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Ignite to close 8 more restaurants

Company aims to improve operating margins with closures

Ignite Restaurant Group Inc. will close at least eight more restaurants in the third quarter, after closing three Joe’s Crab Shack units in the second quarter ended June 27, executives said Wednesday.

The Houston-based casual-dining company, which also owns and operates the 26-unit Brick House Tavern + Tap chain, took an $8.2 million asset impairment charge in the second quarter related to closures, said Brad Leist, Ignite chief financial officer, in an earnings call.

“In the third quarter, we plan to close eight of these impaired restaurants, along with potentially a few others, due to underperformance,” Leist said. “The decision to close these restaurants is specifically aimed at improving our operating margins, as well as our current future financial covenant ratios.”

As of June 27, Ignite had 127 Joe’s Crab Shack units, down from 138 in the same period a year ago. The company closed seven Joe’s restaurants in the third quarter of 2015.

Robert Merritt, Ignite president and CEO, told analysts that the company’s second-quarter sales were impacted significantly by a downturn in the oil and gas economies of Texas, from where Ignite gets about 30 percent of its sales. Restaurants in the Northeast also performed poorly in the quarter, he said.

“I'll be as candid as I can be,” Merritt said. “We're not happy with the operating results. In fact, we're a bit embarrassed about the operating results.”

Ignite’s net loss for the second quarter was $10.4 million, or a loss of 40 cents a share, which swung from net income of $86,000 in the prior-year period. Second-quarter revenue fell 8.7 percent, to $130.8 million, from $143.2 in the same period a year ago.

Ignite same-store sales declined 6.7 percent systemwide, with a 6.8-percent decrease at Joe's Crab Shack and a 6.3-percent decrease at Brick House.

Ignite had tried to make the Joe’s brand more upscale, Merritt said, which “frankly the consumer didn't respond well to.”

Merritt said the company was “taking steps to reverse that. And we're pulling every lever and pushing every button we can think of in Texas.”

While Merritt said he wouldn’t “try to sugarcoat it,” he was seeing positive signs, with a new menu in September that would restore a number of items that had been removed, and working on operations.

Sales in the first weeks of the third quarter showed improvement in areas other than Texas, Merritt said. 

“Some of the things we're doing are having a positive effect,” he said, “and we will continue to fight the fight in those areas where it's not.”

The second-quarter 6.8-percent same-store sales decrease at Joe’s Crab Shack included a 7.1-percent decrease in traffic and a 0.8-percent decrease in mix that were partially offset by a 1.1-increase in price, Leist said.

Same-store sales at Brick House declined 6.3 percent in the quarter, comprised of a 6.9-percent decrease in traffic and mix that was offset by a 0.6-percent increase in price, he said.

Leist added that full-year guidance was for a 4-percent to 8-percent same-store sales decline systemwide.

As of June 27, Ignite owned 127 Joe’s Crab Shack units and 26 Brick House restaurants.

Contact Ron Ruggless at [email protected]
Follow him on Twitter: @RonRuggless

TAGS: Sales Trends
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