Famous Dave’s of America Inc. has closed two restaurants this year and could close more, the company said this week, as its company-owned units start losing money.
Speaking on the company’s fourth quarter earnings call on Monday, CFO Dexter Newman said the Minneapolis-based barbecue chain is evaluating its company-owned portfolio to restructure leases or close locations.
Last year, the chain took a $3.4 million impairment charge against 11 underperforming locations — nearly a third of its company-owned locations. Famous Dave’s now has 35 company-owned units and 123 franchisee-run locations.
Famous Dave’s company-operated locations were not profitable in the fourth quarter — their margins were -0.7 percent in the period. For the year, company-operated margins were 4 percent of revenues, down from 6.3 percent a year ago.
Dave’s stock fell more than 10 percent on Tuesday.
“2016 was a challenging year for the industry and a year of transition for Famous Dave’s,” CEO Mike Lister said on the company’s earnings call. “The company’s board, senior leadership and franchisees continue to collaboratively dedicate significant attention and resources to improving the overall performance of the brand.”
The company said that it has appointed former Dairy Queen CEO Charles Mooty as its chairman. The current CEO of Jostens Inc. and a board member at Famous Dave’s, succeeds Joseph Jacobs, president of big Dave’s investor Wexford Capital.
“As a strong believer in the brand, it is truly an honor to assume the responsibility of Chairman at this pivotal time for the Company and to further lead its evolution,” Mooty said in a statement. “I am confident that together with the leadership of the Board, our management team and our franchisees we will drive enhanced total returns for our shareholders.”
Mooty’s elevation continues the trend toward change at Famous Dave’s. Lister himself was only appointed CEO in October, and CFO Dexter Newman was appointed last April. Lister is the chain’s fourth CEO since 2012. The turnover at the top has led to turnover elsewhere in the company, though Lister said that it has been “greatly reduced” the past four or five months.
Still, the turnover, along with repeated changes in the company’s menu and broader problems in the casual dining sector, has led to steep declines in the chain’s same-store sales.
Company operated same-store sales fell 5 percent in the quarter ended Jan. 1, on top of a 10.6 percent decline in the same period a year ago. For the year, company-operated same-store sales fell 5 percent, on top of a 0.3 percent decline a year ago.
Franchisees haven’t fared better. Their same-store sales fell 5.5 percent in the quarter and 10.7 percent on a two-year, stacked basis. For the year, franchisees’ same-store sales fell 4.7 percent, and 7.2 percent over two years.
The company in recent months has worked to get those sales back, by returning portion sizes customers had enjoyed, and by bringing back popular menu items like the chain’s iconic cornbread.
Lister said that the company’s efforts “haven’t translated into a comparable store sales increase quite yet,” but said that the chain’s customer feedback scores have improved — though executives wouldn’t share specifics on those scores.
“We’re pleased with the progress,” Lister said. “We have not been at a standstill.”
The biggest problem is in its dine-in business. That fits with consumer trends — diners are less likely today to eat inside a restaurant and prefer getting their food to go.
“In the face of a challenging restaurant environment, which has remained depressed with negative traffic for an extended period of time, our dine-in line of business experienced headwinds, and saw continued pressure on comparable sales this quarter,” Lister said.
Yet the company said its off-premise business, including to-go and catering, has been better. Famous Dave’s is working to improve its online ordering efforts, and is testing delivery.
Given the popularity of barbecue at picnics and other events, “We feel this could be a competitive advantage for us,” Lister said.
Still, with sales in freefall and the chain’s restaurants running a deficit, the company is working on cutting costs to keep from losing money. Dave’s has worked on cutting prime costs and general and administrative expenses.
The company recorded a net loss in the period of $827,000, or 12 cents per share, compared to a $307,000 loss, or 5 cents, in the same period a year ago. For the year, Dave’s recorded a $2.9 million loss, or 42 cents per share, down from a $1.1 million profit, or 15 cents.
Total revenues for the year fell 13 percent to $99.2 million, from $114.2 million.
Contact Jonathan Maze at [email protected]
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