Officials for Famous Dave’s of America Inc. said the decline in traffic that caused a 32-percent decrease in first-quarter earnings resulted from pressure on consumers from high gas prices, particularly in its East Coast markets.
Chief executive Christopher O’Donnell said traffic was “erratic,” as a lift in guest counts that happened across the industry due to warm weather waned when fuel prices began rising and taking a greater share of consumers’ discretionary income.
That pattern played out to a high degree on the East Coast, where 186-unit Famous Dave’s has many of its highest-volume barbecue restaurants, meaning the brand felt the brunt of gasoline inflation’s effects, he said.
“We know that gasoline prices have an impact on guest traffic, and gas prices on the East Coast were significantly higher during the quarter than the national average,” O’Donnell said. “We believe this dynamic clearly had an impact on sales in this region.”
In the April 1-ended first quarter, Famous Dave’s same-store sales fell 1.6 percent at company-owned locations and were flat at franchised units.
Chief financial officer Diana Purcel said 10 percent of Famous Dave’s units are located in the Northeast and Mid Atlantic regions, but the average unit volumes are “pretty dramatic” and have a bigger effect on the brand’s results for company-owned stores. However, franchised restaurants showed strength in the West, she added. The Phoenix and Michigan markets were other pockets of strength, she said.
Going into the second quarter of 2012, Famous Dave’s also will roll over the public-relations benefit it received in last year’s second quarter when founder and chairman “Famous Dave” Anderson starred in reality competition show “Best in Smoke.”
But O’Donnell said the company’s busy schedule of press events and barbecue competitions this year would sustain the level of awareness the brand has built up and would mitigate pressure on traffic from comparisons with last year. Famous Dave’s team took first place in four categories last weekend at the Kansas City BBQ Society’s annual “Pork in the Park” competition, he noted.
“We’re confident that we’ll continue to grow traffic these next two quarters, as we have in the past,” O’Donnell said.
The chain would try to stay away from highly competitive pricing games with other casual-dining chains, he said, seeking to grow traffic and sales through service initiatives and accentuating its expertise in barbecue rather than through deep discounts. Famous Dave’s enacted a 1.5-percent menu price increase in February, but O’Donnell said customer acceptance of those prices was fine and did not contribute to traffic declines as much as gas prices did.
“Focusing on our authenticity, really making sure the upcoming limited-time offers are strong, and investing in our training and people should really engage our consumers,” he said. “We’ll probably see additional focus on social media to drive traffic and to understand how to move different segments into the restaurants.”
Catering sales increased in the first quarter, accounting for more than 5 percent of sales, O’Donnell noted. Famous Dave’s will roll out its marketing campaign for catering ahead of graduation season shortly, he added.
“We view this as a positive sign that consumers are regaining some confidence in the economy and that this revenue stream could be meaningful to us in future quarters,” O’Donnell said.
O’Donnell and Purcel also pointed to the brand’s fast-casual prototype, opened last year in Eden Prairie, Minn., as a possible driver of sales and franchise expansion in the future.
The fast-casual location attracts more solo diners, younger clientele and a higher mix of female customers, he said. A fast-casual franchised location is scheduled to open near Portland, Ore., in May, and the company will open a corporate location of the new prototype near Chicago later this summer.
“I feel good about what we’re learning there and can take systemwide to our full-service restaurants,” he said. “Once we get a few more of these under our belts … we can really dissect the business model.”
Minneapolis-based Famous Dave’s operates 53 company-owned restaurants and franchises another 133 locations in 35 states.
Contact Mark Brandau at [email protected].
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