of performance. Again, not negotiable. We need excellent, consistent and full-time best effort at the highest levels within all of our 200 restaurants, and we'll take action when necessary to get it. Before I turn the call over to Diana, I want to acknowledge that while our results for the first quarter were significantly better than prior year on an adjusted earnings basis, we fell short of our expectations. We are sensing that the market expectations are in agreement that results need to be achieved quicker. I'll now turn the call back over to Diana, who will discuss the financial results in greater detail, and I really appreciate your attention and look forward to talking to you in the future. Diana?

[Diana Garvis Purcel:]

Thank you, Ed. To those on the call, please refer to our press release issued yesterday as I summarize our results. Famous Dave's reported revenue of $35.7 million and net income of $516,000 or $0.07 per diluted share for the first quarter of fiscal 2014 compared to revenue of $36.6 million and net income of $62,000 or $0.01 per diluted share for the comparable period of fiscal 2013. Net income for the first quarter of fiscal 2014 included noncash charges of approximately $0.08 per diluted share related to the closure of our Salisbury, Maryland restaurant, the strategic decision to close the décor warehouse and an impairment charge on the décor in our company-owned restaurants. Additionally, there was approximately $518,000 or $0.05 per diluted share of severance costs. These items were partially offset by the recapture of approximately $878,000 of stock-based compensation or $0.08 per diluted share, predominantly due to the recent departure of employees at the executive level as Ed had mentioned. Our adjusted EBITDA for the first quarter of fiscal 2014 was $3.2 million, and this compared to an adjusted EBITDA of $1.9 million for the first quarter of fiscal 2013, predominantly reflecting lower G&A expenses and improved restaurant-level cash flows. During the quarter, restaurant sales decreased approximately 3.2% year-over-year, reflecting our comparable sales decrease of 4.9%, partially offset by a restaurant that opened in Timonium, Maryland in the fourth quarter of 2013 and a weighted average price increase of 2.9%. In this difficult quarter, we remained pleased with the gains we've made in to-go, which increased 3% over the prior year. We continue to be challenged during the first quarter, however, by declines in dine-in and catering sales. Off-premise sales were 31.9% of total sales for the first quarter of 2014 with catering at 4.9% and to-go at 27%. This compares to 31.1% to the same timeframe of fiscal 2013. Our dine-in per person average for the first quarter of fiscal 2014 was $17.72, and this compared to $16.55 for the first quarter of fiscal 2013 and reflects a decline in dine-in guest counts. The breakdown by day part was $15.42 for lunch and $19.15 for dinner. In response to the continued decline in guest counts, we have made the decision to not take a price increase with our new menu in May. On the franchise side, royalties increased year-over-year, primarily reflecting fixed net new franchise restaurants that opened since the end of the first quarter of 2013, partially offset by a comparable sales decrease of 3.3%. During the first quarter, we had 2 franchise-operated restaurants opened in Cottage Grove, Minnesota and El Paso, Texas, and we had 2 franchise-operated restaurants close in Orange, California and Minneapolis, Minnesota. At the end of the quarter, we also closed a company-owned restaurant in Salisbury, Maryland. While closing a restaurant is always disappointing, it's important to note that we were able to negotiate a complete lease assignment, thus absolving the company of any future liability for this location. At the end of first quarter of fiscal 2014 and as of today, we had 53 company-owned restaurants and 140 franchise-operated restaurants, for a system-wide total of 193 restaurants in 34 states, the Commonwealth of Puerto Rico and 1 Canadian province. During the quarter, we made a number of strategic decisions that may negatively impact 2014 but will positively impact the organization going forward. We need to be able to evaluate and assess the various aspects of our business with a long-term view, and as such, have elected not to provide any forward-looking guidance for fiscal 2014 at this time. I will, however, continue to discuss our performance for the most recent quarter. Predominantly due to more favorable food contract pricing, we saw favorability in food and beverage costs year-over-year, which were 29.2% of net restaurant sales for the first quarter of fiscal 2014 compared to 30.8% for the first quarter of fiscal 2013. For the first quarter of fiscal 2014, labor and benefits as a percentage of net restaurant sales were flat to the comparable period in fiscal 2013, primarily due to lower direct and managerial labor costs as well as lower benefit costs, offset by sales deleverage on these items. Operating expenses for the first quarter of fiscal 2014 as a percentage of net sales were 26.9% and were 70 basis points unfavorable to the prior year. This increase was primarily related to higher utility costs from the unusually cold winter as well as sales deleverage on occupancy costs. These increases were partially offset by lower supplies costs and advertising spend during the first quarter. During the first quarter of 2014, advertising as a percentage of net sales was 1.5%, and this compared to 2.6% for the comparable period of 2013. This decline was predominantly due to the timing of media spend year-over-year. In both years, there was a 0.75% marketing ad fund contribution. We anticipate that advertising as a percentage of sales will be approximately 2.6% of net restaurant sales compared to 2.5% for fiscal 2013. All of these items combined allowed us to improve our restaurant-level cash flow margin by 100 basis points year-over-year. G&A expenses for the first quarter of fiscal 2014 as a percentage of total revenue were 320 basis points favorable to the comparable period for fiscal 2013 as a result of the impact from reductions in force that occurred during fiscal 2013 as well as the previously mentioned recapture of stock-based compensation. This was partially offset by increased professional fees. In addition, G&A expenses for the first quarter included the $518,000 of severance costs previously mentioned. These net cost reductions were partially offset by revenue deleverage. Interest expense for the first quarter of fiscal 2014 was lower both in dollars and as a percentage of revenue compared to the comparable period of the prior year, reflecting lower interest rates year-over-year. Our effective tax rate for the first quarter of fiscal 2014 was 33.7%, reflecting the settlement in the quarter of an income tax audit related to the prior year and a higher level of pretax income. With regard to our balance sheet, our unrestricted cash and cash equivalents balance at the end of fiscal -- at the end of the first quarter of fiscal 2014 was approximately $743,000. We ended the first quarter with a balance of $12.3 million on our revolving line of credit, and we were in compliance with all of our debt covenants. As of today, we have a balance of $11.3 million on our line of credit. We used approximately $450,000 of cash for capital expenditures during the quarter, primarily reflecting expenditures for continued investments in our existing restaurants and investments in corporate infrastructure systems. Lastly, during the first quarter of fiscal 2014, we used approximately $869,000 to repurchase 45,000 shares at an average price of $19.29, excluding commissions. We have approximately 250,000 shares left on our current million share authorization as of today. From a growth perspective, we now anticipate opening 5 franchise-operated locations during fiscal 2014, including the 2 recently opened. We've removed the expectation of one new company-owned location from our pipeline at this time. And while we've identified a number of promising real estate opportunities, it is unlikely at this time that we be able to open one of those during the balance of 2014. The remaining openings will be sequenced as 1 in the second quarter and 2 in the third quarter. At this point, we'd like to open up and take your questions. Gabriel, could you please open it up for questions?

[Operator:]

[Operator Instructions] And our first question comes from Greg McKinley from Dougherty.

[Gregory J. McKinley:]

Ed, you mentioned that you have undertaken some rather significant testing in a Chicago area store. It sounded like you are examining a number of different areas in the store, whether it's labor, operations, menu. Maybe could you just recap for us the things that you're kicking around there and what you would anticipate? Is there enough learnings occurring there where that could get rolled out to other stores sooner rather than later?

[Edward H. Rensi:]

Yes, I'd be happy to recap some of that. A couple of notes about that. Bolingbrook is a pretty much an average restaurant. It's about 6,600 square feet in a very nice community about 20 miles from downtown Chicago. It also happens to be very close to where I live, and I can be in that restaurant nonstop 24/7 when I'm not in Minnesota or some other restaurants around the U.S. So I've put a lot of attention on that. Additionally, there's a company in Chicago called Middleby Corporation, which has some of the best restaurant technology in the world, and they are partnering with us to do a complete analysis of our kitchen as to new cooking techniques, new cooking systems with the objective of reducing labor, making our products more consistent and delivered to the consumer with a higher level of quality, reducing utility costs, eliminating the use of natural gas to the extent we do today and so on and so forth. So kitchen efficiency becomes very important because the more efficient our kitchens are, the less square footage we need in those kitchens. And with our occupancy costs being what they are, a smaller kitchen really improves our store-level economics going forward. Additionally, our business, through the course of the day, ebbs and flows, and we need to find -- and through the week, it ebbs and flows as well. Mondays, Tuesdays and Wednesdays are slow. Our lunches are slower then. And we're looking at a flex service system to see if we can have full-line table service during our peak periods when our customers are looking for a complete Famous Dave's experience; and then at lunch, have a flexible system where it's more about grab and go, eat some great quality food but do it in an hour as opposed to 1 hour and 45 minutes. So the flex service system and its implications are important from a labor-savings device and a customer satisfaction standpoint. Additionally, we're looking at installing, along with a new kitchen, a modern barbecue menu where we still feature our great slow-roasted meats with that great hickory infusion of smoke and making it an ingredient in the product as opposed to the center of the plate. As you know, appetites are getting smaller and smaller every day. Budgets are tighter and tighter every day, and we can take a lunch opportunity and reduce the percentage or the proportion of center plate protein in those items. We can bring our food cost down. I've looked at a number of sliders, flatbreads, burritos, tacos and things of that nature. Our chef here, Charlie, is an outstanding chef, and he's come up with some great ideas. So we're looking at the core entertainment, music. We're looking at the flex service system and enhanced kitchen, more of a contemporary bar service. We're going to install a product in our bars called Wunder-Bar, which has very, very precise control over liquor dispensing, beer dispensing. We're going to add probably 16 to 18 craft beers in the restaurant. So I'm throwing everything at this store as fast as we can do it because we need to get knowledge quickly. And I think by the end of summer, early fall, we're going to have a lot of information, a lot of data that will encourage us and lead us in the path we need to go for all of our new stores as well as the resetting and remodeling of our existing stores. So I hope that answers your question. I'm really excited about it. The team is excited about it. We're going to make a lot of mistakes doing this, by the way, because nobody in their right mind would make this many changes in any restaurant. But I think Famous Dave's is up to it, and I think we're going to have great learnings because of it.

[Gregory J. McKinley:]

Okay. And then you had also mentioned that the company is evaluating, I think you said 3 different prototype options. Generally speaking, they sounded to be much smaller footprints. I wonder if you could tell us a little bit about some of the ideas you have around that and maybe how that enhances the economic argument for franchisees to develop their agreements?

[Edward H. Rensi:]

Sure. A little bit of background information. Restaurants are not designed based on footprints. Restaurants are designed because you have a vision, a concept, you create a menu that speaks to that vision, that concept. And then you design a kitchen around the menu with flexibility to add items, take items off the menu. And once you have the kitchen designed and you've got a concept well vetted, then you can design the dining room and the bar, in our case, to fit that. And then after you got the dining room designed and the bar designed, then you can design the bathrooms. So restaurants aren't designed by deciding, "Well, we're going to build a 2,000 square-foot restaurant. What can we cram in there?" And I think historically, a lot of restaurant change, including Famous Dave's, said how can we take our full menu and cram it into a smaller space. That doesn't work. We're going at this a whole lot differently. We're saying that we're going to have a range of building types. I think probably the smallest we'll do would be in Manhattan at 1,500 square feet with a commissary model where we don't do as much prep in the restaurant so the kitchen would be even smaller; all the way up to the classic AAA Main and Main location that might be close to 7,000 square feet with a bigger bar, bigger offerings, our full-line menu. So I'm going to let the menu, I'm going to let the market define what those restaurants are going to look like. The most important thing for me is to get a menu that's affordable, that's got an attractive food cost for the franchisee, has a kitchen of right size to the menu that makes the whole process affordable, including utility costs, labor costs, menu costs and right down the line. So I don't start off with the idea that there's a really magic footprint. I start off with making these restaurants as efficient as we possibly can so that the economics take care of themselves and then do great marketing and great execution so our customers want to come back and savor our great food and our wonderful service.

[Gregory J. McKinley:]

I wonder if there's any color you care to add around any interactions you had with the franchise community since you've joined. And how do you feel about the strength and breadth of that network of franchisees and their enthusiasm around growing the brand?

[Edward H. Rensi:]

Well, it's kind of interesting. Just like any group of human beings, they've hit a bell curve; 10% of them are incredibly outstanding and wonderful and wonderful business people, and I could name most of them. Then there's another 5% to 10% that are doing a really rotten job, and they're in the middle of the target right now. And that includes the company stores, by the way, because these company stores are no different than the franchisees. They have an obligation to perform at the highest level without exception or discussion. The other 80% are in the middle, and that comes down to how smart management is in motivating them, challenging them, giving them opportunity and bringing them along with education, knowledge, tools and opportunities. I come from a world that really, really values franchisees. And that's why I say this company's greatest strength going forward will be 85% franchise and 15% company-owned. I've had 3 really big occasions to meet with the franchisees collectively and individually. We had a meeting shortly after I came on the board and just before I became a member of the management team in Chicago, where we invited in all the franchisees, and we started at 9 a.m. in the morning, and I met with roughly 25 of them for 12 hours. And I stood in front of that group, gave them a big dose of my philosophy about how restaurants ought to operate, how a franchising system should function, and then I answered questions for 8 hours. And I addressed every subject they had as completely as I possibly could. And when I didn't know, I told them I didn't know, but I'd get back to them with an answer. Subsequent to that, I met with them in Las Vegas at a brand conference where all -- well, the majority of the franchisees were there. First meeting I had with them was in a small group of senior leadership. I think the organization is called FAB, F-A-B. It's the Franchise Advisory Board, if I have that correct. I'm a little bit new to the vernacular, so forgive me if I don't get that exactly right. But in that meeting, they talked about their agenda of things they were concerned about things they wanted to do. They talked about how we could improve our brisket-roasting process, how we could reduce shrink. Very, very operationally engaged, very smart economically, a huge resource to this company. I can't say enough good about those franchisees. Really strong businessmen. And then the third opportunity I had was to stand before them collectively the first night of the convention and spend 3, 4 hours telling them again collectively, including spouses, managers and what have you, what I thought about the system, what I thought about Famous Dave's, the things that are excited me, the things that scared me as a restaurant leader and manager. And then we answered questions from everybody on the floor, and we did that for probably, I'm going to guess, maybe 3 hours total. So they know who I am. I haven't visited as many of them in their restaurants yet, although I've probably been in 10 franchise stores. Some of them are going to love me and some of them are going to hate me because I will not tolerate anything other than great performance. So I want half of them mad at me half the time but never the same half all the time.

[Operator:]

Our next question comes from Justin Ruiss from Sidoti.

[Justin Ruiss:]

Just had a few questions. So I wanted to ask about pork pricing. I know you're not giving out any kind of guidance or anything like that, but do you have any comments about what's going on kind of with like this plague that's terrorizing like hogs that's going around pretty much?

[Diana Garvis Purcel:]

Yes, you know what, Justin, why don't I start and Ed'll interject in because I know he's well-versed on this topic as well. Certainly, the epidemic that's going around is scary, and it's obviously compressing the supply market. We happen to be in a really good situation this year. As you know, we're contracted out on pork for the balance of the year. We have a favorable contract year-over-year, and we have terrific partners on our pork side that are working with us strategically, not only for the current year, but we work with them on a long-term focus. We talked -- and this applies not only to pork but through all of our commodities. As we've spoken a number of times, it's not about winning in any particular year, it's really about winning in the long term, and our philosophy with regard to purchasing is really to avoid the highs and the lows and really to get predictability in our commodity chains. So we are protected this year. Our contract on pork is certainly -- you're seeing the favorable results in the first quarter. And particularly with pork, I'd be hard-pressed to say that we're going to give some of that up the balance of the year. But we are a little bit more concerned about some of the other proteins, particularly with brisket. So hopefully that answers your question. I'll ask Ed if he wants to interject any other comments with regard to this horrific disease that is attacking the piglets.

[Edward H. Rensi:]

Well, I'm not a veterinarian or a scientist, so I got to put up with whatever happens. The fact of the matter is, I had dinner last night with 2 key executives from Hormel. Our national salesperson, Deanna and I had about a 2-hour conversation. And Hormel is a great supplier, but more importantly, they are a great strategic partner. And I can't thank Jeff Abramson, our supply chain manager here at the headquarters. This guy has done a fabulous job of hedging and securing pricing on not only the pork products but also on brisket. Now we're going to have a tough problem next year, but so far, I think we've got that fairly well under control. We need to broaden our base of proteins. I've got chef looking at lamb, goat, multiple seafoods; looking at a whole new way of cooking fish that these new kitchens -- kitchen equipments and ovens will allow us to look at. So broadening the protein base is important, so we're not so dependent or centric on one product. I think broadening our protein base within a category, for example, I've got chef looking at bison brisket, which is a very interesting product. It's got a nice health halo around it. It's not abundant. It's not quite the quality of beef, but it's an interesting product because we can do so many different kinds of things with it. It would be a great brisket to put into some of our new menu items, more contemporary menu items, like flatbreads and burritos and tacos and what have you, because you don't need to use as many ounces of that product. So broadening the protein base is important, coming up with new menu items where proteins are ingredients as opposed to center of the plate. We don't currently have beef ribs on our menu. I think we need to do that because in certain regions of the country, beef ribs are really, really important. So I think we can manage this if we do it intelligently, carefully and use limited-time offer menu items to excite our customers, and at the same time, take advantage of proteins that might be just a little bit less expensive at that point in time. As you well know, seafood is a very important part of the health halo and the food chain these days. And with these new ovens we're looking at from Middleby will give us a great seafood opportunity. So I think we're going to handle this just fine, and thank you, Jeff Abramson, and thank you to all of our supply chain that are strategic partners. They've done a fabulous job. So I'm worried but not afraid.

[Justin Ruiss:]

Great. I have another question. So I'm looking at the landscape right now for the lunchtimes and the dinner times, and it seems like the 11 to 2 spot for lunch is -- it's getting extremely overcrowded. Are you going to focus any of your time and efforts on developing lunch or is it more towards dinner? I mean, how do you plan on splitting that up?

[Edward H. Rensi:]

People eat all day long, and I'm not going to neglect any aspect of day part. We need to think about snack times. We need to think about lunch with the same vigor that we think about dinner. We need to capture as many bodies as we can for all day parts. Lunch is different psychologically because budgets are a lot tighter for the lunch meal, and I think our price point is too high. We need to figure out a way to bring that down a bit so we can get higher transaction counts. Because I come up from a world of transactions, customer guest counts. And I think if we get smart about some of our menu offerings and we cut down on some of the meal sharing that goes on and can go to a flex service system where tipping isn't part of the menu. If you have a $10 average check and somebody does a 15% tip, you're now talking about $1.50. And if they buy a beverage instead of getting water, you'll lose another $1.50, $2. So we've got to manage that. We've got to be intelligent about what we offer our customers. We just signed a new agreement with Pepsi. Jeff Abramson, again, did a magnificent job of working with Pepsi, and I think that's going to benefit us as well. So we're going to focus on all day parts with the same vigor, maybe just a different menu.

[Justin Ruiss:]

Got you. And then just lastly, I know you kind of touched on this already, but just when it comes to re-franchising and getting those people out there, it seems like you're pretty comfortable with the crowd that's out there. I mean, is there anything else that you want to add to that? I mean, just kind of looking at those re-franchisors.

[Edward H. Rensi:]

Well, I think that franchisees are a huge asset. When you've got your own money on the line, you behave differently than if you're just an employee. And in the previous life I had, I mean, no matter how bad a job the executive did, the franchisees would be there to say, "Hey, you got to fix this." So I value franchisees very much, and frankly, so does Famous Dave's as a company. We really value these franchisees. And I want to expand the base. I think there's a lot of opportunity. There's a lot of officers retiring from the military that have graduated from the Naval Academy, graduated from the Air Force Academy, graduated from West Point that are great managers, that have been involved in logistics, food service. We need to start looking at them as potential franchisees. I don't think we've done as good a job as we could with African-Americans and Hispanic franchisees and women. We got a lot of opportunity to franchise, and I'm looking forward to getting about that business. Right now we got to fix the menu, fix the restaurants, get our price point where it belongs. We'll be able to get that done, I think, by the end of the year in pretty good hand. It's going to take us 18 months to ramp up real estate. It will probably take us 18 months to ramp up the recruiting of new franchisees. So we got to get at that right now so that when the 2 things come together, we're ready. I don't need luck, man. I got talent, and I got a great team of people around me.

[Operator:]

[Operator Instructions] And our next question comes from Mark Smith from Feltl and Company.

[Shannon Richter:]

This is Shannon Richter on for Mark Smith. I just have a few questions here. Are you guys still on track to hit your goal of G&A expense at approximately 10% of sales in 2015?

[Diana Garvis Purcel:]

Well, we're reevaluating that. I mean, obviously we're heavily focused on G&A, and I was expecting the -- to get the question, whether our first quarter G&A results were an appropriate run rate. So I'll come out there right now and say, no, for the noise that we spoke about, the items that are rolling through there that we deem as nonrecurring, including the severance, including the recapture of the stock-based comp. So we are diligently working towards that goal. We know that, that is an achievement that we have to work towards. Closing the warehouse, while a difficult decision, as we indicated, it's going to save us on an annualized basis of $300,000. And it's characterized that way because I don't want anybody to think that, that full $300,000 is going to come through in this year, but we should see the benefits of that in 2015. So all of that combined are going to help us achieve that level. When we originally set out that target, there's 2 sides to the coin. So one of them is that we have to continue to evaluate our G&A spend, and the caveat was is that we need to still invest in areas that are going to be important to our growth. We're not going to give up on that because we're never going to cut ourselves to success, and we have to invest in areas that will help us grow the top line. That's the other part of the coin is that first quarter was disappointing in terms of sales performance. Some of it within our control, a lot of it outside of our control. And so what we need to do is really to focus day in and day out on looking at that top line and making sure every line item -- that we're focused on every line item

[Edward H. Rensi:]

The only -- I'm going to be the biggest problem Diana has in this regard because I recognize that we've got to do a lot of menu research, we've got to do a lot of store research. And I have a tendency to overspend sometimes, so she's going to have to keep me under control, which she's very capable of doing. We got to spend smart, and we got to spend efficiently. And we got to get all of our supply chain to help us arrive at solution because it's in their best interest as well, and we need to get our franchisees engaged in helping us experiment. We've got a franchisee up in North -- South Dakota that's been working there for 7 under 7, selling tacos for lunch and things like that, and he's doing a fabulous job. We need to take learnings from that. So we can watch our G&A and be very, very careful of that by taking advantage and leveraging our system.

[Shannon Richter:]

Perfect. Just a few more questions here. I know you're not giving line-by-line guidance, but can you speak or give a little more insight into restaurant-level margins for the year?

[Diana Garvis Purcel:]

I really can't, Shannon, because that falls into the line of guidance. What I will tell you is that we were pleased with our ability to expand our unit level economics in the first quarter. We have not removed the focus. If anything, based on Ed's comments, you can understand that we have a more intensified focus on that looking at every aspect. The project that we're undertaking at Bolingbrook is going to be very important to the future strategy, and it's going to be very insightful. A lot of those items are going to allow us to have visibility into costs that we can pull out of the restaurant and then bring solutions to the system. So what I can tell you is our first quarter performance certainly continues us on the path of improving that. We know we have more work to do, and we're committed to continue with the focus on it for the balance of the year.

[Shannon Richter:]

Perfect. And then last question, have you guys engaged a search firm for a new CEO? Or can you talk about -- Ed, can you talk about your desire to drop the interim from your current title?

[Edward H. Rensi:]

I intend to be the permanent interim CEO.

[Operator:]

[Operator Instructions] And Diana, there appears to be no questions at this time.

[Diana Garvis Purcel:]

Terrific. Thank you, Gabriel. And I speak on behalf of Ed and myself and for the rest of Famous Dave's, so thank you for listening in this morning, and this concludes our call.

[Edward H. Rensi:]

Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.