Famous Dave's Lags Estimates in 1Q

Zacks

Minnetonka, Minnesota-based Famous Dave's of America Inc.(DAVE) reported first quarter 2012 adjusted earnings of 12 cents per share, missing the Zacks Consensus Estimate by 7 cents and the prior-year quarter adjusted earnings by 4 cents. The earnings exclude the closure costs of approximately one cent related to the sale of a company-owned location in the reported quarter.

Famous Dave’s, which owns, franchises and operates restaurants in U.S., reported total revenue of $37.5 million, down 1.1% year over year, due to decrease in same-store sales. Company-owned restaurants sales remained flat year over year at $32.7 million. Franchise royalty revenue climbed 8.7% year over year to $4.4 million, benefiting from unit growth.

Quarter Highlights

Same-store sales for company-owned restaurants declined 1.6% during the quarter compared with an upside of 3.0% in the year-ago quarter. The downside in comparable sales was attributable to a decrease in dine-in guest traffic.

Same-store sales at franchise-operated restaurants inched down 0.1% compared with flat growth in the first quarter of 2011.

As a percentage of restaurant sales, food and beverage costs spiked 160 basis points to 31.1% and labor and benefit expense expanded 130 basis points to 33.2%, partially offset by a dip of 40 bps in operating expense to 29.3%. As a percentage of total revenue, general and administrative expense jumped 20 bps to 11.9% and depreciation and amortization expense remained flat at 0.4%. Hence, the company’s operating margin contracted 150 basis points to 4.0%.

Store Update

During the quarter, the company opened one franchised restaurant. The company sold two franchised and one company-operated restaurant during the reported quarter.

At the end of the first quarter, the company operated 185 restaurants, including 53 company-owned restaurants and 132 franchise-operated restaurants.

Financial Position

Famous Dave’s reported cash and cash equivalents of $1.7 million and shareholders’ equity of $33.4 million at the end of first quarter 2012.

During the quarter, the company repurchased 148,000 shares at an average price of $10.97, excluding commission.

Outlook

In 2012, Famous Dave's expects to open up to 15 restaurants, which includes 2 company-owned restaurants. Of the 2 company-owned locations, one will come up in Winnipeg, Canada; thus marking the company’s first opening outside US.

The company also plans capital expenditure of $6.5 million for the renovation and maintenance of existing restaurants along with investment in various infrastructure projects.

Our Take

As the economy is showing signs of improvement, we believe Famous Dave's will likely generate improved earnings. In 2012, the company will focus on mitigating the effect of price increases of key items. However, estimates have not budged in the last 30 days, indicating the absence of any near-term catalysts.The Zacks Consensus Estimates for 2012 and 2013 are pegged at 82 cents and 93 cents, respectively.

One of Famous Dave's primary competitors, Brinker International Inc.’s (EAT) reported third quarter 2012 earnings of 60 cents per share surpassing the Zacks Consensus Estimate of 56 cents, driven by higher restaurant margin and traffic growth.

The company has a Zacks #4 Rank, which implies a short-term Sell rating on the stock. We also reiterate our long-term Neutral recommendation.

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