With the impending sale of the struggling Romano’s Macaroni Grill chain, executives of parent Ignite Restaurant Group Inc. said Thursday they would focus on improving sales at Joe’s Crab Shack and growing the Brick House Tavern + Tap brand.
“Our focus will sharpen as we return to the same basic company we took public three years ago, with Joe’s acting as our primary generator of free cash flow and Brick House Tavern + Tap as our primary growth vehicle,” Ray Blanchette, Ignite’s president and CEO, told analysts after releasing fourth-quarter earnings.
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Why Ignite sold Macaroni Grill for so little
Houston-based Ignite said Tuesday that it would sell Macaroni Grill for $8 million to Redrock Partners LLC, a new Phoenix-based company headed by John Gilbert, Macaroni Grill’s president for the past year. Ignite bought Macaroni Grill from Golden Gate Capital for $55 million in April 2013.
“Hindsight is always 20-20, and as discussed in prior calls, I think our enthusiasm for that great brand got the better of us,” Blanchette said.
Analysts expressed optimism about the Macaroni Grill sale, which is scheduled to be completed in mid-April.
“Management outlined a high-level strategy to improve operating performance and drive longer-term growth for the remaining brands,” David Tarantino, an analyst with R.W. Baird & Co., said in a note Friday. “We are optimistic that a more focused approach will yield meaningful benefits over time, although we fear that planned initiatives will take time to gain traction given the negative operating momentum for Joe's.”
Blanchette said the company would learn from the experience.
“We’ll grow and ultimately be a better company for it,” he said. “Ignite will continue to dream big and continue to look for opportunities to grow our business.”
Brick House had “solid” same-store sales in the fourth quarter, he said, increasing 5.7 percent, but Joe’s “continued to struggle with the top line.” Joe’s same-store sales fell 4.5 percent in the quarter, and Macaroni Grill’s same-store sales slipped 2.8 percent.
“The volatility in Joe’s sales remains high,” Blanchette said. “When we reported Q3 results, the earning trend in Q4 was flattish. So going from flattish to our reported down 4.5 percent is clearly disappointing.”
In the first quarter of this year, which is nearly two-thirds complete, Joe’s same-store sales were still negative, he said.
“Changes need to be made,” Blanchette said.
Ignite’s strategy includes new menu items; lower price points, especially at lunch; improved operations and “edgier and better-targeted” marketing. The company is testing pricing on lunch menus at a “handful” of restaurant, and Blanchette cautioned that, “we may or may not scale up.”
“We recently launched several key service initiatives aimed at improving speed in execution in the restaurants,” Blanchette said. “We’ve seen rising customer satisfaction and likely-to-recommend scores. So when your average customer visits, a few of them two times a year, it takes a while for that to show up in the guest counts and same store sales. But as the only national crab house, we continue to have a defensible position that we will leverage.”
Among the operational improvements was delivering service as quickly as customers are increasingly expecting and marketing programs with “a strong call to action associated with it,” he said.
Brick House is carrying its sales momentum into the first quarter, with positive same-store sales in the mid-single digits, Blanchette said.
Before the Macaroni Grill sale, three locations of that brand were being converted to Brick House restaurants, with two already open in Fort Worth, Texas, and Princeton, N.J., and a third to open in late March in Grapevine, Texas.
“We are excited to grow the Brick House brand, but we have been bit constrained on that front as we worked on the Macaroni Grill business,” said Michael Dixon, Ignite’s president and chief financial officer.
The sale of 153-unit Macaroni Grill will also provide savings in Ignite’s general and administrative expenses going forward, Dixon said. As of Dec. 29, Ignite had 139 Joe’s Crab Shack locations and 21 Brick House restaurants.
“Clearly there are absolute dollars savings in G&A associated with the sale,” Dixon said. “When we acquired Mac Grill we didn't double our G&A, so we don’t expect to be able to cut it in half on the way out. But there will be material reductions going forward. Fortunately the Redrock team needs a number of smart, hardworking team members across their G&A structure, so many if not most of the individuals leaving Ignite will be offered employment with the new Mac Grill.”
Ignite widened its losses in the fourth quarter ended Dec. 29, reporting a negative $48.5 million, or $1.89 a share, on special tax charges, compared with $4.4 million, or 17 cents a share, in the same period a year ago. Fourth-quarter revenue fell 5.1 percent, to $177.3 million, from $186.8 million the previous year.
Blanchette added that selling Macaroni Grill was “one of the toughest decisions I’ve had to make as the CEO of this company.”
However, he added that, “it was the right thing for Ignite and most importantly for our shareholders.”
Contact Ron Ruggless at [email protected].
Follow him on Twitter: @RonRuggless
