SOUTHFIELD, Mich. - Nov. 13, 2013 // GLOBE NEWSWIRE // - Diversified Restaurant Holdings, Inc. (Nasdaq:BAGR) ("DRH" or the "Company"), the creator, developer, and operator of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Freshly-Crafted Burger Tavern® ("Bagger Dave's") and one of the largest franchisees for Buffalo Wild Wings® ("BWW"), today announced results for the third quarter and nine-month period ended September 29, 2013.
Third quarter revenue of $26.4 million was up $9.6 million, or 56.5%, from the third quarter of 2012. Sales growth was primarily driven by the addition of 20 new restaurants since last year's period, which included eight acquired BWW in September 2012. Comparable restaurant sales increased 3.7% on a consolidated basis for the third quarter of 2013. There were 36 comparable restaurants for the period, which included 30 BWW and six Bagger Dave's. Two-year comparable sales grew 11.2%.
"We continued to successfully execute our growth strategy and delivered solid results while operating in what are traditionally slow summer months. We opened two new locations in the quarter and are on track to open a total of ten restaurants this year," commented Michael Ansley, President and CEO of DRH. "Our Bagger Dave's brand continues to strengthen and we are poised to further expand our brand awareness with sound site selection, aggressive marketing that focuses on the quality and freshness of our food, and the continual improvements that drive customer service levels and provide competitive advantages."
At the end of the third quarter, the Company had 50 restaurants operating, comprised of 15 Bagger Dave's and 35 BWW. This was an increase of 66.7% from 30 restaurants at the end of the prior-year third quarter. DRH expects to end the year with 55 restaurants.
Net income in the third quarter of 2013 was $0.1 million compared with $0.2 million in the same period of the prior year.
Food, beverage, and packaging costs as a percentage of revenue decreased 120 basis points to 29.4% in the 2013 third quarter from 30.6% in the third quarter of 2012. The improvement was due to lower chicken wing pricing.
Compensation costs increased $2.8 million to $7.0 million in the third quarter of 2013, primarily due to staffing additional restaurants. As a percentage of revenue, compensation costs were 26.4% and 24.8% in third quarter of 2013 and 2012, respectively.
Total restaurant operating costs in the 2013 third quarter were $21.8 million, or 82.6% of revenue, compared with $13.7 million, or 81.4% of revenue, in the prior-year period.
Third quarter of 2013 general and administrative costs as a percentage of revenue improved 360 basis points to 5.9% from the prior-year period of 9.5%. The inherent operational leverage from higher sales and cost discipline drove the improvement.
Third quarter pre-opening costs were $0.6 million compared with $0.3 million, and reflect the two new restaurants that were opened during the period and expenses associated with planned openings in the fourth quarter, along with a relocation planned for early 2014. There was one opening and fewer in-progress openings in last year's third quarter. Pre-opening costs, which have averaged about $225 thousand per restaurant in 2013, can vary from quarter to quarter depending on the location, number, and timing of openings.
Depreciation and amortization increased to $2.1 million in the third quarter of 2013 from $1.0 million in the 2012 third quarter, a reflection of the capital investments made over the past year.
Restaurant-level EBITDA increased 47.0% to $4.6 million for the third quarter of 2013 from the same period of the prior year. Adjusted EBITDA was $3.0 million, or 11.5% of revenue, for the 2013 third quarter, compared with $1.5 million, or 9.0% of revenue, in the third quarter of 2012. (1)DRH believes that, when used in conjunction with GAAP measures, restaurant-level EBITDA and adjusted EBITDA, which are non-GAAP measures, provide additional information related to its operating performance. (See reconciliation of restaurant-level EBITDA and adjusted EBITDA in the supplemental tables included at the end of this release.)
Interest expense was $0.3 million in the third quarter of 2013 and 2012, respectively.
Total revenue for the nine months ended September 29, 2013 was $80.4 million, an increase of $29.1 million, or 56.7%, over the same period in 2012, which ended September 23, 2012. A significant portion of the increase, approximately $26.2 million, was attributable to revenue generated from new locations. Consolidated comparable restaurant sales were up $2.9 million, or 4.6%, in the first nine months of 2013 compared with last year's period.
Restaurant-level EBITDA was $14.5 million and $9.6 million for the year-to-date periods of 2013 and 2012, respectively. Adjusted EBITDA increased 81.9% to $9.6 million for the first nine months of 2013 from $5.3 million in the corresponding period of 2012. As a percentage of revenue, Adjusted EBITDA was up 160 basis points to 11.9%. (See reconciliation of restaurant-level EBITDA and adjusted EBITDA in the supplemental tables included at the end of this release.)
For the first nine months of 2013, net income attributable to DRH was $0.3 million, or $0.01 per diluted share, compared with $0.8 million, or $0.04 per diluted share, for the 2012 period. Adjusted net income for the first nine months of 2013, which excludes non-recurring expenses associated with the Company's listing on the NASDAQ and debt restructuring activities, was $0.5 million, or $0.02 per diluted share. (See the reconciliation between GAAP Net Income and Adjusted Net Income in the supplemental table included in this release.)
Cash flow from operations for the first nine months of 2013 was relatively consistent year-over-year at $5.8 million.
Cash, cash equivalents and investments were $20.5 million at September 29, 2013, compared with $22.4 million at the end of the second quarter and $2.7 million at December 30, 2012. The Company issued 6.9 million shares in an underwritten, follow-on equity offering in April for net proceeds of $31.9 million, of which $10.0 million was used to pay down the Company's $63.0 million credit facility. The Company believes that its existing cash, cash from operations, and the credit facility will be sufficient to meet its operational funding, development, and obligations for at least the next 12 months.
Capital expenditures were $17.3 million during the first nine months of 2013 compared with $7.2 million during the first nine months of 2012, and reflect new restaurant development. For 2013, DRH estimates capital expenditures to be up to $27.0 million, down from its original projection of $29.0 million, with the majority focused on new restaurants.
DRH is on track to open 10 new locations in 2013, with four additional restaurants planned before the end of the year. One Bagger Dave's has already opened during the 2013 fourth quarter.
DRH tightened and adjusted its guidance for fiscal 2013. Revenue for fiscal 2013 is expected to be around $110.0 million. The Company's restaurant-level EBITDA range for fiscal 2013 is expected to be approximately $20.0 million to $20.5 million while adjusted EBITDA for fiscal 2013 is expected to be between $13.0 million and $13.5 million.
"We remain very optimistic in both the long-term outlook of our existing markets and our ability to continue our restaurant expansion," commented Mr. Ansley. "We believe there are many opportunities to expand our business and, in early 2014, we expect to roll out the mobile payment app for our Bagger Dave's loyalty program. We are also introducing enhanced and expanded food options which we believe will drive recurring customer visits. For instance, we are adding chicken to the menu which will provide a variety of additional options for adults and children as well as enhance our existing salad selections."
Mr. Ansley continued, "New restaurant development is a critical component of our strategy and we plan to open 11 new locations next year, with much of the pipeline well along the development schedule. As in 2013, the openings planned for next year will continue to focus on penetrating and driving awareness in our existing geographic footprint."
For fiscal 2014, the Company provided the following outlook:
DRH will host a conference call and webcast on Thursday, November 14, 2013 at 10:00 a.m. Eastern Time, during which management will review the financial and operating results for the third quarter and discuss its corporate strategies and outlook. The review will be accompanied by a slide presentation which will be made available prior to the conference call on the Company's website at www.diversifiedrestaurantholdings.com. A question and answer session will follow.
The teleconference can be accessed by calling (201) 493-6780. The webcast can be monitored on the Company's website at www.diversifiedrestaurantholdings.com.
A telephonic replay will be available from 1:00 p.m. Eastern Time on the day of the teleconference through Thursday, November 21, 2013. To listen to a replay of the call, dial (858) 384-5517 and enter the conference ID number 10000465. An archive of the webcast will be available on the Company's website and will include a transcript, once available.
Diversified Restaurant Holdings, Inc. ("DRH" or the "Company") is the creator, developer, and operator of the unique, full-service, ultra-casual restaurant concept, Bagger Dave's Freshly-Crafted Burger Tavern® ("Bagger Dave's") and one of the largest Buffalo Wild Wings® ("BWW") franchisees. Between the two concepts, the Company currently operates 50 corporate-owned restaurants in Michigan, Florida, Illinois, and Indiana, and one franchised Bagger Dave's in Missouri, for a total of 51 restaurants. The Company routinely posts news and other important information on its website at www.diversifiedrestaurantholdings.com.
Bagger Dave's offers a full-service, family-friendly restaurant and bar with a casual, comfortable atmosphere. The menu features freshly-made burgers, accompanied by more than 30 toppings from which to choose, along with fresh-cut fries, hand-dipped milkshakes, and a selection of craft beer and wine. Signature items include Sloppy Dave's BBQ®, Train Wreck Burger®, and Bagger Dave's Amazingly Delicious Turkey Black Bean Chili®. The Bagger Dave's concept emphasizes local flair by showcasing historical photos of the city in which each restaurant resides and features an electric train that runs above the dining room. Currently, there are 15 corporate-owned locations and one franchised location. For more information, visit www.baggerdaves.com.
DRH operates 35 BWW restaurants (17 in Michigan, 10 in Florida, 4 in Illinois, and 4 in Indiana), including the nation's largest BWW, based on square footage, in downtown Detroit, Michigan. The Company is on track to fulfill its area development agreement with franchisor Buffalo Wild Wings, Inc. (Nasdaq:BWLD) and plans to operate approximately 48 BWW restaurants by the end of 2017.
The information made available in this news release contains 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 and the Company's 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 and drug 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 our 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 TO FOLLOW
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Restaurant-Level EBITDA represents net income (loss) attributable to DRH plus the sum of non-restaurant specific general and administrative expenses, restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes, income attributable to noncontrolling interest and non-recurring acquisition related expenses in Q1 2013 and non-recurring expenses related to the NASDAQ listing in Q2 2013. Adjusted EBITDA represents net income (loss) attributable to DRH plus the sum of restaurant pre-opening costs, loss on property and equipment disposals, the change in fair value of derivative instruments, depreciation and amortization, other income and expenses, interest, taxes, income attributable to noncontrolling interest, 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 an additional metric 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, both which are non-recurring at the restaurant level. 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, including the following:
Investor
Craig P. Mychajluk
Kei Advisors LLC
716.843.3832
cmychajluk@keiadvisors.com
Company
David G. Burke
Chief Financial Officer
248.223.9160
Diversified Restaurant Holdings, Inc.
Diversified Restaurant Holdings, Inc. owns and operates Bagger Dave's Burger Tavern, a full-service, family-friendly restaurant and full bar.