Del Frisco’s Restaurant Group Inc. is addressing the “disappointing” performance at its Del Frisco’s Grille concept after it missed expected earnings during the fourth quarter, executives said Friday.
“We’re disappointed that we did not meet our expectations for the fourth quarter and deliver the performance our shareholders deserve,” Del Frisco’s CEO Mark Mednansky said during a call Friday discussing earnings. Executives said they are working on operations at the 16-unit Grille.
The Southlake, Texas-based steakhouse operator said net income for the fourth quarter ended Dec. 30 rose 20.2 percent, to $5.5 million, or 23 cents per share, from $4.6 million, or 19 cents per share, the previous year. Analysts targeted earnings of about 41 cents per share during the quarter. Revenue rose 8.6 percent during the quarter, to $105.8 million, from $97.5 million the previous year.
Blended same-store sales increased 2.4 percent for all three brands during the quarter, rising 4.8 percent at Del Frisco’s Double Eagle Steakhouse and 1.8 percent at Sullivan’s Steakhouse.
Grille performance fell short and “was primarily the cause for our earnings miss,” Mednansky said.
“We will begin reporting actual comparable restaurant sales for the Grille in the first quarter [2015],” he said. “But as the math would imply, trends at restaurants open longer than 18 months were mid-single-digit negative.”
Mednansky said the Grille was updating its training, recipes, cooking methods, kitchen preparation times and technology to speed service and reduce labor costs.
Jeff Carcara, Del Frisco’s chief operating officer, said the company has been analyzing the Grille concept and its customers.
“We have started to address and some of those learnings,” Carcara said. “Because of the strong brand and halo effect of the Del Frisco’s Double Eagle Steakhouse, one of the early findings is that a Grille experience may be more expensive than it actually is, and perhaps we are giving off more a fine-dining vibe than we had intended.”
While the Grille is upscale, Carcara said it is meant for everyday dining and drinking. “In response, we are tweaking certain design elements and crafting marketing messages to show our upscale value proposition,” he said.
Grille customers also want a quicker dining experience, Carcara said, so in the fourth quarter the division reengineered some recipes to allow for quicker preparation and faster service. The Grille will also test new kitchen technology at its next opening in The Woodlands, Texas, he said.
Grille servers are being trained to abbreviate spiels and provide a quicker pace of dining, Carcara said. The division is working to improve its marketing to Gen X consumers, generally those born from the early 1960s to the early ’80s.
“This should help us better manage the honeymoon and post-honeymoon periods by increasing awareness through media channels such as online display ads, digital and traditional radio, limited print and social media,” he said.
Mednansky added that even with the Grille’s menu engineering in the fourth quarter, the company is finding that customers are still looking for prime steak and wine.
“We’re more concerned about getting people in the door,” he said. “One of the things we found in all of our surveys, in all of our interviews and in all of our intercepts that we’ve been doing is: Once they get into the Grille, they see the value prop[osition]. … It was really the barrier before they got in the restaurant that they have to get over.”
For 2015, Del Frisco’s offered guidance of same-store sales increases of 2 percent and 3 percent.
Lynne Collier, an analyst with Sterne Agee, said in a note that Del Frisco’s “results disappointed, but we believe concerns are in part reflected in the current stock price, given a valuation well below its high-growth peer group.”
Del Frisco’s executives said they expect to open seven new restaurants in 2015, including one Del Frisco’s Double Eagle Steakhouse and six Del Frisco’s Grille units.
Del Frisco’s has 46 restaurants in 20 states and Washington, D.C.
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