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Famous Dave’s to sell all company stores

Chain wants to “shift its resources” to franchising

Struggling to pull out of a four-year decline in same-store sales, Famous Dave’s of America Inc. said this week it is planning to sell all 33 of its company stores to franchisees.

The Minneapolis-based barbecue chain said that it wants to “shift its resources and energy to the growth and viability of its franchise system.”

“I have a strong belief in our brand,” Chuck Mooty, Famous Dave’s chairman, said in a statement. “Today’s announcement is about shifting our efforts and focus to the success of our dedicated franchisees.”

Famous Dave’s company locations have been in a steep decline. Their last increase in same-store sales came in the second quarter of 2013.

In early 2014, with several activist investors on the company’s board of directors, Famous Dave’s hired former McDonald’s Corp. executive Ed Rensi as CEO. Same-store sales plunged in the quarters afterward.

Company locations’ same-store sales have fallen 14 straight quarters through the fourth quarter of 2016, according to Securities and Exchange Commission documents and Nation’s Restaurant News research.

Put it another way: By the fourth quarter of 2016, company locations had lost nearly 24 percent of their sales over the previous four years.

Franchisees, however, have generally outperformed the company over that period. Yet they, too, have struggled. In the fourth quarter, for instance, franchisees’ same-store sales fell 5.5 percent, on top of a 5.2 percent decline in the same period a year before. 

The company has worked feverishly to reverse the sales problem. And Dave’s has made several changes at the management and board level, hiring Mike Lister — one of the chain’s top performing franchisees — to helm the company. It also brought in restaurant industry veteran Mooty to be its chairman.

Famous Dave’s now wants to put its focus behind its franchising strategy, joining numerous other brands that have opted to sell fewer company restaurants.

“By refranchising to existing and new franchisees who share our passion for the brand, it will enable our team to focus our efforts on food and beverage innovation, marketing, franchise operations, training and development,” Lister said in a statement.

Famous Dave’s franchisees operate 135 of the brand’s units, while the company operates 33 locations. The company said it plans to sell the 33 locations over the next 12 to 24 months.

Companies franchise in large part because franchising is more profitable. And Famous Dave’s profits have struggled as sales have fallen. In 2016, for instance, revenues fell 13 percent to $99.2 million. And the company reported a net loss of $2.4 million, on top of a net loss of $4.4 million the year before.

The company’s stock price, meanwhile, has lost three quarters of its value since the start of 2014. The stock currently trades under $5 per share.

“The board and our management’s long-term strategy is to deliver sustainable returns, and an avenue to accomplish this is by optimizing how current and future capital is deployed,” Mooty said. 

Contact Jonathan Maze at jonathan.maze@penton.com

Follow him on Twitter at @jonathanmaze

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