Diversified Restaurant Holdings, Inc. (NASDAQ:SAUC) ("DRH" or
the "Company"), the largest franchisee for Buffalo Wild Wings®
("BWW") with 65 stores across five states, today announced results
for its second quarter ended June 25, 2017.
Second Quarter Key Information (from continuing
operations)
- Revenue totaled $39.9 million, down
2.5%
- Same-store sales decreased 3.67% for
the quarter and are off 1.95% for the year
- Restaurant-level EBITDA was $6.6
million, or 16.6% of sales(1)
- Adjusted EBITDA totaled $4.6 million,
or 11.6% of sales(1)
- Net loss for the quarter was $0.3
million, with year-to-date net income of $0.5 million
- Cash generated from operations was $2.1
million for the quarter and $6.5 million year-to-date
- Total debt of $118.1 million is down
$3.0 million for the year
(1) See attached table for a reconciliation of GAAP net income
(loss) to Restaurant-level EBITDA and Adjusted EBITDA
“With a focus on productivity and prudent ROI-based spending
decisions, we completed the bulk of our capital projects for the
year and continued to generate positive free cash flow, which was
used to pay down debt,” commented David G. Burke, President and
CEO. “We also maintained efficient use of labor, and have decreased
overhead expenses as we are on track to achieve at least $1 million
in run rate savings in G&A. Additionally, we’ve implemented a
number of productivity initiatives in an effort to combat
inflationary input costs. These actions are targeting $3 to $4
million in annualized savings.”
Mr. Burke added, “Delivery service is now in place at 38 of our
locations and continues to show strong growth without cannibalizing
our carry-out business. The Half-Price Wing Tuesdays® promotion has
been beneficial in driving strong traffic to our restaurants, and
our ‘BOGO’ test, which replaced the half-off message with a buy
one, get one offer limited to smaller order sizes, is showing
promising early results. We believe actions such as these position
us well for when macro headwinds subside.
“Our sales for the quarter were negatively impacted by
unfavorable sports outcomes in each of our core markets, with 60
key NHL and NBA play-off games last year dropping an unprecedented
level to only 20 this year. Coupled with the Easter holiday closure
moving to the second quarter this year and two major road
construction projects, the sales headwinds were difficult to
overcome. However, adjusted for these items, we did see positive
traffic, and sales momentum increased later in the quarter. We’re
also contending with margin pressure driven by record high
traditional chicken wing prices, which added 169 basis points to
our cost of sales for the quarter,” concluded Mr. Burke.
The same-store sales decrease of 367 basis points was driven by
115 basis points from the Easter holiday shift, approximately 200
basis points from the unfavorable sports outcomes noted above and
60 basis points from significant traffic-disrupting construction in
two of our locations. Geographically, the Midwest continued to
perform relatively well, while the Florida market remains
contracted, particularly in the coastal segments of the franchise
region.
Second Quarter Results (from continuing operations)
(Unaudited, $ in thousands)
Q2 2017
Q2 2016 Change % Change Revenue $
39,934.6 $ 40,951.2 $ (1,016.6 ) (2.5 )% Operating income $ 721.3 $
1,387.1 $ (665.8 ) (47.9 )% Operating margin 1.8 % 3.4 % Net income
(loss) $ (291.3 ) $ 234.3 $ (525.6 ) (224.3 )% Diluted net
income (loss) per share $ (0.01 ) $ 0.01 $ (0.02 ) (200.0 )%
Same-store sales (3.7 )% (2.0 )% Restaurant-level
EBITDA(1) $ 6,617.7 $ 8,141.1 $ (1,523.4 ) (18.7 )%
Restaurant-level EBITDA margin 16.6 % 19.9 % Adjusted EBITDA(1) $
4,622.7 $ 5,955.5 $ (1,332.8 ) (22.4 )% Adjusted EBITDA margin 11.6
% 14.5 %
Year-to-date Results (from continuing
operations) (Unaudited, $ in thousands)
YTD 2017 YTD
2016 Change % Change Revenue $ 84,272.6 $
84,094.4 $ 178.2 0.2 % Operating income $ 3,087.9 $ 4,503.1 $
(1,415.2 ) (31.3 )% Operating margin 3.7 % 5.4 % Net income $ 504.2
$ 1,526.8 $ (1,022.6 ) (67.0 )% Diluted net income
per share $ 0.02 $ 0.06 $ (0.04 ) (66.7 )%
Same-store sales (2.0 )% (2.5 )% Restaurant-level EBITDA(1)
$ 15,042.3 $ 17,435.3 $ (2,393.0 ) (13.7 )% Restaurant-level EBITDA
margin 17.8 % 20.7 % Adjusted EBITDA(1) $ 10,780.5 $ 13,139.4 $
(2,358.9 ) (18.0 )% Adjusted EBITDA margin 12.8 % 15.6 %
(1)Please see attached table for a reconciliation of GAAP net
income to Restaurant-level EBITDA and Adjusted EBITDA
Balance Sheet Highlights - Continuing Operations
Cash and cash equivalents were $3.8 million at June 25, 2017,
compared with $4.0 million at 2016 year-end. Year-to-date cash
generated from continuing operations was $6.5 million, down from
$8.1 million in the same period of 2016. Capital expenditures were
$3.6 million during the first six months of 2017 and were primarily
for one new restaurant and restaurant refreshes and remodels.
Capital expenditures were $9.4 million in the first half of
2016.
Fiscal 2017 Guidance
Given the continued negative impacts to sales, combined with
record high traditional wing costs, the Company revised its 2017
guidance:
- Revenue of $170 million to $173
million
- Restaurant-level EBITDA of $31 million
to $33 million
- Adjusted EBITDA between $22.5 million
to $24.5 million
- Capital expenditures of approximately
$5 million to $6 million
Webcast, Conference Call and Presentation
DRH will host a conference call and live webcast on Friday,
August 4, 2017 at 10:00 A.M. Eastern Time, during which management
will review the financial and operating results for the second
quarter, and discuss its corporate strategies and outlook. A
question-and-answer session will follow.
The teleconference can be accessed by calling (201) 389-0879.
The webcast can be monitored at
www.diversifiedrestaurantholdings.com. A presentation that will be
referenced during the conference call is also available on the
website.
A telephonic replay will be available from 1:00 P.M. ET on the
day of the call through Friday, August 11, 2017. To listen to the
archived call, dial (412) 317-6671 and enter replay pin number
13665226, or access the webcast replay at
http://www.diversifiedrestaurantholdings.com, where a transcript
will also be posted once available.
About Diversified Restaurant Holdings, Inc.
Diversified Restaurant Holdings, Inc. is the largest franchisee
for Buffalo Wild Wings with 65 franchised restaurants in key
markets in Florida, Illinois, Indiana, Michigan and Missouri. DRH’s
strategy is to generate cash, reduce debt and leverage its strong
franchise operating capabilities for future growth. The Company
routinely posts news and other important information on its website
at http://www.diversifiedrestaurantholdings.com.
Safe Harbor Statement
The information made available in this news release and the
Company’s August 4, 2017 earnings conference call contain
forward-looking statements which reflect DRH's current view of
future events, results of operations, cash flows, performance,
business prospects and opportunities. Wherever used, the words
"anticipate," "believe," "expect," "intend," "plan," "project,"
"will continue," "will likely result," "may," and similar
expressions identify forward-looking statements as such term is
defined in the Securities Exchange Act of 1934. Any such
forward-looking statements are subject to risks and uncertainties,
actual growth, results of operations, financial condition, cash
flows, performance, business prospects and opportunities could
differ materially from historical results or current expectations.
Some of these risks include, without limitation, the impact of
economic and industry conditions, competition, food safety issues,
store expansion and remodeling, labor relations issues, costs of
providing employee benefits, regulatory matters, legal and
administrative proceedings, information technology, security,
severe weather, natural disasters, accounting matters, other risk
factors relating to business or industry and other risks detailed
from time to time in the Securities and Exchange Commission filings
of DRH. Forward-looking statements contained herein speak only as
of the date made and, thus, DRH undertakes no obligation to update
or publicly announce the revision of any of the forward-looking
statements contained herein to reflect new information, future
events, developments or changed circumstances or for any other
reason.
FINANCIAL TABLES FOLLOW
DIVERSIFIED RESTAURANT
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS
OF OPERATIONS (Unaudited)
Three Months Ended Six Months
Ended June 25, 2017 June 26, 2016
June 25, 2017 June 26, 2016 Revenue $
39,934,602 $ 40,951,181 $ 84,272,566 $ 84,094,433
Operating expenses Restaurant operating costs (exclusive of
depreciation and amortization shown separately below): Food,
beverage, and packaging costs 11,921,549 11,419,519 24,959,976
23,479,278 Compensation costs 10,168,376 10,303,717 21,133,906
20,823,963 Occupancy costs 2,838,826 2,774,108 5,732,677 5,540,567
Other operating costs 8,388,150 8,312,756 17,418,026 16,886,503
General and administrative expenses 2,066,409 2,347,052 4,423,375
4,521,343 Pre-opening costs 294,473 445,941 325,843 569,384
Depreciation and amortization 3,271,541 3,824,076 6,904,795
7,586,178 Loss on asset disposal 264,015 136,927
286,074 184,151
Total operating expenses
39,213,339 39,564,096 81,184,672
79,591,367 Operating profit 721,263
1,387,085 3,087,894 4,503,066 Interest
expense (1,642,306 ) (1,440,552 ) (3,218,260 ) (2,885,492 ) Other
income, net 25,140 36,265 52,307 76,007
Income (loss) from continuing operations before income taxes
(895,903 ) (17,202 ) (78,059 ) 1,693,581 Income tax benefit
(expense) of continuing operations 604,560 251,546
582,296 (166,808 )
Income (loss) from continuing
operations (291,343 ) 234,344 $
504,237 $ 1,526,773 Discontinued
operations Loss from discontinued operations before income taxes
(169,127 ) (422,191 ) $ (132,592 ) $ (1,845,895 ) Income tax
benefit of discontinued operations 51,380 5,421
50,385 567,100
Loss from discontinued
operations (117,747 ) (416,770 )
(82,207 ) (1,278,795 ) Net
Income (Loss) $ (409,090 ) $
(182,426 ) $ 422,030 $
247,978 Basic earnings (loss) per share from:
Continuing operations $ (0.01 ) $ 0.01 $ 0.02 $ 0.06 Discontinued
operations $ (0.01 ) $ (0.02 ) $ — $ (0.05 ) Basic net earnings
(loss) per share $ (0.02 ) $ (0.01 ) $ 0.02 $ 0.01 Diluted
earnings (loss) per share from: Continuing operations $ (0.01 ) $
0.01 $ 0.02 $ 0.06 Discontinued operations $ (0.01 ) $ (0.02 ) $ —
$ (0.05 )
Diluted net earnings (loss) per share $ (0.02 ) $
(0.01 ) $ 0.02 $ 0.01
Weighted average number of common
shares outstanding Basic 26,621,421 26,379,065 26,625,697
26,338,549 Diluted 26,621,421 26,379,065 26,625,697 26,338,549
DIVERSIFIED RESTAURANT
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS June 25, 2017(UNAUDITED)
December 25, 2016 Current assets Cash and cash
equivalents $ 3,780,769 $ 4,021,126 Accounts receivable 132,962
276,238 Inventory 1,667,371 1,700,604 Prepaid and other assets
1,247,014 1,305,936
Total current assets
6,828,116 7,303,904 Deferred income taxes
17,230,959 16,250,928 Property and equipment, net 53,099,285
56,630,031 Intangible assets, net 2,538,260 2,666,364 Goodwill
50,097,081 50,097,081 Other long-term assets 192,717 233,539
Total assets $ 129,986,418
$ 133,181,847 LIABILITIES AND
STOCKHOLDERS' DEFICIT Current liabilities Accounts
payable $ 3,912,160 $ 3,995,846 Accrued compensation 2,367,958
2,803,549 Other accrued liabilities 2,135,006 2,642,269 Current
portion of long-term debt 12,929,400 11,307,819 Current portion of
deferred rent 203,232 194,206
Total current
liabilities 21,547,756 20,943,689 Deferred
rent, less current portion 2,229,741 2,020,199 Unfavorable
operating leases 551,094 591,247 Other long-term liabilities
3,802,789 3,859,231 Long-term debt, less current portion
105,218,920 109,878,201
Total liabilities
133,350,300 137,292,567 Stockholders'
deficit Common stock - $0.0001 par value; 100,000,000 shares
authorized; 26,633,299 and 26,632,222, respectively, issued and
outstanding 2,612 2,610 Additional paid-in capital 21,566,109
21,355,270 Accumulated other comprehensive loss (1,088,255 )
(934,222 ) Accumulated deficit (23,844,348 ) (24,534,378 )
Total
stockholders' deficit (3,363,882 )
(4,110,720 ) Total liabilities and
stockholders' deficit $ 129,986,418
$ 133,181,847
DIVERSIFIED RESTAURANT HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 25, 2017 June
26, 2016 Cash flows from operating activities Net income
$ 422,030 $ 247,978 Net loss from discontinued operations (82,207 )
(1,278,795 ) Net income from continuing operations 504,237
1,526,773 Adjustments to reconcile net income to net cash provided
by operating activities Depreciation and amortization 6,904,795
7,586,179 Amortization of debt discount and loan fees 104,970
117,238 Amortization of gain on sale-leaseback (67,698 ) (78,604 )
Loss on asset disposals 286,076 184,151 Share-based compensation
181,922 187,710 Deferred income taxes (632,681 ) 298,537 Changes in
operating assets and liabilities that provided (used) cash Accounts
receivable 143,276 3,843 Inventory 33,233 61,136 Prepaid and other
assets 58,922 220,604 Intangible assets (8,653 ) 47,253 Other
long-term assets 40,822 7,939 Accounts payable (75,913 ) (2,032,153
) Accrued liabilities (941,964 ) (111,344 ) Deferred rent (4,448 )
64,941
Net cash provided by operating activities of
continuing operations 6,526,896 8,084,203
Net cash used in operating activities of discontinued
operations (82,207 ) (2,660,649 )
Net cash provided by operating activities 6,444,689
5,423,554 Cash flows from investing
activities Purchases of property and equipment (3,571,296 )
(9,422,814 )
Net cash used in investing activities of continuing
operations (3,571,296 ) (9,422,814
) Net cash provided by investing activities of
discontinued operations — (258,319
) Net cash used in investing activities
(3,571,296 ) (9,681,133 )
Cash flows from financing activities Proceeds from issuance
of long-term debt 3,215,641 7,109,154 Repayments of long-term debt
(6,358,310 ) (11,134,717 ) Proceeds from employee stock purchase
plan 28,919 20,782 Tax withholdings for restricted stock units —
(9,326 )
Net cash used in financing activities
(3,113,750 ) (4,014,107 ) Net
decrease in cash and cash equivalents (240,357 )
(8,271,686 ) Cash and cash equivalents,
beginning of period 4,021,126 13,499,890
Cash and cash equivalents, end of period $
3,780,769 $ 5,228,204
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND
SUBSIDIARIES Reconciliation between Net Income (Loss) and
Adjusted EBITDA and Adjusted Restaurant-Level EBITDA
Three Months Ended (Unaudited)
Six Months Ended (Unaudited) June
25, 2017 June 26, 2016 June 25,
2017 June 26, 2016 Net lncome (Loss)
$ (409,090 ) $
(182,426 ) $ 422,030
$ 247,978 + Loss from discontinued
operations 117,747 416,770 82,207 1,278,795 + Income tax expense
(benefit) (604,560 ) (251,546 ) (582,296 ) 166,808 + Interest
expense 1,642,306 1,440,552 3,218,260 2,885,492 + Other income, net
(25,140 ) (36,265 ) (52,307 ) (76,007 ) + Loss on asset disposal
264,015 136,927 286,074 184,151 + Depreciation and amortization
3,271,541 3,824,076
6,904,795 7,586,179
EBITDA
$ 4,256,819 $
5,348,088 $ 10,278,763
$ 12,273,396 + Pre-opening costs
294,473 445,941 325,843 569,384 + Non-recurring expenses
(Restaurant-level) — — 14,300 71,184 + Non-recurring expenses
(Corporate-level) 71,457 161,436
161,554 225,390
Adjusted EBITDA
$ 4,622,749 $
5,955,465 $ 10,780,460
$ 13,139,354 Adjusted EBITDA margin (%)
11.6 % 14.5 % 12.8 % 15.6 % + General and administrative 2,066,409
2,347,052 4,423,375 4,521,343 + Non-recurring expenses
(Corporate-level) (71,457 ) (161,436 )
(161,554 ) (225,390 )
Restaurant–Level EBITDA
$ 6,617,701 $
8,141,081 $ 15,042,281
$ 17,435,307 Restaurant–Level EBITDA
margin (%) 16.6 % 19.9 % 17.8 % 20.7 %
Restaurant-Level EBITDA represents net income (loss) plus the
sum of non-restaurant specific general and administrative expenses,
restaurant pre-opening costs, loss on property and equipment
disposals, depreciation and amortization, other income and
expenses, interest, taxes, and non-recurring expenses. Adjusted
EBITDA represents net income (loss) plus the sum of restaurant
pre-opening costs, loss on property and equipment disposals,
depreciation and amortization, other income and expenses, interest,
taxes, and non-recurring expenses. We are presenting
Restaurant-Level EBITDA and Adjusted EBITDA, which are not
presented in accordance with GAAP, because we believe they provide
additional metrics by which to evaluate our operations. When
considered together with our GAAP results and the reconciliation to
our net income, we believe they provide a more complete
understanding of our business than could be obtained absent this
disclosure. We use Restaurant-Level EBITDA and Adjusted EBITDA
together with financial measures prepared in accordance with GAAP,
such as revenue, income from operations, net income, and cash flows
from operations, to assess our historical and prospective operating
performance and to enhance the understanding of our core operating
performance. Restaurant-Level EBITDA and Adjusted EBITDA are
presented because: (i) we believe they are useful measures for
investors to assess the operating performance of our business
without the effect of non-cash depreciation and amortization
expenses; (ii) we believe investors will find these measures useful
in assessing our ability to service or incur indebtedness; and
(iii) they are used internally as benchmarks to evaluate our
operating performance or compare our performance to that of our
competitors.
Additionally, we present Restaurant-Level EBITDA because it
excludes the impact of general and administrative expenses and
restaurant pre-opening costs, which is non-recurring. The use of
Restaurant-Level EBITDA thereby enables us and our investors to
compare our operating performance between periods and to compare
our operating performance to the performance of our competitors.
The measure is also widely used within the restaurant industry to
evaluate restaurant level productivity, efficiency, and
performance. The use of Restaurant-Level EBITDA and Adjusted EBITDA
as performance measures permits a comparative assessment of our
operating performance relative to our performance based on GAAP
results, while isolating the effects of some items that vary from
period to period without any correlation to core operating
performance or that vary widely among similar companies. Companies
within our industry exhibit significant variations with respect to
capital structure and cost of capital (which affect interest
expense and tax rates) and differences in book depreciation of
property and equipment (which affect relative depreciation
expense), including significant differences in the depreciable
lives of similar assets among various companies. Our management
team believes that Restaurant-Level EBITDA and Adjusted EBITDA
facilitate company-to-company comparisons within our industry by
eliminating some of the foregoing variations.
Restaurant-Level EBITDA and Adjusted EBITDA are not determined
in accordance with GAAP and should not be considered in isolation
or as an alternative to net income, income from operations, net
cash provided by operating, investing, or financing activities, or
other financial statement data presented as indicators of financial
performance or liquidity, each as presented in accordance with
GAAP. Neither Restaurant-Level EBITDA nor Adjusted EBITDA should be
considered as a measure of discretionary cash available to us to
invest in the growth of our business. Restaurant-Level EBITDA and
Adjusted EBITDA as presented may not be comparable to other
similarly titled measures of other companies and our presentation
of Restaurant-Level EBITDA and Adjusted EBITDA should not be
construed as an inference that our future results will be
unaffected by unusual items. Our management recognizes that
Restaurant-Level EBITDA and Adjusted EBITDA have limitations as
analytical financial measures.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170803006543/en/
Investors and Media:Kei Advisors LLCDeborah K. Pawlowski,
716-843-3908dpawlowski@keiadvisors.com
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