IRG

Ignite Restaurant Group, Inc. (IRG)

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Exchange: NASDAQ
Industry: Consumer Services
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Ignite Restaurant Group (IRG)

Q2 2013 Earnings Call

August 7, 2013, 5:00 PM ET

Executives

Ray Blanchette - Chief Executive Officer

Michael Dixon - President and Chief Financial Office

Analysts

Phan Le - Lazard

Bryan Elliott - Raymond James

Nicole Miller - Piper Jaffray

David Tarantino - Robert W. Baird

David Carlson - KeyBanc

Presentation

Operator

Good afternoon, and welcome to the Ignite Restaurant Group second quarter 2013 earnings conference call. (Operator Instructions)

Before I turn the call over to management, I would like to note for you that portions of this call deal with forward-looking information. These statements reflect management's expectations for the future. The company's actual results may differ materially from these expectations. Management refers all of you to today's press release and the company's recent filings with the SEC for a more detailed discussion of the risks that could impact future operating results and financial conditions.

On the call today we have Ray Blanchette, Chief Executive Officer of the company; and Michael Dixon, President and Chief Financial Officer. At this time, I would like to turn the call over to Michael Dixon, President and Chief Financial Officer of Ignite Restaurant Group. Please go ahead, sir.

Michael Dixon

Good afternoon and thank you for joining us today. By now everyone should have accessed to our press release, which we issued this afternoon. The release, which covers our second quarter fiscal 2013 can also be found our website under the Investor Relations section. Additionally I would encourage everyone to review our related 8-K filings with the SEC for greater detail on information included in our press release and on today's conference call. We expect to file our Form 10-Q within the next day or so.

Our agenda for the call will be as follows. Ray will provide an overview of our business, and then I will discuss the financial results. We will have time at the end for questions, and we'd like to finish up in about an hour. Before I turn the call over to Ray, let me once again remind investors of the change in our fiscal quarter calendar.

Beginning with the first quarter of fiscal 2013, we adjusted our quarterly reporting calendar to four 13-week operating periods. Previously, the first three quarters of our fiscal year consisted of 12 weeks, and the fourth quarter consisted of 16 weeks. As a result of this change, financial results for the 13-week quarter ended July 1, 2013, may now be directly comparable to those of the corresponding 12-week quarter ended June 18, 2012. We'll point out the impact of this as we go through the numbers for the quarter.

Now, I'd like to turn the call over to Ray Blanchette, our Chief Executive Officer.

Ray Blanchette

Thanks, Mike, and thanks everyone for joining us today. As we announced last week and then reaffirm today, our second quarter results have a net loss of $0.10 per share. We're significantly impacted by the acquisition and operations of Macaroni Grill, which we acquired early in the quarter.

I'm not pleased with these results. However, I want to reiterate that this result doesn't change our outlook for the opportunities and benefits that the Macro brand and its real estate bring to Ignite. We're also not pleased that we didn't have better line of sight to these results earlier in the quarter. This issue has already been remedied, and I'll discuss that in a minute.

I think it's important for me to spend some time today, explaining what transpired in this quarter and we learned about the Macaroni Grill business. As mentioned in our release, the majority of the variance to our expectations during the second quarter is a result of investments and expenditures in marketing and labor in the Macaroni Grill business.

During the due diligence phase of our acquisition and right up to the February 6, signing of the letter of intent, Macaroni Grill's comp sales were right around in negative 5%; from February through April 9, when we closed on the business, comp sales deteriorated to a negative 11.5%. While there was no secrete to us that Macaroni Grill sales had been challenged for an extended period of time, the pace of deterioration in the first quarter was significantly greater than we had anticipated, and we felt that we needed to act very quickly.

Prior management had purchased some national cable TV time for late April, early May. And while the media purchase was not consistent with how we buy TV, we did choose to make use of that purchase time. And we launched our create-your-own-pasta spots, and took advantage of an existing and unique item on our menu that we could execute with confidence. And with this campaign, we saw a modest improvement in sales trends, but given the level of previous decline, we felt that we needed to be more aggressive and more importantly more differentiated in the marketplace.

So with that we launched our Summer Uncorked campaign in early June. If you haven't seen the spots, this program features half-of-one, seven days a week. We're excited about this idea. It tells a fundamental truth about the brand and ties back to what we believe is an interesting and unique aspect of the Macaroni Grill experience. Wine was always an integral product of the Macaroni Grill experience and an important differentiator from other casual dining Italian brands. And if you saw the social media buzz around this, it was pretty exciting.

After the quarter end, we also tapped into the significant Macaroni Grill customer database that we now own and delivered some limited time offers to our loyal guests. So as a result of all the efforts that we put into the quarter, we saw our comps move from that negative 11.5% that we bought in April to negative 1.6% in July, but it did cost us $2 million more than we had originally planned in that marketing effort.

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