I'm sure the franchisees would prefer DAVE to spend more on marketing support, but I'd rather the franchisees spend more of their own money. We certainly agree that franchisee performance is a weak spot, and probably does need to be addressed more comprehensively at HQ.
Appreciate the comments, agree that I don't know all of DAVE's economics. Lowering the royalty for some franchisees could potentially lead to existing franchisees seeking the same adjustment; to me, an investment risk. I'd prefer seeing DAVE increase marketing support for all franchisees rather than buying back stock...to close the performamce gap between franchise and company owned stores. Generating higher sales across all units would seem to have a bigger potential positive cash flow impact than discounting royalty rates to meet an expansion plan.
You are assuming no more franchise restaurants close. I think more closed this year in excess of the New York stores that the company purchased.
The incentive they are providing might seem to indicate that they are having problems with the franchisees in terms of getting them to grow their units or stay afloat.
rantoul also doesn't seem to understand the 2011 growth drivers for DAVE. The big driver is the 7 restaurants they added in New York/New Jersey last spring. That was a 15% expansion of their company-owned restaurant base. A full year's sales and a return to profitability will help both the top and bottom lines a lot. A return to comparable stores growth will also increase sales, and eps even more strongly. Then the completed stock buyback, which decreased their diluted share count over 7% year-over-year, will amply these effects on eps.
The news from the post-release conference call was DAVE reducing the royalty rate for new franchise properties. Good news in that it indicates DAVE taking a more aggressive expansion stance, alternately it suggests future results will show less revenue per store. Second, margin pressures as future meat costs expected higher in an environment where it is hard to raise prices. Third, share buy back completed. Cash needed to support business.