Sales and profits plunged at Famous Dave’s of America Inc. in the second quarter, the company said on Wednesday, and executives blamed failed moves by past management for the problem.
The sales decline in the quarter ended June 28 was particularly acute at company-owned restaurants, where same-store sales fell 9.2 percent — and 13.9 percent on a two-year basis. The company operates 49 of the system’s 181 locations.
“Over the last several quarters, prior management made multiple changes to the company restaurants throughout the corporate system,” the company said in a statement in the chain’s quarterly earnings report Wednesday. “The changes included smaller portions, different plateware and changes to iconic items such as cornbread muffins and other poor decisions.
“Ultimately, the significant changes made by prior management were not received well by our guests, extended beyond the restaurants and led to this poor second quarter and Adam Wright’s appointment as interim CEO with a few days left in the quarter.”
Profits plunged 77 percent to $654,000, or 9 cents a share, from $2.9 million or 39 cents in the same period a year ago.
Revenues in the quarter fell 10.7 percent to $37.4 million from $41.9 million in the previous quarter.
Franchisees’ same-store sales fell 3.3 percent in the period, or 6 percent on a two-year basis.
Famous Dave’s stock fell 9 percent in morning trading and is now at about $16 a share, having lost more than half of its value since hitting $35 a share in February.
Wright, an activist investor given a board seat in 2013, was appointed interim CEO in June after former CEO Ed Rensi stepped down as CEO. The change came just as Wexford Capital, owner of 20 percent of Famous Dave’s stock, filed documents as an activist investor with the Securities and Exchange Commission. Joseph Jacobs, co-founder of Wexford, was named chairman in July.
Franchisee Anand Gala has since been named to Dave’s board. Late last month, it also named Bryan Wolff, CFO of online pet sitting company DogVacay, Inc., to the board. On Wednesday the company named Abe Ruiz, chief operating officer of Dave’s Puerto Rico franchisee Colon Gerena Restaurant Group, its new chief operating officer.
“We were not satisfied with the direction of the company,” Wright said on the company’s earnings call Wednesday.
Famous Dave’s in recent weeks has worked to reverse some of the previous moves. The chain returned to using original plateware, increased portion sizes, added sauces to the table and returned the cornbread muffin at a few stores to start. These tweaks led to increased guest satisfaction scores, executives said, and the changes have since been made at the rest of the company stores.
The company is also testing a new beef brisket that is smoked for 12 hours and has “serious bark and moisture content,” Wright said. Early tests on the brisket have been positive, he said, and the company is going to start marketing the new brisket in September.
In addition, the company is testing new affordable lunch items. Part of the company’s sales problems recently has been its decision to move away from discounting strategies of past years. Wright sad the company is “not going to repeat” those discounts.
But, he said, “People believe we don’t offer enough affordable options.” Lunch, he said, could enable the chain to drive more daily traffic.
Famous Dave’s is also working to add Happy Hour. The company revealed that, in May 2014, it tested Happy Hour at four locations. Those restaurants had same-store sales growth of 3.6 percent, 540 basis points higher than a control group of restaurants that had negative same-store sales of 1.8 percent.
Following the 2014 test, the company went with a “bar bites” menu rather than Happy Hour. The company said it recently dropped bar bites from the menu due to poor performance, and that it is now implementing its Happy Hour test in restaurants.
“The past year has been difficult,” Wright said. “But I’m confident as we continue to work with our partners that there will be better days in the future.”
Contact Jonathan Maze at [email protected]
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