FOR IMMEDIATE RELEASE
Diversified Restaurant Holdings Reports 4.2% Increase in
Same-Store Sales for First Quarter 2019
Comparable sales continue to trend positive in second quarter, up 7.7% before Easter shift and 4.6% after, with both traffic and average ticket up
SOUTHFIELD, MI, May 7, 2019 -- Diversified Restaurant Holdings, Inc. (Nasdaq: SAUC) ("DRH" or the "Company"), one of the largest franchisees for Buffalo Wild Wings® ("BWW") with 64 stores across five states, today announced results for its first quarter ended March 31, 2019.
First Quarter Information (compared with prior-year period unless otherwise noted)
• | Revenue totaled $40.6 million, up 2.6% despite one fewer restaurant |
• | Same-store sales increased 4.2% |
• | Net income was $0.1 million |
• | Restaurant-level EBITDA(1) was $6.4 million or 15.7% of sales |
• | Adjusted EBITDA(1) was $4.5 million or 11.1% of sales |
• | Total debt of $99.5 million was down $3.0 million for the year-to-date period |
(1)See attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA
"The increase in our first quarter sales, particularly the strong trend in March that has continued into the second quarter, is an exciting indication of things to come for the BWW brand. Despite headwinds early in the quarter due to severe winter weather hindering sales for two entire football playoff weekends in each of our three core Midwest markets, the quarter was our second consecutive positive result for same-store sales. Our focus on perfecting the execution of the delivery channel continues to pay-off, as delivery led the way for us early in the quarter. However, as the new brand media and product launches began in mid-March, we finally saw our dine-in traffic turn positive. In fact, since those launches, our dine-in same-store sales through the end of last week are up 3.0%," commented David G. Burke, President and CEO.
"While we are disappointed that the revenue increase didn’t convert well to earnings this quarter, we are much more optimistic about the future. Cost of sales, labor and delivery expenses were all headwinds in the quarter as traditional wing prices were higher than expected and labor cost headwinds remain a concern. On the labor front, we made significant investments in training during the quarter around new brand initiatives, and while we don't expect these to be permanent costs, certain of these initiatives will also impact our labor line in the
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second quarter. Additionally, we implemented a menu price increase at the tail end of the quarter that will help to alleviate these pressures, and we are successfully and meaningfully driving down our delivery costs while continuing to ramp up sales. We have also taken another hard look at our G&A expenses, and will be executing reductions in the next several weeks approaching $1 million on an annualized basis. We expect these reductions to drive overhead expenses below 5% of sales for this year, and closer to 4.5% in future years when we get the full benefit of the reductions."
First Quarter Results | ||||||||||||||
(Unaudited, $ in thousands) | Q1 2019 | Q1 2018 | Change | % Change | ||||||||||
Revenue | $ | 40,568.1 | $ | 39,533.0 | $ | 1,035.1 | 2.6 | % | ||||||
Operating profit | $ | 1,537.5 | $ | 1,471.9 | $ | 65.6 | 4.6 | % | ||||||
Operating margin | 3.8 | % | 3.7 | % | ||||||||||
Net Income | $ | 55.4 | $ | 159.9 | $ | (104.5 | ) | (65.4 | )% | |||||
Net income per share | $ | — | $ | 0.01 | $ | (0.01 | ) | (100.0 | )% | |||||
Same-store sales | 4.2 | % | (8.5 | )% | ||||||||||
Restaurant-level EBITDA(1) | $ | 6,378.9 | $ | 6,898.1 | $ | (519.2 | ) | (7.5 | )% | |||||
Restaurant-level EBITDA margin | 15.7 | % | 17.4 | % | ||||||||||
Adjusted EBITDA(2) | $ | 4,502.2 | $ | 5,071.7 | $ | (569.5 | ) | (11.2 | )% | |||||
Adjusted EBITDA margin | 11.1 | % | 12.8 | % | ||||||||||
(1) Please see attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA
There was a favorable calendar shift in the quarter, as Easter, a holiday on which the DRH restaurants are closed, fell within the 2018 first quarter versus the second quarter in 2019.
General and administrative ("G&A") expenses as a percentage of sales decreased 20 basis points to 5.5% due to lower corporate overhead and other efficiency initiatives, partially offset by higher incentive accruals. For the full year of fiscal 2019, the Company is targeting G&A expenses below 5% of sales, excluding non-recurring items.
Food, beverage, and packaging costs as a percentage of sales increased 60 basis points to 28.8% primarily due to higher traditional chicken wing costs. Average cost per pound for traditional bone-in chicken wings, DRH’s most significant input cost, increased to $1.94 in the 2019 first quarter compared with $1.89 in the prior-year period.
Higher average wages due to a tight labor market and investments in training around new brand initiatives resulted in compensation costs as a percent of sales increasing 120 basis points to 26.9%.
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Balance Sheet Highlights
Cash and cash equivalents were $6.5 million at March 31, 2019, compared with $5.4 million at the end of 2018. Capital expenditures were $0.6 million during the first three months of 2019 and were for minor facility upgrades and general maintenance-type investments, but also included approximately $0.2 million invested in the plate ware upgrades introduced in March. DRH does not expect to build any new restaurants or complete any major remodels in 2019. As a result, the Company anticipates its capital expenditures will approximate $2.0 million in fiscal 2019.
Total debt was $99.5 million at the end of the quarter, down $3.0 million since 2018 year-end.
Mr. Burke added, "We are focused on refinancing our debt between now and the end of the third quarter. While the fact that BWW exercised its right of first refusal on our planned acquisition caused us to change course on this refinancing, we are highly confident about a successful outcome in the next several months. We expect that, after refinance, the debt service demands on our free cash flow will be substantially lessened, supporting our ability to invest in the business to drive improved financial performance and shareholder value."
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Webcast, Conference Call and Presentation
DRH will host a conference call and live webcast on Wednesday, May 8, 2019 at 10:00 A.M. Eastern Time, during which management will review the financial and operating results for the first 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 Wednesday, May 15, 2019. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13689832, 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 one of the largest franchisees for Buffalo Wild Wings with 64 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.
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Safe Harbor Statement
The information made available in this news release and the Company’s May 8, 2019 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 franchisor waiving its right of first refusal, our ability to obtain financing for the acquisition, the success of initiatives aimed at improving the Buffalo Wild Wings brand, 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.
Investor and Media Contact: |
Deborah K. Pawlowski |
Kei Advisors LLC |
716.843.3908 |
dpawlowski@keiadvisors.com |
FINANCIAL TABLES FOLLOW
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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended | ||||||||
March 31, 2019 | April 1, 2018 | |||||||
Revenue | $ | 40,568,084 | $ | 39,532,957 | ||||
Operating expenses | ||||||||
Restaurant operating costs (exclusive of depreciation and amortization shown separately below): | ||||||||
Food, beverage, and packaging costs | 11,684,395 | 11,132,377 | ||||||
Compensation costs | 10,906,293 | 10,164,655 | ||||||
Occupancy costs | 2,938,054 | 2,943,840 | ||||||
Other operating costs | 8,688,161 | 8,393,955 | ||||||
General and administrative expenses | 2,239,947 | 2,253,928 | ||||||
Depreciation and amortization | 2,565,370 | 3,166,500 | ||||||
Loss on asset disposal | 8,385 | 5,851 | ||||||
Total operating expenses | 39,030,605 | 38,061,106 | ||||||
Operating profit | 1,537,479 | 1,471,851 | ||||||
Interest expense | (1,505,335 | ) | (1,646,044 | ) | ||||
Other income, net | 40,054 | 32,640 | ||||||
Income (loss) before income taxes | 72,198 | (141,553 | ) | |||||
Income tax benefit (expense) | (16,757 | ) | 301,423 | |||||
Net Income | $ | 55,441 | $ | 159,870 | ||||
Basic and diluted earnings per share | $ | — | $ | 0.01 | ||||
Weighted average number of common shares outstanding: | ||||||||
Basic and diluted | 31,925,521 | 26,853,724 | ||||||
As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.
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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
ASSETS | March 31, 2019 | December 30, 2018 | ||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 6,506,938 | $ | 5,364,014 | ||||
Accounts receivable | 328,914 | 654,322 | ||||||
Inventory | 1,505,609 | 1,526,779 | ||||||
Prepaid and other assets | 391,621 | 556,480 | ||||||
Total current assets | 8,733,082 | 8,101,595 | ||||||
Property and equipment, net | 32,458,202 | 34,423,345 | ||||||
Operating lease right-of-use assets | 51,096,209 | 52,650,512 | ||||||
Intangible assets, net | 2,173,074 | 2,198,685 | ||||||
Goodwill | 50,097,081 | 50,097,081 | ||||||
Other long-term assets | 289,046 | 408,761 | ||||||
Total assets | $ | 144,846,694 | $ | 147,879,979 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,338,999 | $ | 4,273,133 | ||||
Accrued compensation | 2,802,803 | 1,830,415 | ||||||
Other accrued liabilities | 3,235,999 | 2,821,235 | ||||||
Current portion of long-term debt | 11,494,830 | 11,515,093 | ||||||
Current portion of operating lease liabilities | 6,190,122 | 6,670,227 | ||||||
Total current liabilities | 28,062,753 | 27,110,103 | ||||||
Operating lease liabilities, less current portion | 47,897,014 | 48,956,491 | ||||||
Deferred income taxes | 1,177,039 | 1,220,087 | ||||||
Unfavorable operating leases | 415,881 | 438,944 | ||||||
Other long-term liabilities | 321,454 | 343,075 | ||||||
Long-term debt, less current portion | 88,027,975 | 90,907,537 | ||||||
Total liabilities | 165,902,116 | 168,976,237 | ||||||
Stockholders’ deficit: | ||||||||
Common stock - $0.0001 par value; 100,000,000 shares authorized; 33,215,584 and 33,200,708, respectively, issued and outstanding | 3,188 | 3,182 | ||||||
Preferred stock - $0.0001 par value; 10,000,000 shares authorized; zero shares issued and outstanding | — | — | ||||||
Additional paid-in capital | 27,192,077 | 27,021,517 | ||||||
Accumulated other comprehensive income | 114,338 | 355,293 | ||||||
Accumulated deficit | (48,365,025 | ) | (48,476,250 | ) | ||||
Total stockholders’ deficit | (21,055,422 | ) | (21,096,258 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 144,846,694 | $ | 147,879,979 | ||||
As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.
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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended | ||||||||
March 31, 2019 | April 1, 2018 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 55,441 | $ | 159,870 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 2,542,307 | 3,166,500 | ||||||
Amortization of operating lease assets | 1,554,303 | 1,582,406 | ||||||
Amortization of debt discount and loan fees | 64,080 | 72,434 | ||||||
Loss on asset disposals | 8,385 | 5,851 | ||||||
Share-based compensation | 168,338 | 234,758 | ||||||
Deferred income taxes | 6,175 | (301,423 | ) | |||||
Changes in operating assets and liabilities that provided (used) cash: | ||||||||
Accounts receivable | 325,408 | 358,167 | ||||||
Inventory | 21,171 | (2,937 | ) | |||||
Prepaid and other assets | 107,230 | (38,763 | ) | |||||
Intangible assets | — | (20,076 | ) | |||||
Other long-term assets | (57,050 | ) | — | |||||
Accounts payable | 85,155 | (1,325,034 | ) | |||||
Operating lease liabilities | (1,539,582 | ) | (1,581,449 | ) | ||||
Accrued liabilities | 1,365,530 | 1,187,397 | ||||||
Net cash provided by operating activities | 4,706,891 | 3,497,701 | ||||||
Cash flows from investing activities | ||||||||
Purchases of property and equipment | (602,290 | ) | (496,061 | ) | ||||
Net cash used in investing activities | (602,290 | ) | (496,061 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of long-term debt | ||||||||
Repayments of long-term debt | (2,963,905 | ) | (2,879,156 | ) | ||||
Proceeds from employee stock purchase plan | 28,137 | 18,974 | ||||||
Tax withholdings for restricted stock | (25,909 | ) | (43,617 | ) | ||||
Net cash used in financing activities | (2,961,677 | ) | (2,903,799 | ) | ||||
Net increase in cash and cash equivalents | 1,142,924 | 97,841 | ||||||
Cash and cash equivalents, beginning of period | 5,364,014 | 4,371,156 | ||||||
Cash and cash equivalents, end of period | $ | 6,506,938 | $ | 4,468,997 | ||||
As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.
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DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | |||||||
Reconciliation between Net Income and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA | |||||||
Three Months Ended (Unaudited) | |||||||
March 31, 2019 | April 1, 2018 | ||||||
Net Income | $ | 55,441 | $ | 159,870 | |||
+ Income tax (benefit) expense | 16,757 | (301,423 | ) | ||||
+ Interest expense | 1,505,335 | 1,646,044 | |||||
+ Other income, net | (40,054 | ) | (32,640 | ) | |||
+ Loss on asset disposal | 8,385 | 5,851 | |||||
+ Depreciation and amortization | 2,565,370 | 3,166,500 | |||||
EBITDA | $ | 4,111,234 | $ | 4,644,202 | |||
+ Non-recurring expenses (Restaurant-level) | 27,671 | — | |||||
+ Non-recurring expenses (Corporate-level) | 363,299 | 427,525 | |||||
Adjusted EBITDA | $ | 4,502,204 | $ | 5,071,727 | |||
Adjusted EBITDA margin (%) | 11.1 | % | 12.8 | % | |||
+ General and administrative | 2,239,947 | 2,253,928 | |||||
+ Non-recurring expenses (Corporate-level) | (363,299 | ) | (427,525 | ) | |||
Restaurant–Level EBITDA | $ | 6,378,852 | $ | 6,898,130 | |||
Restaurant–Level EBITDA margin (%) | 15.7 | % | 17.4 | % | |||
As a result of the Company’s adoption of the new lease standard (ASU 2016-02), certain prior year amounts have been reclassified for consistency with the current year presentation.
Restaurant-Level EBITDA represents net income plus the sum of non-restaurant specific general and administrative expenses, loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and non-recurring expenses. Adjusted EBITDA represents net income plus the sum of 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.
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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.
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