Diversified Restaurant Holdings Reports 15.4% Increase In Revenue To $16.8 Million In Third Quarter 2012

  • Same store sales for Bagger Dave's and Buffalo Wild Wings increased 3.4% and 7.5%, respectively
  • Cash and cash equivalents doubles to $3.1 million
  • Company on schedule to have 45 restaurants by year-end

SOUTHFIELD, Mich., Nov. 7, 2012 // GLOBE NEWSWIRE // - Diversified Restaurant Holdings, Inc. (OTCQB:DFRH) ("DRH" or the "Company"), the owner, operator, and franchisor of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and the largest franchisee for Buffalo Wild Wings® ("BWW"), reported third quarter 2012 financial results, which ended September 23, 2012.

Third quarter 2012 revenue was $16.8 million, an increase of $2.2 million, or 15.4%, over the $14.6 million generated during third quarter of 2011. Approximately $1.3 million of the increase was attributable to revenue generated from newer locations that did not meet the criteria for being included in same-store-sales reporting. This included three Bagger Dave's that opened since the first quarter of 2011 and revenue from one BWW restaurant that opened during the fourth quarter of 2011. The remaining
$1.0 million increase was related to same-store-sales growth of 3.4% for Bagger Dave's and 7.5% for BWW.

T. Michael Ansley, President and Chief Executive Officer of DRH, commented, "Our commitment in creating a guest-centric culture continues to drive our success in attracting loyal customers and delivering solid financial results. Our management team is dedicated to developing top-performing restaurant teams who meet our high standards and are equally dedicated to delighting our guests to ensure our restaurants are the ultra-casual dining destination of choice."

Third Quarter Operating Performance

Food, beverage, and packaging costs increased by $0.9 million, or 21.8%, to $5.2 million in the third quarter of 2012 from the prior-year period, primarily due to the opening of four new restaurants since the end of the 2011 second quarter, as well as the carry-over impact of increased commodity food prices. The average cost per pound for bone-in chicken wings was $1.97 in third quarter of 2012 compared with $1.16 in the third quarter of 2011

The addition of four new restaurants and the preparation of opening seven new locations in the fourth quarter drove higher labor costs, which increased 15.1% to $4.2 million in third quarter of 2012 from $3.6 million in third quarter of 2011. However, as a percentage of sales, labor costs improved slightly to 24.8% in third quarter of 2012 from 24.9% in the prior-year period.

Third quarter general and administrative expenses of $1.6 million increased by $0.4 million, or 37.6%, from $1.2 million in the third quarter of 2011. This increase was due to the hiring of personnel necessary to support the Company's rapid expansion. General and administrative expenses as a percentage of revenue increased to 9.5% in 2012 third quarter from 8.0% in the same period the prior year.

The Company was in the construction phase of seven additional restaurants during the third quarter of 2012 compared with no new stores opened or under construction in the third quarter of 2011. As a result, year-over-year pre-opening costs increased by $146 thousand to $281 thousand in third quarter.

Net income attributable to DRH for the third quarter of 2012 was $241 thousand, or $0.01 per diluted share, compared with net income of $151 thousand, or $0.01 per diluted share, in the same period of the prior year.

Year-to-Date Review

Total revenue for the nine months ended September 23, 2012 was $51.3 million, an increase of $6.7 million, or 15.0%, compared with $44.6 million generated during the same period in 2011, which ended September 25, 2011. Approximately $4.1 million of the increase was attributable to revenue generated from newer locations that did not meet the criteria for same-store-sales reporting. The remaining $2.6 million increase was related to same-store sales growth of 9.4% for three Bagger Dave's restaurants and 6.7% for 19 BWW restaurants meeting same-store-sales criteria.

For the first nine months of 2012, net income attributable to DRH was $0.8 million, or $0.04 per diluted share, compared with net income of $1.3 million, or $0.07 per diluted share, for the first nine months of 2011.

Cash flow from operations for the first nine months of 2012 was $5.7 million compared with $5.5 million for the same period last fiscal year.

Balance Sheet

Cash and cash equivalents substantially increased by approximately $1.5 million, or 99.7%, to $3.1 million at September 23, 2012, compared with the 2011 year-end balance.

Total DRH Stockholders' equity increased 46.7% to $2.2 million in the third quarter of 2012 from $1.5 million at the end of 2011.

On September 25, 2012, the Company entered into a senior secured credit facility with RBS, N.A., consisting of a five-year, $37.0 million term loan, a $10.0 million development line of credit and a $1.0 million revolving line of credit. The term loan was primarily used to refinance existing outstanding debt and $14.7 million went towards the recent acquisition of eight Buffalo Wild Wings restaurants (with rights to develop another restaurant in Indiana). DRH intends to fund up to 30% of all construction and start-up costs for future restaurants using the $10.0 million development line of credit. The Company believes that cash flow from operations and the development line will be sufficient to meet its operational funding, development, and obligations for the foreseeable future.

Outlook

Total capital expenditures for fiscal year 2012 are expected to be approximately $10.0 million, the majority of which is for new construction. Approximately $0.4 million is for upgrading existing stores. Through the first nine months of 2012, capital expenditures were $7.2 compared with $6.1 for the comparable period in 2011. DRH has three planned restaurant openings for the remainder of 2012, which include BWW restaurants in Detroit, Michigan and Ybor City, Florida and one Bagger Dave's restaurant in Indianapolis, Indiana, bringing the Company's restaurant total to 45 by year's end.

On September 25, 2012, the Company completed an acquisition of eight Buffalo Wild Wings restaurants, with four operating in Illinois and four in Indiana, along with the right to develop a fifth Indiana location. This transaction expands the scope of the Company's operations, adds a number of new markets to the existing footprint, and strategically positions DRH for future expansion throughout the Midwest. Long term, the Company is looking to leverage these markets by expanding the Bagger Dave's concept within the same footprint.

Mr. Ansley concluded, "Our near-term focus will be to integrate the acquired restaurants and implement our processes and systems in an effort to realize the opportunities to improve its operating and financial performance. We are also going to continue with our aggressive expansion strategy. With the collective strength of our brands, the expertise and experience within the Company, and our cost-management initiatives, we believe we can achieve solid revenue and same-store-sales growth, successfully navigate commodity cost volatility and industry cycles, and produce consistently superior value for our guests and shareholders."

The Company will continue its growth in 2013 with rapid expansion of Bagger Dave's in both Michigan and Indiana. Current targeted locations in Indiana are: Avon, Westfield, Fishers, Greenwood, and Fort Wayne. Current targeted locations in Michigan are: Grand Rapids and Detroit. This is in addition to the already solidified, new Buffalo Wild Wings locations scheduled to open in Lapeer, Michigan, Sault Saint Marie, Michigan, and Hammond, Indiana.

About Diversified Restaurant Holdings

Diversified Restaurant Holdings, Inc. ("DRH" or the "Company") is the owner, operator, and franchisor of the unique, full-service, ultra-casual restaurant concept, Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and the largest Buffalo Wild Wings® ("BWW") franchisee. Between the two concepts, the Company currently operates 41 restaurants in Michigan, Florida, Illinois, and Indiana, with an additional Bagger Dave's and two additional BWW restaurants scheduled to open in 2012. Including these locations, and one franchised Bagger Dave's in Missouri, the Company expects to have 45 restaurants by year's end. 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 (never frozen), accompanied by more than 30 toppings from which to choose, 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 and bar areas. Currently, there are ten corporate-owned locations in the state of Michigan and one franchised location in Missouri. The Company has an executed area development agreement to franchise five additional Bagger Dave's in five states outside of Michigan. DRH is approved to franchise Bagger Dave's in the states of Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, and Wisconsin. For more information, visit www.baggerdaves.com.

DRH operates 31 BWW restaurants: 14 in Michigan, nine in Florida, four in Illinois and four in Indiana. The Company has opened 17 new BWW restaurants in fulfillment of its 32-store Area Development Agreement ("ADA") with franchisor Buffalo Wild Wings, Inc. (Nasdaq:BWLD). The remaining 15 restaurants under the ADA agreement, along with an additional franchise agreement in Indiana, suggest that the Company will operate 47 BWW's by 2017.

Safe Harbor Regarding Forward Looking Statements

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 Follow

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES      
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)      
       
  Three Months Ended   Nine Months Ended
   September 23,    September 25,    September 23,    September 25,
  2012   2011   2012   2011
Revenue              
Food and beverage sales  $ 16,838,169    $ 14,588,078    $ 51,315,764    $ 44,617,381
Franchise royalties and fees  6,323   --      7,537    -- 
Total revenue  16,844,492    14,588,078    51,323,301    44,617,381
Operating expenses              
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):              
Food, beverage, and packaging 5,157,991   4,236,077   15,904,293   12,683,404
Labor 4,174,875   3,628,433   12,840,361   11,088,641
Occupancy 961,610   824,,538   2,787,327   2,388,415
Other operating costs 3,419,716   2,973,089   10,198,008   8,625,740
General and administrative expenses 1,606,495   1,167,456   4,328,555   3,476,097
Pre-opening costs 281,390   135,009   547,876   403,714
Depreciation and amortization 1,000,191   881,432   2,930,606   2,491,649
Loss on disposal of property and equipment 23,374   3,113   29,977   30,157
Total operating expenses  16,625,642    13,849,147    49,567,003    41,187,817
Operating profit  218,850    738,931    1,756,298    3,429,564
               
Change in fair value of derivative instruments   --    (140,629)    (43,361)    (345,249)
Interest expense (277,919)   (282,934)   (843,563)   (876,368)
Other income, net 314,421   29,327   362,160   37,839
Income before income taxes 255,352   344,695   1,231,534   2,245,786
Income tax (benefit) provision (2,158)   155,176   333,387   816,661
Net income  257,510    189,519    898,147    1,429,125
Less: Income attributable to non-controlling interest  (16,314)    (38,747)    (95,040)    (115,232)
Net income attributable to DRH  $  241,196    $ 150,772    $  803,107    $  1,313,893
Basic earnings per share  $ 0.01    $ 0.01    $  0.04    $ 0.07
Fully diluted earnings per share  $ 0.01    $ 0.01    $  0.04    $ 0.07
Weighted average number of common shares outstanding            
Basic 18,954,025    18,876,000    18,948,624    18,876,000
Diluted 19,104,577    19,039,692    19,088,856    19,048,836
       
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES      
CONSOLIDATED BALANCE SHEETS (UNAUDITED)      
   September 23,    December 25,
ASSETS 2012   2011
Current assets      
Cash and cash equivalents  $    3,070,082    $   1,537,497
Accounts receivable - other  448,008    20,497
Inventory  598,540    601,765
Prepaid assets  171,894    207,608
Total current assets  4,288,524    2,367,367
Deferred income taxes  172,770    272,332
Property and equipment, net - restricted assets of VIE  1,435,277    1,457,770
Property and equipment, net  26,289,136    22,064,544
Intangible assets, net   1,101,777    1,113,997
Other long-term assets  81,350    74,389
Total assets  $ 33,368,834    $ 27,350,399
       
LIABILITIES AND STOCKHOLDERS' EQUITY       
Current liabilities      
Accounts payable  $ 2,841,875    $ 1,682,462
Accrued compensation  1,127,665    760,548
Other accrued liabilities  543,758    649,784
Current portion of long-term debt (including VIE debt of $89,414)  2,434,048    2,967,135
Current portion of deferred rent  174,906    180,480
Total current liabilities  7,122,252     6,240,409
Deferred rent, less current portion  2,140,463    1,750,017
Other liabilities - interest rate swap  392,263    613,999
Long-term debt, less current portion (including VIE debt of $1,095,317 and $1,140,024, respectively)  21,044,556    16,841,355
Total liabilities  30,699,534    25,445,780
       
Stockholders' equity      
Common stock -- $0.0001 par value; 100,000,000 shares authorized; 18,952,900 and 18,936,400 shares, respectively, issued and outstanding  1,888    1,888
Additional paid-in capital  2,936,504    2,771,077
Accumulated other comprehensive loss  (258,893)    -- 
Retained earnings (accumulated deficit)  (450,724)    (1,253,831)
Total DRH stockholders' equity  2,228,775    1,519,134
Non-controlling interest in VIE  440,525    385,485
Total stockholders' equity  2,669,300    1,904,619
Total liabilities and stockholders' equity  $ 33,368,834    $ 27,350,399
   
   
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  
   
  Nine Months Ended
  September 23,   September 25,
  2012   2011
Cash flows from operating activities      
Net income  $ 898,147    $ 1,429,125
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization  2,930,606    2,491,649
Write off of loan fees  694    --
Loss on disposal of property and equipment  29,977    30,157
Share-based compensation  165,427    65,944
Change in fair value of derivative instruments 43,361    345,249
Deferred income taxes  232,932    608,154
Changes in operating assets and liabilities that provided (used) cash      
Accounts receivable - other  (427,511)    (14,348)
Inventory  3,225    (140,545)
Prepaid assets  35,714    56,440
Other current assets --     43,348
Intangible assets  62,356    (72,822)
Other long-term assets  (6,961)    (4,575)
Accounts payable  1,159,413    77,180
Accrued liabilities  261,091    452,855
Deferred rent   384,872    153,057
Net cash provided by operating activities  5,773,343    5,520,868
       
Cash flows from investing activities      
Purchases of property and equipment  (7,213,512)    (6,051,295)
Net cash used in investing activities  (7,213,512)    (6,051,295)
Cash flows from financing activities      
Proceeds from issuance of long-term debt  20,270,332    3,138,321
Repayment of interest rate swap liability  (657,360)    --
Repayments of long-term debt  (16,600,218)    (1,659,353)
Distributions from non-controlling interest  (40,000)    (107,000)
Net cash provided by financing activities 2,972,754    1,371,968
Net increase in cash and cash equivalents  1,532,585    841,541
Cash and cash equivalents, beginning of period  1,537,497    1,358,381
Cash and cash equivalents, end of period  $ 3,070,082    $ 2,199,922

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES  
OPERATING PERFORMANCE (UNAUDITED)  
   
 (in millions) Three Months Ended
 
September 23, 
2012

September 25, 
2011
YOY
Increase

(Decrease)

YOY
Percent Change
Food and beverage costs $ 5.2 $ 4.2 $ 0.9 21.8%
% of revenue 30.6% 29.0%    
         
Labor $4.2 $3.6 $0.5 15.1%
% of revenue 24.8% 24.9%    
         
G&A expense $ 1.6 $ 1.2 $ 0.4 37.6%
% of revenue  9.5% 8.0%    
         
Operating Profit $ 0.2 $ 0.7 ($ 0.5) (70.4%)
Operating margin 1.3% 5.1%  

Contacts:

Investor 
Deborah K. Pawlowski
Kei Advisors LLC
716.843.3908
716.843.3874
dpawlowski@keiadvisors.com

Company 
David Burke
Chief Financial Officer
248.223.9160

SOURCE Diversified Restaurant Holdings, Inc.

###

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