Famous Dave's plans turnaround after earnings miss mark

Famous Dave’s of America Inc. is planning to overhaul several areas of the company after fourth-quarter and full-year earnings results missed targets.

Company officials conceded during a conference call with analysts that quarterly and annual financial results “fell well short of expectations.” At the same time, the casual-dining operator detailed turnaround plans for 2013 that included a realigned business model and a new menu set to debut this spring.

“While we hate delivering bad news,” chief executive John Gilbert said, “the work is already underway with new leadership, a new marketing structure, new analytical tools and an engaged operator community with our sights set on renewed growth.”

For the Dec. 30, 2012-ended fourth quarter, Famous Dave’s net income jumped to $750,000, or 10 cents per share, compared with $414,000, or 5 cents per share, a year earlier.

However, revenue dropped 3.2 percent to $36.3 million, reflecting same-store sales declines of 6 percent at company-owned restaurants and 4 percent at franchised locations.

Full-year net income decreased 21.4 percent to $4.4 million, or 57 cents per share, compared with $5.6 million, or 68 cents per share, a year earlier.

Fiscal-2012 revenue was essentially flat at $155 million, compared with $154.8 million a year earlier, reflecting full-year same-store sales declines of 1.8 percent at company-owned units and 2 percent at franchised restaurants.

New structure for a new year

Famous Dave’s plans to open two company-owned locations and 15 franchised restaurants in 2013, including more versions of its fast-casual “barbecue shack” variant. But the company’s first task is to reverse falling same-store sales by driving growth in all facets of the restaurant, Gilbert said.

The sales deceleration that picked up toward the end of last year prompted Gilbert, who joined the company in October, to review the business and make several fundamental changes, including an overhaul of the marketing department. The new structure is simply called the “sales” department and is split into four lines of business with a dedicated executive focused on one of the four areas: dine-in, carryout, catering and retail.

“The early opportunity is simply the fact that our guests access our brand in four different ways,” Gilbert said. “Not all consumers access Famous Dave’s similarly across all occasions, and by not taking advantage of the fact that the dine-in occasion is different from catering or carryout, we’ve been leaving money on the table.”

As a result of the realigned marketing department aiming to run individual promotions through each line of business, the to-go and catering portions of Famous Dave’s sales are expected to grow this year, Gilbert said. New campaigns with specific carryout and catering messages will go out via TV and radio commercials, as well as through the chain’s large email database.

“If you take that deconstructed marketing calendar and add it back together, it’s a portfolio approach that is less reliant on big bets,” he said. “We have a much broader platform for growth than in the past. That’s not a 2013 thing; that’s a permanent thing.”

The brand also will move further away from deep discounts it ran at the end of 2011, Gilbert added.

Aiming for staying power on the menu

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Chief financial officer Diana Purcell said Famous Dave’s expects a decrease in annual cost of goods sold of more than 1 percent in 2013. About half the benefit will come from contracting on certain commodities and the remainder will come from menu management initiatives. The company also expects that new products set to join the menu permanently in 2013 will have beneficiary effects on food costs because of higher yields, such as a reformulated brisket that would be smoked fresh in-house and a new “burnt ends” dish that uses several cuts of meat that until now were not fully used on the menu.

A new menu is scheduled to debut in April with a 1.5-percent menu price increase, Purcell said. Famous Dave’s hired consultant Revenue Management Solutions in December to help the brand determine further pricing actions after the rollout.

Gilbert said the burnt ends dish is performing well in test marketing, and initial feedback on the brand’s catfish entrée, which came back to the permanent menu last week after a hiatus of more than two years, has been overwhelmingly positive.

Managing the menu through permanent additions is intended to help food costs and restaurant margins by reducing the waste associated with depleting inventory from unsuccessful limited-time offers, he added.

“We’ve had new product news as part of our historical approach to the business, but the risk in that is if you get it wrong, you have a big problem,” Gilbert said. “A couple of times in 2012, we didn’t click on product news. … We’re not as reliant on having the big, home-run limited-time offer this year. We don’t even have any LTOs, as all the new products will be permanent.”

Toward the height of barbecue season this summer, Famous Dave’s also will have a major initiative ready for growing beer sales in its dine-in business, he added.

Minneapolis-based Famous Dave’s operates 53 company-owned restaurants and franchises another 134 units in 34 states and one Canadian province.

Contact Mark Brandau at [email protected].
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