On the Margin
How investors took Famous Dave's for a ride

How investors took Famous Dave's for a ride

This post is part of the On the Margin blog.

Now that Famous Dave is back with Famous Dave’s, it might be a good time to look back at one of the craziest stock stories in the restaurant space in recent memory.

Wall Street rediscovered the Minneapolis-based barbecue chain two days after Christmas, in 2012, when an activist investor, Patrick Walsh, filed documents announcing an investment. The stock was priced at under $9 a share the day before.

Over the following 18 months, several other activist investors got involved in the company. Its entire board was replaced, as was its top three executives. By June 2014, the company’s stock hit an all-time high of nearly $35 a share, almost four times the pre-activist price.

Initial enthusiasm for the stock came as activist investors took an interest in the chain. It reached a fever pitch in February 2014, after former McDonald’s executive Ed Rensi, appointed to the board that January, replaced John Gilbert as CEO. We know some hedge funds seeking a short-term win latched onto the stock during that period.

Fast-forward another 15 months. The CEO is gone. So are some of the new board members. And most of those stock gains are gone, too.

Someone who bought $1,000 in Famous Dave’s stock in June 2014 would have about $363 right now.

Rensi, in spite of his McDonald’s pedigree, would perform no better than his predecessor. Second quarter profit plunged 77 percent, and same-store sales fell 9.2 percent at company locations. He resigned in June and then left the board in July, along with two others that had taken positions in 2014.

We put together the details of Famous Dave’s two-year roller coaster in a timeline.

As it turns out, Famous Dave’s is tougher to turn around than perhaps many investors thought.

The company has been blunt in its assessment of that performance, noting that Famous Dave’s under Rensi had made “significant changes” that “were not received well by guests.”

The chain is clearly working to make things different, adding franchisee Anand Gala to its board, adding a chief operating officer and, most importantly, bringing back founder “Famous Dave” Anderson — who quietly departed the chain after an apparent disagreement with management.

Anderson doesn’t have a title as of yet, but he will work on culture and food. CFO Richard Pawlowski told me last week that the founder’s return is an important psychological boost for the company and its employees.

And Dave’s investors from before the activists got involved probably made a killing if they sold any time in 2014. But even if they stuck around, they’d still be out ahead: A $1,000 investor at that time who managed to weather the two-year storm would have about $1,400 today.

That said, there are few investors in the chain, other than large-scale funds. Seven investors hold nearly 80 percent of Famous Dave’s shares.

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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