Famous Dave’s of America Inc. must turn around same-store sales at its barbecue restaurants before the company can further leverage cost improvements, officials said in a call discussing third-quarter earnings.
Same-store sales declined 0.8 percent in the third quarter ended Sept. 29, with sales at company-owned units falling 0.8 percent, and sales at franchised locations dropping 2.3 percent. Net income decreased 12.8 percent.
However, company officials remained upbeat, noting that the Minneapolis-based company grew its restaurant-level cash flow margins by 6.3 percent compared with a year earlier.
Food and labor costs moderated during the quarter, but Famous Dave’s also reduced its operating expenses by more than 4 percent by realigning its corporate staff to reduce general and administrative overhead and reallocating its marketing spending.
“Our efforts have produced results, but the work is nowhere near done,” chief executive John Gilbert said during the call. “We’re building a stable base from which to achieve aggressive growth going forward, but this is about a growth brand, not saving our way to success.”
To-go going well
The 0.8-percent decrease in third-quarter same-store sales at company-owned units was “disappointing, and never acceptable,” but nonetheless encouraging, Gilbert said. The result outperformed the 1.4-percent decline for the casual-dining sector in the third quarter, he noted, as measured by Black Box Intelligence.
Gilbert later clarified that Famous Dave’s looks at its separate lines of business independently, even when making comparisons with Black Box’s benchmarks. Famous Dave’s dine-in business, which declined 2.4 percent during the quarter, is “tracking along with the industry in terms of underperformance,” Gilbert said.
Catering sales also fell 0.8 percent in the third quarter, the company reported. A negative calendar shift involving the July 4 holiday — which had large implications for dine-in and catering sales — accounted for about half the total same-store sales decrease, Gilbert said.
Growth in to-go sales, which rose 2.4 percent in the third quarter, helped Famous Dave’s claw back much of the losses from the start of the quarter, and made brand leaders optimistic for future sales leverage at full-service Famous Dave’s units and further development of the chain’s fast-casual “shack” prototype, Gilbert said.
“With our to-go business, we compare ourselves to the Black Box index for fast casual, which is a higher hurdle,” he added. “Our growth in to-go is outperforming the fast-casual category in Black Box, which doesn’t include fast food, just the Paneras and the Chipotles.”
The majority of unit growth planned for 2014 would be focused on the fast-casual shack concept, company leaders said during the call.
“We’re convinced that part of the future of barbecue lies in the expansion of our quick-casual prototype and to-go sales within our existing stores,” Gilbert said. “We’re of the mind that we want to get this fast-casual prototype absolutely right. Our proposition would be franchisee-driven, so we’ll want the right mousetrap for potential franchisees to use to grow that business quickly.”
During the quarter, Famous Dave’s saw further benefits from pulling back on discount-heavy direct mail in favor of email marketing to members of its P.I.G. Club, which is nearing 2 million members.
Gilbert admitted that more direct mail might have stemmed some lost sales and traffic on the dine-in business, but going forward, Famous Dave’s will allocate that marketing spending toward email marketing, which has cut marketing costs significantly and given the brand more flexibility to discount selectively and build the to-go business.
“One of the wonderful things about email is we can be very specific,” he said. “We’ll send a to-go-only offer on a Sunday morning for an NFL game, and there’s a discount with that, but we’re offering it on a timely basis and have the message tied specifically to one occasion. We did some government shutdown emails in the D.C. market that were very effective.”
Ongoing tests this year for things like an off-site call center for taking catering orders or a mobile-ordering app have been initiatives aimed at reducing general and administrative expenses while still getting sales leverage, particularly through off-premise food sales, Gilbert said. The initiatives all can be scaled to franchisees.
Menu initiatives planned for the fourth quarter include a systemwide introduction of a holiday smoked ham and smoked turkey program that tested very well last year. Two new products slated for early 2014 include a cheesy version of Famous Dave’s popular Burnt Ends, as well as a new steak menu item.
Famous Dave’s operates 53 company-owned locations and franchises another 138 restaurants in 34 states, Puerto Rico and Canada.
Contact Mark Brandau at [email protected].
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