DAVE Dave Inc

Famous Dave's of America Inc. (DAVE) recently inked a multi-unit franchise deal with Famous Ribs of Canada Ltd, a subsidiary of Tribal Councils Investment Group of Manitoba Ltd. (“TCIG”).  The terms of this very first international deal signed by Famous Dave's were not disclosed. The initial location is anticipated to come up in June 2012 in Winnipeg, Manitoba.

As a successful private investment holding company, TCIG enjoys local market knowledge and has a proven track record of owning and franchising businesses in wholesale, retail, construction, health services, financial services, transportation and real estate holdings.

This deal affirms management’s intent to make Canada one of the prime international markets for Famous Dave's. The Canadian market offers great growth opportunities as Canadians are appreciative of high quality food such as authentic Bar-B-Que for which the company is particularly renowned.

Since this is Famous Dave's first international venture, we foresee ample business opportunities ahead for it. In the domestic market, the company presently owns and franchises 184 restaurants in 37 states.

Earlier, Famous Dave's management thought of considering international ventures many a times, but either the timing or the deal did not resonate with the company’s business plan.

Some other U.S. restaurant chains like P.F. Chang's China Bistro Inc. (PFCB) and Buffalo Wild Wings Inc. (BWLD) and are also expanding their footprints in Canada.

Famous Dave's has stepped into the international market through a licensing agreement as it reduces the company’s capital intensity. Generally under a license agreement, a company is entitled to receive an initial territory fee, store opening fees and ongoing royalty revenues based on a percentage of international restaurant sales. Minnetonka, Minnesota-based Famous Dave's is counting on these sources of income to boost its profitability.

We believe that the company is trying to spread its presence beyond the U.S. more aggressively following cut-throat competition in the rather saturated domestic casual dining market.

Famous Dave's currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock.

 
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