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Famous Dave's on Growth Trajectory

Zacks Equity Research

Consistent with its aggressive growth strategy, Famous Dave's of America Inc. (DAVE) recently announced that it has penned its largest deal of the year. Under the deal, the barbecue and restaurant concept chain plans to add 21 restaurants in the U.S., with most of the openings targeted in California and the rest in Michigan, Missouri and Washington. The deal represents the first step towards achieving the company’s goal of opening around 50 new units by 2014.

Famous Dave’s intends to open 16 units in San Diego, Los Angeles, Ventura County and Sacramento and one each in Riverside, Montebello, Lansing , Independence  and Yakima. As a matter of fact, the company currently has 18 restaurants in California, six in Washington, eight in Michigan and three in Missouri.

The emerging restaurant industry of California caught the attention of Famous Dave’s, which conform its decision of opening majority of the restaurants in that state. As per the National Restaurant Association, the Californian restaurant industry accounted for around $62 billion of revenues in 2011. The industry has been projected to register around $63.8 billion of revenues in 2012, which tops the projected top 12 highest revenue generating U.S. states.

Famous Dave’s is on an expansion spree at domestic and international levels. In the recently completed quarter, the company opened its first restaurant outside the U.S. in Winnipeg, Canada, and expects to open a unit in Puerto Rico by year end. In the last quarter, the 200-seat restaurant, which featured the legendary Famous Dave’s barbeque, generated the highest revenues from any single location ever. Considering the growing popularity of this barbeque concept, the company aims to develop the concept in the chosen markets for expansion.

We remain impressed with the company’s decision to increase the number of units, despite the challenging environment for restaurant growth in the U.S. However, the company should be wary of its competitors. Renowned U.S.-based restaurant chain companies such as - BJ's Restaurants, Inc. (BJRI) and Darden Restaurants, Inc. (DRI) already have a significant presence.

The company recently reported its third-quarter 2012 earnings per share of 13 cents, missing the Zacks Consensus Estimate by 7 cents. As of October 29, 2012, Minnetonka, Minnesota-based Famous Dave’s owned 53 locations and franchised 132 additional units in 33 states and one Canadian province.

We currently have a long-term Neutral recommendation on Famous Dave’s. However, it carries a short term Zacks #4 Rank (Sell).

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