Ignite Restaurant Group warned late Tuesday that its results for the second quarter would fall short of guidance because of expenses to “stabilize” the newly acquired Macaroni Grill chain.
Houston-based Ignite said it estimates a net loss per share of 10 cents to 12 cents for the quarter ended July 1 amid same-store sales declines of about 7.4 percent at Macaroni Grill. The company estimates same-store sales increases of 0.7 percent at Joe’s Crab Shack and 6.4 percent at Brick House Tavern + Tap.
“Our second-quarter operating results were significantly impacted by our decision to increase spending in the Macaroni Grill business to help drive immediate sales improvement,” Ray Blanchette, Ignite’s chief executive said in a statement. “Returning the Mac Grill units to appropriate staffing levels, along with an enhanced media buy, to offset the negative sales trends required a greater initial spend than originally expected.”
Ignite completed its acquisition of Romano’s Macaroni Grill on April 9.
“After the acquisition, management invested much more in advertising and store labor costs than originally expected in an effort to stem the bleeding,” analysts Bryan C. Elliott and Brian M. Vaccaro of Raymond James said in an analyst note Wednesday.
They added that sales deterioration at the brand has been higher than company expected. Ignite on Tuesday said it saw deterioration in Macaroni Grill sales trends of about 600 basis points between the company’s signing of a letter of intent and acquisition’s closing.
Same-store sales at Macaroni Grill had improved from March, when they declined 11.5 percent, to the most recent four weeks, where they decreased 1 percent.
“This news is very disappointing,” the Raymond James team added.
Ignite, in its earnings preview, said the company estimates total revenue to increase 72 percent, to $228.1 million, for the second quarter compared to $132.9 million in the prior-year period. That increase includes about $86 million from the Macaroni Grill business, the company said.
“Second-quarter results were also negatively affected by an increase in marketing expenses of approximately $2 million and inefficiencies associated with our significant investment in labor, primarily related to our strategic efforts to stabilize and increase Macaroni Grill revenues,” the company said in its preview.
“Our vision for the potential of the Macaroni Grill brand and its benefit to the Ignite business are unchanged,” Blanchette said. “However, it will likely take longer to prove accretive to our earnings than originally anticipated.”
Ignite will release full second-quarter financial results on Aug. 7.
Ignite owns and operates 134 Joe's Crab Shacks, 186 Romano's Macaroni Grills and 16 Brick House Tavern + Taps. Ignite also franchises five Romano's Macaroni Grills in the United States and 19 units throughout U.S. territories and other countries.
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