Famous Dave's said its first-quarter profit fell 35% as it continued to trim its restaurant count while prodding franchisees to adopt a new look and menu that is paying off at company-owned units.
The Minnetonka-based barbecue chain late Monday said it earned $620,000 during the first three months of the year, a decline from $954,000 a year ago.
The profit amounted to 1 cent a share, compared with 13 cents a year ago. Analysts expected 2 cents a share, and the company's shares fell 8% in after-hours indications on the news.
Revenue was $82.7 million, down from $87.1 million in the first quarter last year due to a lower restaurant count. At the end of March, the restaurant operated 138 restaurants, 14 fewer locations than a year ago. In Minnesota, a location near St. Cloud closed last month.
Comparable sales at company-owned units increased by 1.3%. Comparable sales at franchisee locations fell 1%.
Famous Dave's is accelerating its effort to purchase franchisee-owned restaurants in order to boost revenue and bring innovation across the chain.
The firm acquired 10 locations in Colorado, Michigan, Ohio and Wisconsin since the beginning of the year. Jeff Crivello, chief executive at Famous Dave's, said the firm is eyeing five more purchases through the rest of the year.
Famous Dave's executives have tried to get franchisees to remodel their restaurants, many of which haven't had significant updates for decades, according to research analyst Stephen Anderson of Maxim Group in New York City. But with renovation costs of $250,000 or more per restaurant, franchisees remain cautious, he said.
"They are hesitant to make changes and skeptical of the changes with a revolving door of CEOs," Anderson said. "Now they've had two years of positive comps [comparable sales]."
As well, Crivello has now been at the helm of Famous Dave's for 18 months, longer than several of the last few chief executives.
Last week, Famous Dave's opened a new format — smaller in size and with fewer items on the menu — in Tucson, Ariz. It has 2,500 square feet of space and only 75 seats. A typical location is nearly three times as large.
"We're extremely excited about the potential of a small footprint box," Crivello said. "The probability of success is much higher."
The company will bring the format to the Twin Cities when a lease is up at an existing location.
In Tucson, the original larger location closed and reopened in a smaller space.
The Famous Dave's location in Coon Rapids, which was given a new look and menu, continues to pay dividends with 10% sales growth. The new menu initially added 23 items, but that has now been slimmed down to save on labor and food costs, Crivello said.