Famous Dave's of America, Inc. (DAVE)

Q4 2011 Earnings Call

February 16, 2012, 11:00 am EST


Diana Purcel - Chief Financial Officer

Christopher O’Donnell - Chief Executive Officer



[Operator Comments]

Diana Purcel

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Good morning everyone and thank you for joining us for the Famous Dave’s fiscal 2011 fourth quarter conference call. I’m Diana Purcel, Chief Financial Officer. With me today is Christopher O’Donnell, our Chief Executive Officer.

Before we begin, we’d like to remind those listening that certain matters discussed within are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Famous Dave’s believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from Famous Dave’s expectations include financial performance, restaurant industry conditions, execution of our restaurant development and construction programs, franchisee performance, ability of our franchisees to meet their development commitments, changes in local or national economic conditions, availability of financing, and other risks detailed from time to time in the company’s SEC reports.

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Our earnings release, which contains the financial and other statistical information being discussed this morning, was issued yesterday afternoon after market close and can be accessed by clicking on the Investor Relations link on our website at www.famousdaves.com.

As a reminder, this call is being recorded and will be available for replay for seven days.

Now, I will turn the call over to Christopher O’Donnell, Famous Dave’s President and CEO. Christopher?

Christopher O’Donnell

Thank you, Diana.

Good morning everyone, and thank you for joining us.

Yesterday after market close, Famous Dave’s reported revenue of $37.5 million and earnings of $0.05 per share for the fourth quarter, including four cents of non-cash charges. For the full year, revenue totaled $154.8 million, and earnings were $0.68 per share including four cents of non-cash charges.

We had a solid fourth quarter of comparable sales growth, with company-owned restaurants up 3.6 percent, and franchise restaurants up 2.1 percent. For the full year, our company-owned restaurants were up 1.5 percent and our franchise-operated restaurants were flat, with over 50% of our franchise restaurants comp positive for the year-to-date timeframe.

The one thing that we learned from this past year is the necessity for us as an organization to remain nimble - and quick - to adapt to changing conditions. Whether impacted by hurricanes or earthquakes, volatile commodity costs or continued fluctuations in consumer confidence—we’ve shown that we can strategically run our business and address whatever obstacles we encounter.

During 2011, we grew as a system, and we evolved as a brand.

I mention growth first, because sometimes people forget that we are a growth concept and we have continued to grow during a timeframe of economic uncertainty. As a matter of fact, since the beginning of 2008, we have opened 48 new locations, including 8 franchise-operated restaurants and 2 company-owned restaurants that opened in 2011. We’ve achieved this growth through single unit agreements and area development agreements with new and existing partners, in addition to continued investments in company-owned locations.

As a matter of fact, one of the two company-owned locations that we opened this past year was a counter-service, fast-casual format—an evolution of some of our original restaurants.

This restaurant, located in Eden Prairie, MN, is a 65 seat “BBQ shack,” – taking us back to the roots of our early days. We’re encouraged by the early results of this location and the guest acceptance of the new format, which gives us the potential to open restaurants faster, with a broader range of real estate options.

During the fourth quarter of 2011 we also opened three new franchise-operated restaurants in Rapid City, SD, Times Square New York, representing a second location, and Springfield, MO.

In terms of brand building efforts, we continually review our menu, seeking to improve it with new, innovative and relevant offerings. We believe that our menu, combined with our limited time offerings, appeals to a diverse audience—whether, a guest is looking for smaller portions, more health-conscious selections or simply more variety. At the end of the day, however, we are committed to retain Famous Dave’s strong brand identity as America’s BBQ restaurant.

Turning to a recap of our fourth quarter and upcoming marketing efforts, we concluded our fall LTO, “Southside Rib Tips”. Our rib tips have always been a core menu item, but we reinvented them, changing the cut and seasoning them with a dry rub and a new Southside Sauce developed by Dave, and paired them with hell-fire pickle chips and pickled red onions. This LTO far surpassed any of our expectations, and received strong recommendations by our servers as well as exceptional acceptance by our guests. This is a product that is not only a great example of R&D innovation, but it offers great value to our guests and provides a positive impact on our margins.

Also during the fourth quarter, and as evidenced by our 3.6% comparable sales increase, we had a strong sales promotion, consisting of a direct mail piece to businesses and consumers, along with a bounce back initiative. While this promotion carried a heavier level of discounts, we were pleased with the increase in guest traffic as well as the increase in net sales.

During the last call, we told you that we would update you on our recent research project, which represents the most comprehensive consumer research we’ve ever done. We have now identified 4 unique segments of guests based on behavior and demographic data, and as a result of this research, we now have the ability to determine the most profitable segment to market to in the future and the best trade areas to build new, or relocate existing, restaurants. We also identified what is important to our guests and frankly, how we measure up in those areas. One of the key findings, however, was that there is a great deal of untapped potential - we have significant room to grow in our target markets to fully reach our defined customer segments. Suffice it to say, there’s a lot of data to sort through, but a key goal for us in 2012, will be to further mine the data and study the findings, and then be able to utilize the information to help guide the strategic direction and evolution of our brand.

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