business

Famous Dave's of America Inc. got a double portion of good news Thursday. The Minnetonka barbecue chain's stock rose 29 percent after the company reported first-quarter earnings that blew past Wall Street's expectations.

But executives may have been just as happy about news that an influential investor advisory firm sided with the company against its largest shareholder, which is campaigning against the reelection of Famous Dave's directors.

The report from RiskMetrics Group of New York was a rebuff to Vicuna Advisors of Stonington, Conn., which has criticized the company's management.

Based on claims that Famous Dave's had "undisciplined capital allocation relating to the opening of new stores based on current economic conditions" and that its board "has a track record of poor judgment," Vicuna had demanded that Famous Dave's expand its six-member board and give the new seventh seat to a Vicuna representative.

Famous Dave's responded that its directors were experienced and had a strong interest in the company's success because of their stock ownership. The board said it had concluded last fall that "it was no longer appropriate to add new stores."

Vicuna urged other shareholders to withhold their votes May 5 at the annual shareholder meeting rather than reappoint the company's existing directors. RiskMetrics recommended that shareholders vote for the company's nominees.

Josh Welch, a Vicuna managing partner, said he was surprised that RiskMetrics had sided with Famous Dave's, but he predicted his firm would eventually get a board seat because, he said, Vicuna's 11.3 percent stock ownership in the company entitles it to representation.

Famous Dave's sees the RiskMetrics recommendation as "an acknowledgement of our work on the board for the last six years," said director Dean Riesen, who also is chairman of the board's corporate governance committee.

The news in the Vicuna dispute came a day after Famous Dave's delivered an upside surprise with first-quarter earnings of 15 cents a share, surpassing a consensus Wall Street expectation of 5 cents.

In a report issued after the markets closed Wednesday, Famous Dave's said it earned $1.3 million on revenue of $33.8 million in its first quarter, compared with year-ago earnings of $835,000, or 9 cents a share, on revenue of $33.7 million.

Both the owned and franchised restaurants of the Minnetonka-based firm are feeling the pinch of reduced consumer spending, said Diana Purcel, chief financial officer. But food sales were hurt less than expected in existing restaurants, while new restaurants gave earnings a bigger-than-anticipated boost, she said.

Famous Dave's takeout and catering business -- which accounted for about 27 percent of its sales in the first quarter -- is suffering from the recession, Purcel said. But that was counterbalanced by stability in its dining-in business, where the average per customer spending was $14.33 in the first quarter, compared with $14.16 a year ago, she said. But to keep per-person spending flat, Famous Dave's raised prices 1.6 percent last June and another 2 percent in October.

"They're doing well compared to other restaurants in their class," said Mark Smith, an analyst at Feltl & Co. in Minneapolis.

Cost-cutting helped Famous Dave's maintain its profit margins in the first quarter, Smith said. It reduced food costs through short-term contracts, closely managed labor costs, amended lease agreements to reduce monthly payments, obtained lower-cost utility contracts and kept discount pricing to a minimum, he said.

Famous Dave's stock rose $1.29 Thursday to close at $5.76.

Steve Alexander • 612-673-4553