Famous Dave's ends difficult year on sour note

A tumultuous and just plain bad year for Famous Dave's is ending on another off note.

The Minnetonka-based restaurant chain recently disclosed that after violating debt covenants, its available credit has been restricted, meaning it will have less money to invest in a turnaround.

Meanwhile, Famous Dave's, which has about 180 barbecue restaurants in 33 states, has sold seven company-owned outlets in Chicago to a franchisee, getting less for them than one stock analyst expected.

"It looks pretty tough," said Mark Smith, a stock analyst at Feltl & Co.

Indeed, Famous Dave's stock closed Tuesday at $6.91, a low not seen since early 2010 and well below the $30 that Dave's shares commanded just last January.

The stock has come under even more pressure the past two weeks as one of Famous Dave's largest hedge fund owners, New York-based LionEye Capital, ran aground. After steep losses, LionEye is reportedly shutting down its $1.5 billion hedge fund at year's end, essentially making it a forced seller of Famous Dave's shares.

Famous Dave's stock had run up in 2014 after activist hedge funds piled into it and a new CEO was hired to turn around the stagnant company. But the CEO, Ed Rensi, quit abruptly in June. Terrible quarterly financial results followed in August and November, and the bad news has kept coming.

The maximum on a term loan to Dave's has been cut from $30 million to $12 million, and the maturity of that loan has been moved up from 2020 to 2018, according to a filing with the U.S. Securities and Exchange Commission. Dave's had to pay Wells Fargo $5.14 million, and the balance on the term loan appears to be at the $12 million cap.

Under the new credit agreement, Famous Dave's revolving credit with Wells Fargo also was reduced, from $5 million to $3 million. The company will pay somewhat higher interest rates. And Dave's will be prohibited from making "growth capital expenditures" in excess of $2 million during any fiscal year.

"It severely limits their growth capital," Smith said.

Adam Wright, Famous Dave's interim CEO, said the company still has financial room to grow. "We have plenty of liquidity to run our business. We are going to make the investments we need to make in our business."

And Wells Fargo "wants us to be able to reinvest in our business," said Wright, whose Minneapolis-based Blue Clay Capital Management owns a stake in Dave's.

The sale is part of Dave's long-term goal of re-franchising company-owned restaurants, Wright said.

Windy City plans to invest in Famous Dave's existing Chicago-area outlets and develop new stores there, Famous Dave's said in a press statement. Windy City paid $1.15 million — plus the book value of inventory — and took on some liabilities, including leases, according to the SEC filing.

In conjunction with the sale, Dave's will recognize that its Chicago area restaurants have lost value, taking an asset impairment charge of $8.5 million to $8.8 million, though up to $1.3 million of that may be eventually recovered.

Smith said the $1.15 million price for the Chicago restaurants "is well below what we would have expected [Famous Dave's] to get."

The seven restaurants sold to Windy City include one in the suburb of Bolingbrook, Ill., where Famous Dave's had extensively remodeled under Rensi.

The restaurant was a testing ground for his ideas, which included axing much of the Americana on Dave's interior walls and refreshing the menu with more modern fare like flatbread sandwiches.

Rensi, who once headed McDonald's U.S. operations, was recruited to run Famous Dave's by two of the hedge funds that built up big stakes in Famous Dave's stock. Two months after Rensi left, the company blamed the departed CEO for changes that hurt sales.

Mike Hughlett • 612-673-7003