Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
DAVE > SEC Filings for DAVE > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for FAMOUS DAVES OF AMERICA INC

Form 10-Q for FAMOUS DAVES OF AMERICA INC


7-Nov-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Famous Dave's of America, Inc. was incorporated as a Minnesota corporation in March 1994 and opened its first restaurant in Minneapolis in June 1995. As of September 29, 2013, there were 191 Famous Dave's restaurants operating in 34 states, the Commonwealth of Puerto Rico and 1 Canadian province, including 53 company-owned restaurants and 138 franchise-operated restaurants. An additional 63 franchise restaurants were in various stages of development as of September 29, 2013.

Fiscal Year

Our fiscal year ends on the Sunday closest to December 31st. Our fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. The fiscal years ending December 29, 2013 (fiscal 2013) and December 30, 2012 (fiscal 2012) are both 52 week fiscal years.

Revenue

Our revenue consists of restaurant sales, franchise-related revenue, and licensing and other revenue. Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development fees, initial franchise fees, and continuing royalty payments. Currently, our domestic area development fee for domestic growth consists of a one-time, non-refundable payment of approximately $10,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. Substantially all of these services, which include, but are not limited to, conducting market and trade area analysis, a meeting with Famous Dave's Executive Team, and performing potential franchise background investigation, are completed prior to our execution of the area development agreement and receipt of the corresponding area development fee. As a result, we recognize this fee in full upon receipt. Currently, our initial, non-refundable, franchise fee for domestic growth is $45,000 per restaurant, of which approximately $5,000 is recognized immediately when a franchise agreement is signed, reflecting the commission earned and expenses incurred related to the sale. The remaining non-refundable fee is included in deferred franchise fees and is recognized as revenue when we have performed substantially all of our obligations, which generally occurs upon the franchise entering into a lease agreement for the restaurant(s). Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales, which has historically varied from 4% to 5%. In general, new franchises pay us a monthly royalty of 5% of their net sales.

Costs and Expenses

Restaurant costs and expenses include food and beverage costs, labor and benefits costs, operating expenses which include occupancy costs, repair and maintenance costs, supplies, advertising and promotion, and restaurant depreciation and amortization. Certain of these costs and expenses are variable and will increase or decrease with sales volume. The primary fixed costs are corporate and restaurant management salaries and occupancy costs. Our experience is that when a new restaurant opens, it incurs higher than normal levels of labor and food costs until operations stabilize, usually during the first three to four months of operation. As restaurant management and staff gain experience following a restaurant's opening, labor scheduling, food cost management and operating expense control typically improve to levels similar to those at our more established restaurants.

General and Administrative Expenses

General and administrative expenses include all corporate and administrative functions that provide an infrastructure to support existing operations and support future growth. Salaries, bonuses, team member benefits, legal fees, accounting fees, consulting fees, travel, rent and general insurance are major items in this category.

- 17 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Additionally, we record expense for Managers In Training ("MIT's") in this category for approximately six weeks prior to a restaurant opening. We also provide franchise services for which the revenue is included in other revenue and the expenses are included in general and administrative expenses.

The following table presents items in our unaudited consolidated statements of operations as a percentage of net restaurant sales or total revenue, as indicated, for the following periods: (6)

                                                                        Three Months Ended                                     Nine Months Ended
                                                             September 29,               September 30,             September 29,               September 30,
                                                                  2013                       2012                       2013                       2012
Food and beverage costs (1)                                             30.6 %                     31.5 %                     30.5 %                     31.2 %
Labor and benefits costs (1)                                            31.9 %                     32.8 %                     31.8 %                     32.4 %
Operating expenses (1)(3)                                               25.2 %                     29.6 %                     25.5 %                     27.2 %
Restaurant level cash flow margins (1)(5)                               12.3 %                      6.0 %                     12.2 %                      9.2 %
Depreciation & amortization (restaurant level) (1)                       3.9 %                      3.9 %                      3.9 %                      3.8 %
Asset impairment and estimated lease termination and
other closing costs (1)                                                  3.4 %                      0.0 %                      1.1 %                      0.3 %
Pre-opening expenses and net loss on disposal of
equipment (1)                                                            0.9 %                      0.1 %                      0.4 %                      0.3 %
Costs and expenses (restaurant level) (1)                               95.9 %                     98.0 %                     93.2 %                     95.2 %
Restaurant level margin (1)(4)                                           4.1 %                      2.0 %                      6.8 %                      4.8 %
Depreciation & amortization (corporate level) (2)                        0.4 %                      0.4 %                      0.4 %                      0.4 %
General and administrative expenses (2)(3)                              12.5 %                     12.1 %                     13.5 %                     11.7 %
Total costs and expenses (2)                                            96.9 %                     98.1 %                     96.0 %                     95.4 %
Income from operations (2)                                               3.1 %                      1.9 %                      4.0 %                      4.6 %

(1) As a percentage of restaurant sales, net

(2) As a percentage of total revenue

(3) In order to be consistent with what the Company believes to be a more prevalent practice among other public restaurant companies, the Company has decided to reflect multi-unit supervision expenses within general and administrative expenses, rather than as operating expenses, where they previously have been reflected. For the third quarter of fiscal 2012, this adjustment was approximately $467,000. For the first nine months of fiscal 2012, this adjustment was approximately $1,398,000.

(4) Restaurant level margin is equal to taking restaurant sales, net less restaurant level costs and expenses. Restaurant level costs and expenses include food and beverage costs, labor and benefit costs, operating expenses, restaurant level depreciation and amortization, asset impairment and estimated lease termination and other closing costs, pre-opening expenses and net loss on disposal of equipment.

(5) Restaurant level cash flow margins are equal to taking restaurant sales, net less restaurant level food and beverage costs, labor and benefit costs, and operating expenses.

(6) Data regarding our restaurant operations as presented in the table, includes sales, costs and expenses associated with our Rib Team, which netted a loss of $2,000 and $40,000 for the three months ended September 29, 2013 and September 30, 2012, respectively. The Rib Team netted a loss of $47,000 and $64,000 for the nine months ended September 29, 2013 and September 30, 2012, respectively. Our Rib Team travels around the country introducing people to our brand of barbeque, building brand awareness.

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the accompanying unaudited consolidated financial statements and notes, and the audited consolidated financial statements and notes included in our Form 10-K for the fiscal year ended December 30, 2012.

- 18 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Results of Operations - Three and Nine months ended September 29, 2013 compared to Three and Nine months ended September 30, 2012.

Total Revenue

Total revenue of approximately $39.2 million for the third quarter of fiscal 2013 decreased approximately $700,000 or 1.8%, from $39.9 million for the comparable quarter in fiscal 2012. For the nine months ended September 29, 2013, total revenue of approximately $119.2 million increased approximately $445,000 or 0.4% from revenue of approximately $118.7 million, for the nine months ended September 30, 2012.

Restaurant Sales, net

Restaurant sales were approximately $34.4 million for the third quarter of fiscal 2013 compared to approximately $34.9 million for the same period in fiscal 2012, reflecting a 1.5% decrease. The decrease, year-over-year, reflected a comparable sales decrease of 0.8%, the closure of the Lombard, Illinois restaurant during the 4th quarter of 2012, which was at the end of its lease term, and the closure of the Gaithersburg, Maryland restaurant, which was relocated to Germantown, Maryland during the 3rd quarter of 2013. These decreases were partially offset by the annualized impact of a company-owned restaurant that opened in the fourth quarter of 2012 in Evergreen Park, Illinois, in addition to a weighted average price increase of approximately 3.0%. On a weighted basis, To Go sales increased by 2.4%, completely offset by 2.4% and 0.8% declines in dine-in and catering sales, respectively. Off-premise sales grew to 37.5%, of which To Go represented 25.0% and catering represented 12.5%. This compares to off premise sales of 35.2% for the prior year. As a percentage of dine-in sales, our adult beverage sales for our company-owned restaurants were 9.3% and 9.1% for the third quarter of fiscal 2013 and 2012, respectively.

Restaurant sales for the nine months ended September 29, 2013 were approximately $105.0 million compared to approximately $103.9 million for the nine months ended September 30, 2012, reflecting a 1.0% increase. As a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were 9.3% for the nine months of fiscal 2013 and 2012, respectively.

Franchise-Related Revenue

Franchise-related revenue consists of royalty revenue and franchise fees, which include initial franchise fees and area development fees. Franchise-related revenue was approximately $4.5 million for the third quarter of fiscal 2013, compared to $4.6 million for the third quarter of fiscal 2012. There were 138 and 134 franchise-operated restaurants open at September 29, 2013 and September 30, 2012, respectively. The year over year decrease is primarily related to a decrease in franchise fees and a comparable sales decline of 2.3% in franchise royalties partially offset by four net new franchise restaurants that opened since the end of the third quarter of 2012.

Franchise-related revenue was approximately $13.3 million for the nine months ended September 29, 2013 compared to approximately $13.9 million for the nine months ended September 30, 2012, primarily reflecting a year-over-year decrease in royalty revenue of 2.2% for the nine month timeframe as a result of a year over year decrease in comparable sales of 3.4%.

Licensing and Other Revenue

Licensing revenue includes royalties from a retail line of business, including sauces, rubs, marinades and seasonings. Other revenue includes opening assistance and training we provide to our franchise partners. For the third quarter of fiscal 2013, the licensing royalty revenue was approximately $194,000 compared to approximately $201,000 for the comparable period of fiscal 2012. Licensing royalty revenue was approximately $647,000 for the nine months ended September 29, 2013 as compared to $600,000 for the comparable period of fiscal 2012.

Other revenue for the fiscal 2013 third quarter was approximately $115,000 compared to $177,000 for the comparable prior year quarter. Other revenue for the nine months ended September 29, 2013 was approximately $237,000 compared to approximately $300,000 for the comparable period of fiscal 2012.

- 19 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Same Store Net Sales

It is our policy to include in our same store net sales base, restaurants that are open year round and have been open at least 24 months. Same store net sales for company-owned restaurants for the third quarter of fiscal 2013 decreased 0.8%, compared to fiscal 2012's third quarter increase of 0.2% and a 1.4% decrease in the casual dining industry, as measured by Black Box Intelligence (BBI). At the end of the third quarter of fiscal 2013 and the third quarter of fiscal 2012, there were 48 and 49 restaurants included in the company-owned comparable sales base, respectively.

Same store net sales for company-owned restaurants open at least 24 months for the nine months ended September 29, 2013 increased 0.4%, compared to a 0.6% decrease in fiscal 2012's nine months ended September 30, 2012 and in the casual dining industry, as measured by (BBI), respectively. For the nine months ended September 29, 2013 and September 30, 2012, there were 48 and 49 restaurants included in the company-owned comparable sales base, respectively.

Same store net sales on a 24 month basis for franchise-operated restaurants for the third quarter of fiscal 2013 decreased 2.3%, compared to a decrease of 2.8% for the prior year comparable period. For the third quarter of 2013 and the third quarter of 2012, there were 117 and 112 restaurants included in the franchise-operated comparable sales base.

Same store net sales on a 24 month basis for franchise-operated restaurants for the first nine months of fiscal 2013 and fiscal 2012 decreased 3.4% and 1.5%, respectively. For the first nine months of fiscal 2013 and fiscal 2012, there were 114 and 109 restaurants, respectively, included in the franchise-operated 24 month comparable sales base.

Average Weekly Net Sales and Operating Weeks

The following table shows company-owned and franchise-operated average weekly net sales and company-owned and franchise-operated operating weeks for the third quarter of fiscal 2013 and fiscal 2012:

- 20 -


Table of Contents

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES



                                              Three Months Ended                            Nine Months Ended
                                     September 29,          September 30,          September 29,          September 30,
                                          2013                  2012                   2013                   2012
Average Weekly Net Sales (AWS):
Company-Owned                       $         49,788       $        50,554       $          50,751       $        50,231
Full-Service                        $         51,553       $        52,362       $          52,604       $        52,118
Counter-Service                     $         38,226       $        36,411       $          38,590       $        35,483
Franchise-Operated                  $         53,043       $        53,016       $          53,519       $        54,258
AWS 2005 and Post 2005: (1)
Company-Owned                       $         49,848       $        53,200       $          51,124       $        52,910
Franchise-Operated                  $         55,506       $        55,656       $          56,116       $        57,173
AWS Pre-2005: (1)
Company-Owned                       $         49,738       $        48,519       $          50,441       $        48,266
Franchise-Operated                  $         47,539       $        47,549       $          47,789       $        48,218
Operating Weeks:
Company-Owned                                    687                   688                   2,065                 2,063
Franchise-Operated                             1,766                 1,717                   5,194                 5,131

(1) Provides further delineation of AWS for restaurants opened during pre-fiscal 2005, and restaurants opened during and after fiscal 2005, timeframes.

Food and Beverage Costs

Food and beverage costs for the third quarter of fiscal 2013 were approximately $10.5 million or 30.6% of net restaurant sales, compared to approximately $11.0 million or 31.5% of net restaurant sales for the third quarter of fiscal 2012. Food and beverage costs for the first nine months of fiscal 2013 were approximately $32.0 million or 30.5% of net restaurant sales compared to approximately $32.4 million or 31.2% of net restaurant sales for the comparable period of fiscal 2012.

Food and beverage costs benefited from the favorable impact of strategic initiatives we had been working towards as well as the decline in contracted food costs. We are benefiting from a decrease on our pork and brisket pricing, both of which are contracted through the remainder of fiscal 2013, as well as other items such as hamburger, seafood, and corn. Our chicken contract is locked in through the end of the year at a slight increase year over year. We will continue our efforts to further improve margin through key core-item promotions, opportunistic commodity purchases and strategic menu mix management. During the third quarter, we executed a contract for a majority of our pork for all of fiscal 2014 at an approximate savings of 4.0% year over year. Additionally, our margin should benefit from a price increase of 1.6% that we took along with our new menu in September. This increase was based on the insights we obtained from our menu pricing consultant. Based on our results over the first nine months, which included a significant mix shift to brisket as a result of the launch of our new burnt ends product, we are moderating our previous guidance for food and beverage costs for fiscal 2013, to be approximately 75 to 85 basis points lower than fiscal 2012's percentage.

Labor and Benefits Costs

Labor and benefits costs for the third quarter ended September 29, 2013 were approximately $11.0 million or 31.9% of net restaurant sales, compared to approximately $11.5 million or 32.8% of net restaurant sales for the three months ended September 30, 2012. This decrease was primarily due to lower direct labor and employee benefit costs partially offset by sales deleverage. Labor and benefits for the nine months ended September 29, 2013 were approximately $33.4 million or 31.8% of net restaurant sales, compared to approximately $33.7 million or 32.4% of net restaurant sales for the nine months ended September 30, 2012. For the full year, we now anticipate labor and benefits costs, as a percentage of sales, to be 65 to 75 basis points favorable to fiscal 2012's percentage.

- 21 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Operating Expenses

Operating expenses for the third quarter of fiscal 2013 were approximately $8.7 million or 25.2% of net restaurant sales, compared to operating expenses of approximately $10.3 million or 29.6% of net restaurant sales for the third quarter of fiscal 2012. This decrease in operating expenses, as a percentage of net sales, was predominantly due to savings of approximately $1.2 million in advertising after management determined that a direct mail program similar to the prior year was not a productive use of media spend. Additionally, 2013's third quarter operating expenses were positively impacted by lower supply and repair and maintenance costs. Operating expenses for the nine months ended September 29, 2013 were approximately $26.8 million or 25.5% of net restaurant sales, compared to approximately $28.2 million or 27.2% of net restaurant sales for the nine months ended September 30, 2012.

We have been testing new media strategies and consequently, have redeployed our marketing spend more effectively. For 2013, we expect advertising expense to now be approximately 2.4% of net sales for all of fiscal 2013, including a 0.75% contribution to the Marketing Fund. This compares to a 2012 spend of 3.4% of net sales, which included a 1.0% contribution to the Marketing Fund. As a result of our nine month results and the anticipated decline in advertising spend, we are updating our previous guidance and now anticipate operating expenses as a percentage of net sales for fiscal 2013 to be approximately 145 - 155 basis points lower than 2012's percentage.

Depreciation and Amortization

Depreciation and amortization expense for the third quarter of 2013 was approximately $1.5 million or 3.8% of total revenue, essentially flat to the third quarter of fiscal 2012. Depreciation and amortization expense for the nine months ended September 29, 2013 and September 30, 2012 was approximately $4.6 million and $4.4 million, respectively, and was 3.8% and 3.7%, respectively, of total revenue.

Pre-opening Expenses

Pre-opening expenses consist of labor, food, utilities, training and rent costs incurred prior to the opening of a restaurant. Included in pre-opening costs is pre-opening rent for approximately 16 weeks prior to opening but this will vary based on lease terms. During the third quarter of 2013, we incurred approximately $293,000 of pre-opening expenses which included pre-opening rent. During the third quarter of 2012, we incurred approximately $19,000 of pre-opening expenses, which included pre-opening rent. During the nine months ended September 29, 2013 and September 30, 2012, we incurred pre-opening expenses of $369,000 and $317,000, respectively. We now anticipate pre-opening costs for 2013 to be approximately $569,000 for the opening of two ground-up full-service company-owned restaurants; one which opened in the third quarter of 2013 and one which will open in the fourth quarter of 2014.

Asset Impairment and Estimated Lease Termination and Other Closing Costs

In accordance with FASB Accounting Standards Codification for Property, Plant, and Equipment, we evaluate restaurant sites and long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of restaurant sites to be held and used is measured by a comparison of the carrying amount of the restaurant site to the undiscounted future net cash flows expected to be generated on a restaurant-by-restaurant basis. If a restaurant is determined to be impaired, the loss is measured by the amount by which the carrying amount of the restaurant's assets exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows,

- 22 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

expected growth rates in comparable restaurant sales, remaining lease terms, discount rate and other factors. If these assumptions change in the future, we may be required to take additional impairment charges for the related assets. Considerable management judgment is necessary to estimate future cash flows. Accordingly, actual results could vary significantly from such estimates. Restaurant sites that are operating but have been previously impaired are reported at the lower of their carrying amount or fair value less estimated costs to sell. The following is a summary of these events during the three and nine months ended September 29, 2013 and September 30, 2012.

Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

                                                                     Three Months Ended           Nine Months Ended
Restaurants                   Reason                                 September 29, 2013          September 29, 2013
Salisbury, MD                 Asset impairment(1)                    $               943         $               943
Oakton, VA                    Lease termination fee(2)                               200                         200
Gaithersburg, MD              Costs for closed  restaurants(3)                        33                          23

Total for 2013                                                       $             1,176         $             1,166

(1) Based on the Company's assessment of expected cash flows, an asset impairment charge was recorded for this restaurant. The remaining asset balance can be transferred to other restaurants.

(2) Lease costs associated with terminating, and then entering into a new lease for this restaurant.

(3) The Company incurred various costs for this restaurant which closed at the end of its natural lease term.

Asset Impairment and Estimated Lease Termination and Other Closing Costs (in thousands):

                                                                     Three Months Ended            Nine Months Ended
Restaurants                  Reason                                  September 30, 2012           September 30, 2012
Vernon Hills, IL             Lease reserve(1)                        $                -                            77
Various                      Costs for closed  restaurants(2)                         13                          211

Total for 2012                                                       $                13          $               288

(1) The lease reserve equals the net present value of the remaining lease obligations for the Vernon Hills, IL restaurant, net of expected sublease income, which is equal to zero.

(2) The Company incurred various costs for the closure of the Vernon Hills, IL and Tulsa, OK restaurants.

General and Administrative Expenses

General and administrative expenses for the third quarter of 2013 were approximately $4.9 million or 12.5% of total revenue, compared to approximately $4.8 million or 12.1% of total revenue for the third quarter of fiscal 2012. This increase reflects the year over year impact of 2013's bonus accrual, equal to approximately $435,000, or 110 basis points, partially offset by the reduction in force and other cost savings initiatives. General and . . .

  Add DAVE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for DAVE - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.