BBQ Holdings, Inc.
Q4 2011 Earnings Call Transcript

Published: 20 Feb 2012

[Diana Purcel:]

Good morning everyone and thank you for joining us for the Famous Dave’s fiscal 2011 fourth quarter conference call. I’m Diana Purcel, Chief Financial Officer. With me today 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. Yesterday after market close, Famous Dave’s reported revenue of $37.5 million and earnings of $0.05 per share for the fourth quarter, including four cents of non-cash charges. For the full year, revenue totaled $154.8 million, and earnings were $0.68 per share including four cents of non-cash charges. We had a solid fourth quarter of comparable sales growth, with company-owned restaurants up 3.6 percent, and franchise restaurants up 2.1 percent. For the full year, our company-owned restaurants were up 1.5 percent and our franchise-operated restaurants were flat, with over 50% of our franchise restaurants comp positive for the year-to-date timeframe. The one thing that we learned from this past year is the necessity for us as an organization to remain nimble - and quick - to adapt to changing conditions. Whether impacted by hurricanes or earthquakes, volatile commodity costs or continued fluctuations in consumer confidence—we’ve shown that we can strategically run our business and address whatever obstacles we encounter. During 2011, we grew as a system, and we evolved as a brand. I mention growth first, because sometimes people forget that we are a growth concept and we have continued to grow during a timeframe of economic uncertainty. As a matter of fact, since the beginning of 2008, we have opened 48 new locations, including 8 franchise-operated restaurants and 2 company-owned restaurants that opened in 2011. We’ve achieved this growth through single unit agreements and area development agreements with new and existing partners, in addition to continued investments in company-owned locations. As a matter of fact, one of the two company-owned locations that we opened this past year was a counter-service, fast-casual format—an evolution of some of our original restaurants. This restaurant, located in Eden Prairie, MN, is a 65 seat “BBQ shack,” – taking us back to the roots of our early days. We’re encouraged by the early results of this location and the guest acceptance of the new format, which gives us the potential to open restaurants faster, with a broader range of real estate options. During the fourth quarter of 2011 we also opened three new franchise-operated restaurants in Rapid City, SD, Times Square New York, representing a second location, and Springfield, MO. In terms of brand building efforts, we continually review our menu, seeking to improve it with new, innovative and relevant offerings. We believe that our menu, combined with our limited time offerings, appeals to a diverse audience—whether, a guest is looking for smaller portions, more health-conscious selections or simply more variety. At the end of the day, however, we are committed to retain Famous Dave’s strong brand identity as America’s BBQ restaurant. Turning to a recap of our fourth quarter and upcoming marketing efforts, we concluded our fall LTO, “Southside Rib Tips”. Our rib tips have always been a core menu item, but we reinvented them, changing the cut and seasoning them with a dry rub and a new Southside Sauce developed by Dave, and paired them with hell-fire pickle chips and pickled red onions. This LTO far surpassed any of our expectations, and received strong recommendations by our servers as well as exceptional acceptance by our guests. This is a product that is not only a great example of R&D innovation, but it offers great value to our guests and provides a positive impact on our margins. Also during the fourth quarter, and as evidenced by our 3.6% comparable sales increase, we had a strong sales promotion, consisting of a direct mail piece to businesses and consumers, along with a bounce back initiative. While this promotion carried a heavier level of discounts, we were pleased with the increase in guest traffic as well as the increase in net sales. During the last call, we told you that we would update you on our recent research project, which represents the most comprehensive consumer research we’ve ever done. We have now identified 4 unique segments of guests based on behavior and demographic data, and as a result of this research, we now have the ability to determine the most profitable segment to market to in the future and the best trade areas to build new, or relocate existing, restaurants. We also identified what is important to our guests and frankly, how we measure up in those areas. One of the key findings, however, was that there is a great deal of untapped potential - we have significant room to grow in our target markets to fully reach our defined customer segments. Suffice it to say, there’s a lot of data to sort through, but a key goal for us in 2012, will be to further mine the data and study the findings, and then be able to utilize the information to help guide the strategic direction and evolution of our brand. Finally, during 2011 we completed the first phase of a very important, system-wide, guest experience initiative. During this phase, we defined how we want our guests to feel when they visit our restaurants - like good friends at a backyard barbeque - and we rolled out extensive training materials to all of our restaurants. In 2012, we will further extend this initiative, with a focus on the sharing of best practices across our system, and through enhancement of our guest feedback systems, which we are calling “Voice of the Guest.” We will be evaluating and investing in new technology that will give our guests a variety of options to provide feedback that we can then incorporate into our guest focus and operational practices. As you can tell, we are firmly focused on the future. For 2012, four key areas will have our focus and attention

[Diana Purcel:]

Thank you, Christopher. Yesterday, Famous Dave’s reported revenue of $37.5 million and net income of $414,000, or $0.05 cents per diluted share for the fourth quarter of 2011 compared to revenue of $36.2 million and net income of $517,000 or $0.06 cents per diluted share for the fourth quarter of 2010. For the full fiscal year 2011, revenue was $154.8 million and net income was $5.6 million, or $0.68 cents per diluted share, which includes $0.04 non-cash charges for the impairment of specific restaurant assets. This compares to revenue of $148.3 million and net income of $7.2 million or $0.82 cents per diluted share for 2010, which included a $0.15 non-cash gain per diluted share related to the acquisition of seven restaurants in New York and New Jersey. Fourth quarter company restaurant comparable sales increased 3.6 percent over 2010, reflecting the positive impact from the direct mail and bounce-back programs and a weighted average price increase of approximately 3.1%. On a weighted basis, dine-in represented 1.3 percent, To-Go accounted for 1.3 percent and catering comprised 1.0 percent. For the fourth quarter of fiscal 2011, off-premise sales were 33.7 percent of total sales, with catering representing 10.3 percent and To-Go representing 23.4 percent. This compares to off-premise sales of 32.2 percent for the prior year’s fourth quarter. For the full year, total restaurant sales growth reflected the full year impact of the seven New York and New Jersey restaurants, two new company-owned restaurants, and a comparable sales increase of 1.5 percent which included a weighted average pricing impact of 2.6 percent. Breaking down the 1.5 percent comparable sales increase, on a weighted basis, while dine-in sales accounted for a decrease of 0.3 percent, this was completely offset by To-Go and catering which accounted for 1.1 percent and 0.7 percent, respectively. For the full fiscal year, off-premise sales were 32.0 percent of total sales, with catering at 9.9 percent and To-Go at 22.1 percent. This compares to 2010’s off-premise sales of 31.0 percent. For fiscal 2011, our per-person average was $15.38 compared with an average of $14.82 for 2010. The breakdown by day part for 2011 was $13.39 for lunch and $16.62 for dinner. The increase year over year primarily reflects the price increases just mentioned, and an annual decline in dine-in traffic. On the franchise side, the increase in franchise royalties reflects a net increase of three franchise restaurants year over year and comparable sales results that were flat. Eight new franchise restaurants opened in fiscal 2011 and five restaurants closed. Three new franchise restaurants opened during the fourth quarter; Rapid City, South Dakota, New York City, New York, and Springfield, Missouri. One franchise-operated restaurant closed in Chestnut, Pennsylvania. 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, number of restaurants in the comparable sales base and our complete fourth quarter financial results. At the end of the 2011 fourth quarter, we had 54 company-owned restaurants and 133 franchise-operated restaurants for a system-wide total of 187 restaurants in 37 states. By comparison, at the end of the 2010 fourth quarter, we had 52 company-owned restaurants and 130 franchise-operated restaurants for a system-wide total of 182 restaurants in 37 states. During 2012, we expect to add up to 15 new restaurants, including two to three company-owned restaurants. Subsequent to year end, a franchise-operated restaurant closed in Manchester, New Hampshire and as of today, we have 54 company-owned restaurants and 132 franchise-operated restaurants for a system-wide total of 186 restaurants in 36 states. I will now take a few moments to review the costs and expenses for the year and to provide additional guidance as to what we’re seeing for 2012

[Christopher O’Donnell (Closing comments):]

In summary, we enter 2012 with both passion and purpose. Passion speaks to what we do and how we do it – our food quality, adherence to standards of excellence, respect for all of our stakeholders and a focus on results. Purpose speaks to who we are and what we stand for – our commitment to the communities in which we serve, loyalty to the brand, reverence for our legacy, and an unwavering belief in transparency of disclosure and sound corporate governance. Famous Dave’s is positioned well to grow and prosper. We have the systems, the formats and the financial strength to meet the challenges and seize the opportunities before us. Thank you for visiting our restaurants, and as always, we appreciate any feedback on your experience. This concludes our call.