Famous Dave's of America ( DAVE)

Q3 2010 Earnings Call

Thursday, October 28, 2010

Executives

Diana Garvis Purcel - CFO

Christopher O'Donnell - President and CEO

Presentation

Operator

Diana Garvis Purcel

Good morning everyone and thank you for joining us for the Famous Dave's fiscal 2010 third quarter conference call. I'm Diana Purcel, Chief Financial Officer. Joining me 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.

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.

Famous Dave's of America reported its third quarter results yesterday. I'm pleased to report that during the quarter, we experienced growth in comparable sales - for both company and franchise restaurants. We opened, a new company-owned and a new franchise-operated restaurant. We held the line on expenses. And, we delivered an increase in earnings per share over prior year.

Our company-owned comparable sales for the quarter were up 2.4% over last year, and improved on a sequential basis with positive improvements in all three of our sales levers: dine-in, to-go, and catering.

I'm pleased to report that off-premise sales, which represent about 30 percent of our total sales, and had been trending negatively, are now running positive for the year.

During the quarter, we were able to drive sales and average guest check by the strong performance of several limited time offerings. We also hosted a successful Dave's Day, with sales exceeding 2009's levels. During this one day - August 1, and in honor of our founder, Dave Anderson - our company-owned restaurants served more than 16,000 people with a first or middle name of Dave or David! Our franchisees also played a big role in helping make this day successful system-wide, as we had franchise partner participation of approximately 75% for this promotion.

We resumed our company restaurant growth during the third quarter with the August 16th opening of a new 6,000 square foot conversion located in Bel Air, Maryland - and it was a resounding success. In its first four weeks, our Bel Air restaurant turned in the strongest volume opening in the history of Famous Dave's. It was a fantastic reception and it continues to outperform expectations.

In addition to opening Bel Air, we completed several remodeling projects and plan a few more in the fourth quarter.

Additionally, our seven NY/NJ restaurants that we added to our company-owned restaurants this past March continue to deliver solid results and improved IVR scores. They are beginning to build their off-premise sales potential as we prepare for the holiday season.

In addition to sales growth, we saw continued improvement in certain restaurant cost categories, and also maintained control of G&A spend, all contributing to the solid quarter.

We're happy with the continued progress on the franchise side of the business. Our franchise restaurants continue to improve their comparable store sales results and our franchise operation continues to grow.

In early September, we signed an area development agreement to open our first 3 franchise locations in the Hawaiian Islands and we expect to open the first location in the fourth quarter of this year. We are also in active development-related discussions with franchisees and potential franchisees interested in developing our brand using smaller foot-prints and different restaurant formats that capitalize on available real estate with a lower investment cost.

During the quarter, we opened a franchise restaurant in San Jose, CA, and just after the quarter ended, we opened another franchise restaurant in Peoria, IL. Overall, we are still on track to open eight to nine new franchise restaurants for the full year, with three to four more franchise restaurants opening in the fourth quarter.

With capital still tough to get for development and a tough economic environment in which to continue to grow, we wanted to help our franchisees with their 2011 development efforts. As such, we are modifying our growth incentive program which was expected to sunset at the end of this year. The modification offers new and existing franchisees reduced levels of franchise royalties, based on a sliding scale, for new restaurants opened during 2011. If a franchise restaurant opens in the first quarter, they will receive a reduced royalty of 2.5% for the remainder of 2011. Opening in the second quarter qualifies for a reduced royalty of 3.0% for the remainder of 2011. Opening in the third quarter qualifies for a reduced royalty of 4.0% for the remainder of 2011. Any openings in the 4th quarter and beyond would be at the 5% royalty rate. We are hopeful that this program provides the support, as well as, the incentive, to continue to add new Famous Dave's locations throughout the U.S. during 2011. With these incentives, we currently expect to open approximately 10 to 12 franchise-operated restaurants in 2011. Additionally, we plan to continue our company-owned unit growth with at least one new location in 2011.

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