Famous Dave’s third-quarter financial results were downright infamous.
The embattled barbecue chain lost money on operations as its sales fell even more than Wall Street expected. The Minnetonka-based company also announced Wednesday it’s no longer in compliance with a key credit agreement.
Its shares sunk 17 percent on the day, hitting a 52-week low before rallying a bit.
Famous Dave’s of America Inc. reported net income of $708,000, or 10 cents per share, for the quarter ended Sept. 27. That’s down from $2 million, or 28 cents per share, in the same quarter a year ago.
Adjusted to exclude one-time gains from the sale of real estate, Famous Dave’s lost 5 cents per share in the quarter. That compares with an adjusted profit of 26 cents per share a year ago.
Stock analysts polled by Thomson Reuters were expecting an adjusted net profit of 16 cents per share, meaning the company fell short by 21 cents.
“I don’t know if anyone expected it to be this ugly, but it was,” said Mark Smith, a stock analyst at Feltl and Co.
Revenue decreased to $31.8 million from $37.7 million a year ago, partly reflecting the closure of four company-owned restaurants and the re-franchising of another five company-owned restaurants.
To make matters worse, same-store sales, which take into account recently opened or closed restaurants, fell a dramatic 9.8 percent from a year ago at company-owned restaurants and 3.6 percent at franchisee-owned outlets. Analysts polled by Thomson Reuters were expecting same-store sales declines of 4.15 percent and 2.5 percent, respectively.
“I can’t think of anyone in the restaurant industry who is comping that negatively,” Smith said. “It’s a big top-line miss, and it really flows through [to the bottom line].”
The company’s stock closed at $10.10, down $2.07 on the day and well off the $30-plus it was trading at last winter.
Famous Dave’s, which has 180 restaurants across 33 states, Canada and Puerto Rico, has been stagnating for years, but has been in outright turmoil in the past few months.
Ed Rensi, Famous Dave’s third CEO in three years, abruptly resigned in June. Two months later, when reporting an ugly second quarter, Famous Dave’s publicly criticized Rensi for making changes that upset customers, including serving smaller portions. Rensi, hired by some of the activist investors who still own big stakes in Dave’s, had grand plans to remodel restaurants and refresh Dave’s menu.
“We are working to correct the mistakes of previous management,” Adam Wright, Famous Dave’s interim CEO and a board member, said in a conference call with stock analysts. “We are moving the company forward. … It will just take some time.”
Due “in large part” to expenses associated with recent management and strategic changes, Famous Dave’s said in a press statement that it’s not in compliance with certain cash flow ratios under its credit agreement with Wells Fargo.
The company said it’s in discussions with Wells Fargo to address the noncompliance and anticipates a resolution with a waiver, amendment or standstill agreement.
Less than two weeks ago, Famous Dave’s announced it would bring back “Famous” Dave Anderson, the company’s founder. Anderson left active management at Famous Dave’s in the early 2000s, but continued to do some consulting and marketing work until March 2014. He’s returning as a consultant again and is expected to have an expanded role compared to his presence in recent years, the company said.
“The first thing he is doing is to innovate and focus on food quality and our menu,” Wright told stock analysts.
Smith said that Anderson’s return is likely just window dressing to Wall Street. But to Famous Dave’s franchisees, employees and customers, “it’s a legitimate positive,” said Smith, the Feltl analyst. “They like Dave and they respect Dave. And Dave does know barbecue.”