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 9-May-2014All Recent SEC Filings

Show all filings for FAMOUS DAVES OF AMERICA INC

Form 10-Q for FAMOUS DAVES OF AMERICA INC


9-May-2014

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 March 30, 2014, there were 193 Famous Dave's restaurants operating in 34 states, the Commonwealth of Puerto Rico and 1 Canadian province, including 53 company-owned restaurants and 140 franchise-operated restaurants. An additional 61 franchise restaurants were in various stages of development as of March 30, 2014.

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 28, 2014 (fiscal 2014) and December 29, 2013 (fiscal 2013) 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. For our foreign area development agreements the one time, non-refundable payment is negotiated on a per development basis and is determined based on the costs incurred to sell that development agreement. Substantially all of these services, which include, but are not limited to, a review of the potential franchisee's current operations, conducting market and trade area analysis, a meeting with Famous Dave's Executive Team, and performing a 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 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. A certain number 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 team members 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.

- 18 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

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, including restaurant-level supervision, bonuses, team member benefits, legal fees, accounting fees, consulting fees, travel, rent, and general insurance are major items in this category. 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, the revenue of which are included in other revenue and the expenses of which 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:

                                                                  Three Months Ended
                                                           March 30,               March 31,
                                                              2014                   2013
Food and beverage costs (1)                                       29.2 %                 30.8 %
Labor and benefits (1)                                            33.3 %                 33.3 %
Operating expenses (1)(3)                                         26.9 %                 26.2 %
Restaurant level cash flow margins (1)(4)                         10.6 %                  9.6 %
Depreciation & amortization (restaurant level) (1)                 4.4 %                  4.4 %
Asset impairment and estimated lease termination
and other closing costs (1)                                        1.5 %                   -
Pre-opening expenses and net loss on disposal of
equipment (1)                                                      1.4 %                   -
Costs and expenses (restaurant level) (1)                         96.7 %                 94.7 %
Restaurant level margin (1)(5)                                     3.3 %                  5.3 %
Depreciation & amortization (corporate level) (2)                  0.5 %                  0.4 %
General and administrative expenses (2)(3)                        11.9 %                 15.1 %
Total costs and expenses (2)                                      97.1 %                 99.0 %
Income from operations (2)                                         2.9 %                  1.0 %

(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 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 first quarter of fiscal 2013, this adjustment was approximately $514,000.

(4) 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.

(5) 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.

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 Annual Report on Form 10-K for the fiscal year ended December 29, 2013.

During the quarter we made a number of strategic decisions that may negatively impact 2014, but we believe will positively impact the organization going forward. We need to be able to evaluate and assess the various aspects of our business with a long-term view, and as such, have elected not to provide any forward looking guidance for fiscal 2014.

- 19 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Results of Operations - Three months ended March 30, 2014 compared to three months ended March 31, 2013.

Total Revenue

Total revenue of approximately $35.7 million for the first quarter of fiscal 2014 decreased approximately $938,000, or 2.6%, from total revenue of $36.6 million in the comparable quarter of fiscal 2013.

Restaurant Sales, net

Restaurant sales were approximately $31.2 million for the first quarter of fiscal 2014 compared to approximately $32.3 million for the same period in fiscal 2013, reflecting a 3.2% decrease. The decrease reflected a comparable sales decrease of 4.9% partially offset by a restaurant that opened in Timonium, Maryland in the fourth quarter of fiscal 2013 and a weighted average price increase of 2.9%. We remain pleased with the gains made in To Go, which increased 3.1% over the prior year. We continued to be challenged during the first quarter, however, by declines in dine-in sales and catering sales. Off-premise sales were 31.9% of total sales for the first quarter of 2014, with catering at 4.9% and To Go at 27.0 %. This compares to off-premise sales as a percent of total sales equal to 31.1%, with catering at 5.7% and To Go at 25.4%, for the same timeframe of fiscal 2013. As a percentage of dine-in sales, our adult beverage sales at our company-owned restaurants were approximately 10.2% and 9.5% for the first quarter of fiscal 2014 and 2013, 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 $4.2 million for the first quarter of fiscal 2014, compared to $4.1 million for the first quarter of 2013. There were 140 and 134 franchise-operated restaurants open at March 30, 2014 and March 31, 2013, respectively. The year over year increase primarily reflects six net new franchise restaurants that opened since the end of the first quarter of 2013, partially offset by a comparable sales decrease of 3.3%.

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 first quarter of fiscal 2014, the licensing royalty revenue was approximately $165,000 compared to approximately $174,000 for the comparable period of fiscal 2013. Other revenue for the fiscal 2014 first quarter was approximately $11,000 compared to $10,000.

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 first quarter of fiscal 2014 decreased 4.9%, compared to fiscal 2013's first quarter decrease of 1.8%. At the end of the first quarter of fiscal 2014 and the first quarter of fiscal 2013, there were 50 and 49 restaurants, respectively, included in this base.

Same store net sales on a 24 month basis for franchise-operated restaurants for the first quarter of fiscal 2014 decreased 3.3%, compared to a decrease of 6.1%, for the prior year comparable period. For the first quarter of 2014 and the first quarter of 2013, there were 119 and 114 restaurants, respectively, included in the franchise-operated comparable sales base.

- 20 -


Table of Contents

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES



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 first
quarter of fiscal 2014 and fiscal 2013:



                                                   Three Months Ended
                                               March 30,       March 31,
                                                  2014           2013
             Average Weekly Net Sales (AWS):
             Company-Owned                     $   44,514     $    46,850
             Full-Service                      $   46,225     $    48,615
             Counter-Service                   $   33,023     $    35,253
             Franchise-Operated                $   50,023     $    51,236
             Operating Weeks:
             Company-Owned                            702             689
             Franchise-Operated                     1,810           1,707

Food and Beverage Costs

Food and beverage costs for the first quarter of fiscal 2014 were approximately $9.1 million or 29.2% of net restaurant sales, compared to approximately $10.0 million or 30.8% of net restaurant sales for the first quarter of fiscal 2013. This decrease was predominantly due to more favorable food contract pricing.

Labor and Benefits Costs

Labor and benefits costs for the three months ended March 30, 2014 were approximately $10.4 million or 33.3% of net restaurant sales, compared to approximately $10.8 million or 33.3% of net restaurant sales for the three months ended March 31, 2013. Labor and benefits, as a percentage of net restaurant sales, were flat to the comparable period in fiscal 2013, primarily due to lower direct and managerial labor costs, as well as lower benefit costs, offset by sales deleverage on these items.

Operating Expenses

Operating expenses for the first quarter of fiscal 2014 were approximately $8.4 million or 26.9% of net restaurant sales, compared to operating expenses of approximately $8.5 million or 26.2% of net restaurant sales for the first quarter of fiscal 2013. Operating expenses were unfavorable to the prior year due to higher utility costs from the unusually cold winter, as well as sales deleverage on occupancy costs. These increases were partially offset by lower supply costs and advertising spend during the first quarter.

During the first quarter of 2014, advertising as a percentage of net sales was 1.5% compared to 2.6% for the comparable period of 2013. This decline was predominantly due to the timing of media spend year over year. In both years there was a 0.75% marketing ad fund contribution.

Depreciation and Amortization

Depreciation and amortization expense for the first quarter of 2014 was approximately $1.5 million or 4.3% of total revenue compared to $1.5 million, or 4.2% of total revenue for the first quarter of fiscal 2013.

- 21 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

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. Fiscal 2014's first quarter had $7,000 of pre-opening expenses, compared to $6,000 in the first quarter of 2013.

Net Loss on Disposal of Property

During the quarter, we made a decision to close down our décor warehouse. This decision was based on a need to contemporize, reduce the cost as well as the number of items, and to provide a variety of options with regard to our restaurant décor package. During the quarter, we auctioned off the majority of items in our warehouse which resulted in a loss of approximately $434,000, including costs of disposition. Additionally, we took an impairment charge on the remaining items not sold, as well as taking an impairment charge on the décor in our existing company-owned restaurants, which we plan to convert in the near future.

Asset Impairment and Estimated Lease Termination and Other Closing Costs

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 assets exceeds its fair value. Fair value is estimated based on the best information available including estimated future cash flows, expected growth rates in comparable restaurant sales, remaining lease terms 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. Below is a summary of these events and situations during the first quarter of fiscal 2014 and fiscal 2013.

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

                                                          Three Months Ended
       Restaurants     Reason                               March 30, 2014
       Various         Asset impairment(1)               $                342
       Salisbury, MD   Costs for closed  restaurant(2)                     99
       Salisbury, MD   Lease termination  costs(3)                         19

       Total                                             $                460

(1) Change in strategic direction regarding décor resulted in the impairment of the décor located in the company's restaurants.

(2) The Company incurred various costs for the closure of the Salisbury, MD restaurant.

(3) Lease termination costs associated with closure of the restaurant, net of deferred rent credit.

- 22 -


Table of Contents

                FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES



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



                                                         Three Months Ended
       Restaurants   Reason                                March 31, 2013
       Various       Costs for closed  restaurants(1)   $                (12 )

(1) The Company incurred various costs for closed restaurants which were more than offset by a common area maintenance refund from its Palatine, IL restaurant which was closed in fiscal 2010.

General and Administrative Expenses

General and administrative expenses for the first quarter of 2014 were approximately $4.2 million or 11.9% of total revenue, compared to approximately $5.5 million or 15.1% of total revenue for the first quarter of fiscal 2013. General and administrative expenses for the first quarter of fiscal 2014, as a percentage of total revenue, were 320 basis points favorable to the comparable period for fiscal 2013 as a result of the impact from reductions in force that occurred during fiscal 2013 as well as an $878,000 recapture of stock-based compensation predominately due to the recent departure of employees at an executive level. These decreases were partially offset by approximately $518,000 of severance costs, increased professional fees, and revenue deleverage.

Interest Expense

Interest expense was approximately $263,000 or 0.7% of total revenue for the first quarter of fiscal 2014, compared to approximately $285,000 or 0.8% of total revenue for the comparable time frame of fiscal 2013. Interest expense for the first quarter of fiscal 2014 was lower both in dollars and as a percentage of revenue compared to the comparable period of the prior year, reflecting lower interest rates year over year.

Provision for Income Taxes

For the first quarter of 2014, we recorded an estimated provision for income taxes of approximately $262,000 or 33.7% of income before income taxes, compared to a tax provision of approximately $23,000 or 27.1% of income before income taxes, for the first quarter of 2013. The difference year over year reflected the settlement in the quarter of an income tax audit related to the prior year and a higher level of pre-tax income.

Basic and Diluted Net Income Per Common Share

Net income for the three months ended March 30, 2014 was approximately $516,000 or $0.07 per basic and per diluted share on approximately 7,312,000 weighted average basic shares outstanding and 7,345,000 weighted average diluted shares outstanding, respectively. Net income for the three months ended March 31, 2013 was approximately $62,000 or $0.01 per basic and per diluted share on approximately 7,370,000 weighted average basic shares outstanding and 7,648,000 weighted average diluted shares outstanding, respectively.

Financial Condition, Liquidity and Capital Resources

Our balance of unrestricted cash and cash equivalents was approximately $1.9 million at March 30, 2014 and approximately $1.3 million at December 29, 2013.

Our current ratio, which measures our immediate short-term liquidity, was 0.99 at March 30, 2014 and 0.88 at December 29, 2013. The current ratio is computed by dividing total current assets by total current liabilities. The change in our ratio was primarily due to an increase in our prepaid expenses relating to the prepayment of Federal and State income taxes. As is true with most restaurant companies, we often operate in a negative working capital environment due to the fact that we receive cash up front from customers and then pay our vendors on a delayed basis.

- 23 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Net cash provided by operating activities through the first quarter of 2014 was approximately $752,000 and reflects net income of approximately $516,000, depreciation and amortization of approximately $1.5 million, asset impairment and estimated lease termination and other closing costs of $460,000, net loss on disposal of property of $434,000 and an increase in other liabilities of $668,000. These were partially offset by a decrease in accrued compensation and benefits of $1.4 million, a tax benefit for equity awards issued of $680,000, an increase in prepaid expense and other current assets of $640,000, and a recapture of stock-based compensation of $609,000.

Net cash provided by operating activities for the three months ended March 31, 2013 was approximately $3.9 million and reflects net income of approximately $62,000, depreciation and amortization of approximately $1.5 million, an increase in accounts payable of $2.8 million, and a decrease in accounts receivable of $817,000. These net increases were partially offset by decreases in accrued compensation and benefits of $1.3 million as well as an increase in prepaid expenses and other current assets of $650,000.

Net cash used for investing activities was approximately $375,000 for the first three months of fiscal 2014. Net cash used for investing activities was approximately $968,000 for the comparable period in fiscal 2013. During the first three months of 2014, we used cash of approximately $450,000 on capital expenditures for our existing restaurants and for other infrastructure projects. Additionally, we received $75,000 in proceeds from the sale of décor located in our warehouse. During the first three months of 2013, we used approximately $739,000 of cash on capital expenditures for our existing restaurants and for other infrastructure projects. The Company also paid the remaining balance of $229,000 of a liquor license for a Company-owned restaurant that opened in the fourth quarter of fiscal 2013.

Net cash provided for financing activities was approximately $272,000 for the first three months of fiscal 2014. Net cash used by financing activities was approximately $3.0 million for the comparable period in fiscal 2013. During the first three months of 2014, we had draws of $5.7 million on our line of credit and had repayments of $4.8 million. During the three months ended March 31, 2013, we had draws of $5.3 million on our line of credit and had repayments of $8.4 million. We also used approximately $869,000, excluding commissions, to repurchase 45,063 shares in the first quarter of fiscal 2014 and paid $81,000, excluding commissions, for 4,165 shares repurchased at the end of fiscal 2013, under the May 2012 share repurchase program.

The Company and certain of its subsidiaries (collectively known as the "Borrower") currently have a Credit Agreement with Wells Fargo Bank, National Association. The Credit Agreement will expire on July 5, 2016. It contains a $30.0 million revolving credit facility (the "Facility") with an opportunity to increase to $50.0 million, a term loan (the "Term Loan") and up to $3.0 million of letters of credit which reduce the availability of the Facility. At March 30, 2014, the principal amount outstanding under the Facility and the Term Loan was $12.3 million and $4.5 million, respectively, along with approximately $620,000 in letters of credit for real estate locations. The Credit Agreement allows for the termination of the Facility by the Borrower without penalty at any time. We expect to use any borrowings under the Credit Agreement for general working capital purposes as needed. Under the Credit Agreement, the Borrower has granted the Lender a security interest in all current and future personal property of the Borrower.

Principal amounts outstanding under the Facility bear interest either at an adjusted Eurodollar rate or at a "Base Rate" plus an applicable margin. The applicable margin depends on the Company's Adjusted Leverage Ratio at the end of the previous quarter. For the three months ended March 30, 2014 and March 31, 2013, our weighted average interest rate for the Facility was 2.85% and 3.09%, respectively. Unused portions of the Facility are subject to a fee, which was 0.375% of the unused amount at March 30, 2014. An option exercise fee would also apply to increased outstanding amounts between $30.0 and $50.0 million.

- 24 -


Table of Contents

FAMOUS DAVE'S OF AMERICA, INC. AND SUBSIDIARIES

Principal amounts outstanding under the Term Loan bear interest at the same rate as the Facility. The weighted average interest rate of the Term Loan for the three months ended March 30, 2014 and March 31, 2013 was 2.33% and 2.75%, respectively. The Company is required to make minimum annual amortization payments of 10.0% of the principal balance of the Term Loan.

The Facility contains various financial covenants as well as customary affirmative and negative covenants for credit facilities of this type. For more . . .

  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.