Famous Dave's Beats on Bottom Line - Analyst Blog

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Famous Dave's of America Inc. ( DAVE ) recently reported fourth quarter 2012 earnings of 10 cents per share, which beat the Zacks Consensus Estimate by a penny and the prior-year quarter's earnings by 5 cents (tax rate adjustment of 4 cents is included).

In fiscal 2012, earnings were 57 cents per share (including 4 cents of non-cash charges), in line with the Zacks Consensus Estimate, but down from the year-ago earnings of 68 cents per share. Diluted adjusted earnings were 61 cents per share in 2012 compared with 73 cents in 2011.

The challenging economic environment, increased commodity prices and highly competitive industry are perceived to be the reasons for the company's weak performance in 2012.

In the fourth quarter, Famous Dave's, which owns, franchises and operates restaurants in the U.S., reported total revenues of $36.3 million, down 3.2% year over year and missed the Zacks Consensus Estimate of $37 million. In fiscal 2012, revenues were up slightly by 0.1% to $155 million year over year.

Quarter Highlights

During the quarter, Company-Owned restaurants sales were $31.8 million, down 4.6% year over year. Sales at the Franchise-Operated restaurants were $82.6 million, down 1.2% year over year.

Franchise royalty revenues remained flat year over year to $4.0 million, owing to a 4% decline in comparable sales. The opening of two franchise units also negatively impacted the company's franchise royalty revenues.

Same-store sales for Company-Owned restaurants were down 6% during the quarter compared with an upside of 3.6% in the year-ago quarter. Same-store sales from franchise-operated restaurants witnessed a decline of 4.0% versus a rise of 2.1% in the fourth quarter of 2011.

As a percentage of restaurant sales, food and beverage costs and labor and benefit expense went up 70 basis points (bps) and 100 bps to 31.5% and 33.3%, respectively, whereas operating expense declined 200 bps to 27.4%. As a percentage of total revenue, general and administrative expense surged 140 bps to 11.9% and depreciation and amortization expense remained flat year over year at 0.5%. Hence, the company's operating margin spiked 10 basis points (bps) to 2.2%.

Store Update

During the quarter, the company launched four franchised restaurants and one Company-Owned restaurant. Moreover, the company has also shut down a Company-Owned and three franchised restaurants.

At the end of 2012, the company operated 188 restaurants, including 53 company-owned restaurants and 135 franchise-operated restaurants across 34 states in the U.S. and 1 province in Canada. Further, a unit, which was closed in 2012, is likely to be replaced in 2013.

Financial Position

The restaurant ended 2012 with cash and cash equivalents of $2.1 million and shareholders' equity of $33.8 million.

Share Repurchase

Although the company did not buy back any shares in the fourth quarter, it repurchased 539,596 shares worth nearly $5.9 million in the full year of 2012.

Outlook

In 2013, Famous Dave's expects to launch new restaurants in 17 places of which one will be PuertoRico; thus marking the company's first opening in the region. With these openings, the company will cross the 200 restaurant milestone and sales of half billion.

Going forward, the company is likely to enhance its menu offering through proper pricing and investments strategy. The company also plans to venture into new places and ink new franchise agreements.

Our Take

The company's initiative to focus on key areas ranging from company and franchise units, menu as well as restaurant format, continuous augmentation of guest satisfaction, excellence in core systems to cost saving strategy is impressive.

However, annual decline in the earnings reflect the negative impact from the prevailing weak economic condition. Further, we are concerned with the growing food prices including higher beef costs, which may adversely affect the company's financial performance, going forward.

Famous Dave's currently retains a Zacks Rank #3 (Hold). Another restaurateur AFC Enterprises Inc. ( AFCE ) recently declared its preliminary fourth quarter and full year 2012 results. The company projects its adjusted earnings per share for the full year of 2012 to be within $1.23-$1.24, up from 99 cents in 2011. AFC also provided an optimistic outlook for 2013. AFC currently holds a Zacks Rank #2 (Buy).

Other restaurateurs, which are expected to perform well moving ahead, include Krispy Kreme Doughnuts, Inc. ( KKD ) and Burger King Worldwide, Inc. ( BKW ), both carry a  Zacks Rank #2 (Buy), respectively.



AFC ENTERPRISES (AFCE): Free Stock Analysis Report

BURGER KING WWD (BKW): Free Stock Analysis Report

FAMOUS DAVES (DAVE): Free Stock Analysis Report

KRISPY KREME (KKD): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AFCE , BKW , DAVE , KKD

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