BBQ Holdings, Inc.
Q1 2011 Earnings Call Transcript

Published: 19 Aug 2011

[Diana Purcel:]

Good morning everyone and thank you for joining us for the Famous Dave’s fiscal 2011 first quarter conference call. I’m Diana Purcel, Chief Financial Officer, and joining me is Christopher O’Donnell, our Chief Executive Officer. 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 seven days. Now, I will turn the call over to Christopher O’Donnell, Famous Dave’s President and CEO. Christopher?

[Christopher O’Donnell:]

Thank you, Diana. Good morning everyone, and thank you for joining us. For the first quarter, we reported $0.14 per share, which included a $0.01 per share non-cash charge, on revenue of $37.1 million. These results compared to 2010’s first quarter earnings of $0.30, or $0.15 per share, adjusted for last year’s gain on the acquisition of restaurants in New York and New Jersey, on revenue of $32.6 million. Revenue for the quarter reflects a comparable sales increase of 3.0% for our company-owned locations, sales from the new restaurant in Bel Air, MD, as well as the impact from two additional months of sales year over year for our New York and New Jersey restaurants. The New York and New Jersey restaurants will be included in our comparable sales results beginning with the second quarter. They won’t be in our full year comparable results, because they weren’t included in the company-owned restaurant comparable base until April 2011. While we are encouraged by our comparable sales and revenue performance, we aren’t satisfied with delivering results that are essentially flat year over year, and we know we still have a lot of work to do. The categories of dine-in, to-go, and catering all increased during the quarter, and we remain pleased with the improvement in off-premise sales over the past several quarters. Additionally, our franchise restaurants continued to improve during the quarter, as franchise comparable sales were essentially flat. As we prepare to enter the summer BBQ season, we remain optimistic, yet still somewhat cautious, in our outlook. In the broadest sense, the increase in gas prices, worldwide unrest, the horrific disaster in Japan, and mixed signs of economic growth, have created continued uncertainty in the current business and consumer climate. While we can’t do anything about the macro-economic factors, what we can do, is keep our heads down, concentrate on running our business, and manage the uncertainty. This means, understanding what we can and cannot control, planning for a variety of scenarios and capitalizing on opportunities. We continue to evaluate each and every line in our income statement to determine what can be done strategically to take advantage of opportunities, or to create our own, to drive profitable sales and manage costs in a rising price environment. Diana will cover more details on our financial results for the quarter momentarily. On the development front, we continue to open new units and close some older, under-performing restaurants, as well. During the first quarter, we opened new franchise locations in Lawrence, Kansas, Reno, Nevada and Henderson, Nevada. Under-performing locations in Omaha, Nebraska, Pensacola, Florida, and Kansas City, Missouri closed. We are currently in discussions with new and existing franchise partners to continue to build our pipeline and still expect to open approximately 12 total restaurants during 2011, including a new company-owned location in Falls Church, Virginia in the third quarter. Last month, we had our largest, and arguably the most successful, Famous Dave’s Franchise Partner and Operations “Brand” Conference to date. As a reminder, this conference gives us the opportunity to spend quality time with our franchise partners, operators and suppliers over the course of three days. This year’s conference featured informative sessions on franchise finance, social media marketing, the guest experience, and our operational scorecard, FD Powers. In our estimation, this year’s gathering was successful on all fronts - the content, interaction, sharing of information and communication of our vision. Our relationships with our franchise partners are strong, and we’re working hard to provide them with support and to identify solutions for their business needs. As just one example, we were pleased to introduce our franchise partners to “BoeFly”, an online marketplace that helps match franchisees seeking funding with suitable financing sources. Last quarter we spoke to you briefly about our Guest Experience initiative, and we are now in the process of rolling out the components of that program. While we have always been one of our industry’s leaders in terms of guest satisfaction scores, we continue to strive to be better. Our Guest Experience initiative is a comprehensive effort, with the goal to strengthen the link between our external and internal brand, in order to create a unique, Famous Dave’s experience. The enthusiasm of our team members and the experience that they create for our guests is every bit as important as the authentic, high-quality barbeque we serve. These combined— are what should make every visit to a Famous Dave’s restaurant feel like a backyard barbeque with good friends. And, clearly, our investor base understands that building a strong brand, has great value. While we’ve had it in the Twin Cities market for awhile, next month we will complete our role out of on-line ordering to the rest of our company-owned restaurant locations. Soon you will have the convenience of getting Famous Dave’s BBQ To-Go in all of our 52 company-owned restaurants - on-line. With the click of a mouse and a credit card, you’ll be able to place your order to your liking, and then just stop by and pick it up. Our founder Dave Anderson, continues to be a terrific resource on the R&D and marketing front, and gives us legitimacy in the BBQ space. I’m very excited to announce a special event coming up in May involving Dave, that will help us build brand awareness on a national scale! On May 8th, Dave will be appearing as one of the nation’s six most prominent barbeque experts in a four-episode, single elimination, cook-off entitled “Best in Smoke” on Food Network. Dave is held to a very strict confidentiality agreement, so even we don’t know how far he progressed in the competition. No matter what the outcome, we’re incredibly proud that Dave was chosen for this honor, and it speaks volumes to the quality and authenticity of our barbeque. Additionally, during the first quarter, Dave Anderson had the honor of being the keynote speaker at the National BBQ Association annual conference. Famous Dave’s also took place in a contest at the conference and took home 3 awards

[Diana Purcel:]

Thank you, Christopher. Yesterday, Famous Dave’s reported revenue of $37.1 million and net income of $1.2 million, or $0.14 cents per diluted share for the first quarter of 2011. This compares to revenue of $32.6 million and net income of $2.7 million, or $0.30 cents per diluted share for the first quarter of 2010. The first quarter results for 2011 included a non-cash impairment loss of approximately $148,000 or $0.01 per diluted share for non-recoverable assets, related to a company restaurant that will be relocated within its existing market in early 2013. The first quarter 2010 results included one-time non-cash gains of approximately $2.0 million or $0.15 per diluted share primarily related to the acquisition of the New York and New Jersey restaurants. First quarter restaurant sales increased 15.3 percent year over year, reflecting the addition of the seven New York and New Jersey restaurants as well as a new company-owned restaurant, which opened in August of 2010; and a comparable sales increase of 3.0 percent. The comparable sales increase included a weighted average price increase of approximately 2.0 percent and the favorable impact of approximately 0.7 percent from the Easter holiday shift between quarters one and two, year over year. Of the 3.0 percent first quarter comparable sales increase, dine-in represented 0.7 percent, To-Go accounted for 1.9 percent and catering comprised 0.4 percent. For the first quarter of fiscal 2011, off-premise sales were 27.6 percent of total sales, with catering representing 5.0 percent and To-Go representing 22.6 percent. This compares to off-premise sales of 27.0 percent for the prior year’s first quarter. Our per-person average for the first quarter of fiscal 2011, was $15.29 compared to $14.77 for the same period in fiscal 2010. The breakdown by day part for the first quarter of 2011 was $13.32 for lunch and $16.55 for dinner. This increase, year over year, primarily reflects increased check average due to the Citrus Grill LTO, the holiday bounce back offers redeemed in January and February, and the price increase previously mentioned. On the franchise side, we saw a 1.2 percent increase in franchise royalties reflecting a net increase of seven franchise restaurants, year over year, partially offset by a comparable sales decrease of 0.1 percent and the impact from the loss of two months of franchise royalties for the seven New York and New Jersey restaurants. Eleven new franchise restaurants opened since the first quarter of fiscal 2010 and four restaurants closed. Please refer to our press release, issued yesterday, for a breakdown of other metrics such as average weekly sales for our company-owned and franchise-operated restaurants, post and pre-2005, in addition to operating weeks, and number of restaurants in the comparable sales base. At the end of the 2011 first quarter and as of today, we have 52 company-owned restaurants and 130 franchise-operated restaurants for a system-wide total of 182 restaurants in 37 states. By comparison, at the end of the 2010 first quarter, we had 52 company-owned restaurants and 123 franchise-operated restaurants for a system-wide total of 175 restaurants in 36 states. We affirm our previous guidance and expect to open approximately 12 new restaurants in fiscal 2011, including one company-owned restaurant in Falls Church, VA. Now onto a review of our costs and expenses for the quarter. Our food and beverage costs for the first quarter of fiscal 2011 were 29.5 percent of net restaurant sales compared to 29.3 percent for the same period in fiscal 2010. In the face of rising food costs, we were essentially able to hold food costs flat year over year for the first quarter. The loss of leverage of approximately 20 basis points is primarily due to holiday bounce back discount offers that were redeemed in January and February. We’d like to provide a current update on our protein contracts. As a reminder, we are protected on our pork contract throughout 2011, which will equate to an approximate 2.3 percent increase over 2010’s pricing. As we look beyond 2011, however, the forecasted pork markets are looking ominous. As such, similar to prior year, we are evaluating whether there are opportunities to blend and extend pricing later in the year and provide some protection for 2012. We will provide an update on this on the next call. Because pork prices are traditionally at their highest this time of year, it is difficult to have full and accurate visibility to this until later in the second quarter. A majority of our chicken contracts are firm through September of 2011 at a price increase of approximately 6.3 percent over fiscal 2010. We anticipate giving updated guidance on our chicken pricing for the remainder of 2011 on our next call. As mentioned on our previous call, our brisket contract extends through July of 2011 at a net cost increase of 4.2 percent from fiscal 2010’s pricing. We continue to watch the market closely and could potentially execute shorter-term contracts until we can lock in an acceptable longer-term price. Hamburger is on contract through June 2011, and we continue to anticipate an average price increase of 9.0% compared to 2010. We continue to evaluate the market to determine the best time to lock in pricing for the rest of 2011, and are willing to ride the spot market until we can lock in at, what we believe, is our best price. Our salmon and shrimp contracts are locked through June of 2011, and our catfish is locked through August of 2011, all at a blended price increase of approximately 3.9 percent from fiscal 2010’s pricing. As we navigate through fiscal 2011 in the face of rising commodity prices, we remain flexible and adaptable in order to mitigate these price increases with several initiatives

[Christopher O’Donnell (Conclusion):]

2011 is far from over. We will continue to focus on sales, prudently manage our expenses and strategically align our business for continued growth and profitability. Thank you for participating in this call. We look forward to seeing you in one of our restaurants soon and please tune into the Food Network on May 8th at 10