Famous Dave's of America Inc. — faced with sinking sales and fleeing customers — admits it even botched the cornbread.
The restaurant chain on Wednesday reported a steep drop in second-quarter profit and harshly criticized its recently departed chief executive for changes that upset customers of the barbecue chain.
"The changes included smaller portions, different plateware and changes to iconic items such as cornbread muffins and other poor decisions," the company said in a statement. "Ultimately, the significant changes made by prior management were not received well by our guests, extended beyond the restaurants and led to this poor second quarter."
Famous Dave's also fingered "prior management" for its failure to implement a happy hour promotion.
Ed Rensi, who abruptly resigned as CEO in mid-June after just over a year in the job, was the Minnetonka-based company's third CEO in three years. Rensi, a former McDonald's executive, had been hired by activist investors who snapped up Dave's stock over the past two years and now own about half of the company's shares.
With Rensi's exit, the company installed board member Adam Wright as temporary CEO. Wright is a co-founder of Minneapolis-based Blue Clay Capital Management, which owns about 6 percent of Famous Dave's.
Wright told stock analysts Wednesday he replaced "the prior CEO because we were not satisfied with the direction of the company." Rensi could not be reached for comment.
Rensi had big plans to remodel Famous Dave's restaurants and refresh the menu. Smoked meats were to be tucked into new dishes like flatbreads and tacos to better appeal to a younger demographic. Some traditional flourishes — like cornbread — were dropped.
Rensi's plan called for extensive and expensive renovations.
Franchisees, which own about 75 percent of Famous Dave's outlets, balked.
"It was a pretty failed experiment over the last year or so," said Mark Smith, a stock analyst at Feltl and Co. "Your franchisee base is really your bread and butter and to upset that base makes it really tough to do a turnaround."
Last week, the company appointed to the board Californian Anand Gala, one of its longtime franchisees, with about 10 Famous Dave's.
The board had been stocked with representatives of hedge funds that own big chunks of Dave's stock.
"I think you need that voice of the franchisee," Smith said.
The company also last week elected Bryan Wolff to fill a vacant director's position. He is the chief financial officer of DogVacay Inc., an online pet-sitting company.
Famous Dave's said Wednesday that all board members with significant stock ownership in the company have agreed to waive their cash board fees on an ongoing basis.
The company also announced the hiring of Abe Ruiz, who previously led Famous Dave's franchise units, as chief operating officer.
Famous Dave's reported earnings for the quarter ending June 28 of $654,000, or 9 cents a share, down 77 percent from $2.9 million, or 39 cents a share, in the same period a year ago. Adjusted for one-time charges, Dave's profits were 18 cents per share, well short of analysts' forecasts of about 25 cents a share.
Revenue fell 11 percent to $37.4 million from $41.9 million a year ago. That partly reflects the closure of three restaurants. But it also includes a 9 percent decrease in same-store sales, a key gauge that excludes recently opened and closed stores.
Famous Dave's shares, which traded as high as $34 earlier this year, hit a 52-week low Wednesday, closing at $15.61, down $2.13 or 12 percent.
In its statement, Famous Dave's said interim CEO Wright has spent "a large amount of time" studying customer comments, and talking with employees and franchisees about turning around the company.
"This has led to the implementation of a series of changes to return the guest experience to what it was just nine months ago and improve the brand further from there," the statement said. "The first eight restaurants to return to the original plateware, increase portion size, add sauces back to the table and return iconic items, including the cornbread muffin, have already seen significant improvements in guest feedback."
The company acknowledged that it "needs to do more than just change things back" and noted that Dave's is testing a new brisket.
"Specifically, the test is of a whole muscle brisket that is smoked in-house daily for 12 hours. This brisket is served fresh and has serious bark and moisture content," the company said.
Smith said the new brisket is more in line with Dave's traditional fare. "That's why people go there."
Staff writer Evan Ramstad contributed to this story.
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