RAVE Restaurant Group, Inc. Reports Second Fiscal Quarter Financial Results; RAVE Attains New Leadership

DALLAS - Feb. 8, 2017 // PRNewswire // - RAVE Restaurant Group, Inc. (NASDAQ: RAVE) today reported financial results for the second quarter of fiscal 2017 ended December 25, 2016.

Second Quarter Highlights:

  • Total consolidated revenue decreased 3.4% to $14.8 million compared to $15.3 million in the second quarter of fiscal 2016.
  • Pie Five comparable store retail sales decreased 17.4% from the same period of the prior year.
  • Pie Five system-wide retail sales increased 9.7%, while average weekly sales declined 14.7%, year over year.
  • Pizza Inn domestic comparable store retail sales decreased 1.2% from the same period of the prior year, while total domestic retail sales increased by 0.4%.
  • Net loss of $7.9 million was $3.1 million greater than the same quarter of the prior year primarily due to increased impairments and other lease charges, and losses from the sale of assets.
  • On a fully diluted basis, the loss was $0.74 per share for the second quarter of fiscal 2017, compared to a loss of $0.45 per share for the same period of the prior year.
  • Adjusted EBITDA of ($1.2) million was $1.2 million less than the same quarter of the prior year.
  • Company-owned Pie Five operating cash flow decreased $0.3 million from the same period of the prior year.
  • Net addition of seven Pie Five restaurants during the quarter brought the total Pie Five restaurants open at the end of the quarter to 99.

"We are aggressively exploring bold new strategies that can be deployed to ultimately improve financial performance," said Scott Crane, Chief Executive Officer for Rave Restaurant Group, Inc. "Over the next year we will be addressing underperforming markets while also improving the overall customer experience at all of our restaurants."

Second Quarter Fiscal 2017 Operating Results

Revenues of $14.8 million and $30.2 million for the second quarter and year to date fiscal 2017 were 3.4% lower and 1.3% higher, respectively, than the same periods of the prior year. For the three and six months ended December 25, 2016, the Company reported a net loss of $7.9 million and $9.4 million, respectively, compared to a loss of $4.8 million and $5.4 million for the comparable periods of the prior year. On a fully diluted basis, the loss was $0.74 per share and $0.89 per share for the second quarter and year to date fiscal 2017, compared to a loss of $0.47 per share and $0.52 per share for the same periods of the prior year. The increased losses for the three and six month periods ended December 27, 2015 were primarily the result of a $4.8 million non-cash impairment expense in the second quarter of fiscal 2017 related to the carrying value of Company-owned Pie Five restaurants, as well as other lease charges and losses on sale of assets. In addition, the Company continued to provide a full valuation allowance against its deferred tax assets. Adjusted EBITDA declined $1.2 million and $1.7 million for the three and six month periods ended December 25, 2016, to $(1.2) million and $(1.4) million, respectively. The decline in Adjusted EBITDA was driven by executive search fees and bad debt expenses totaling $0.5 million, as well as decreased average unit volumes at company Pie Five locations.

Pie Five system-wide retail sales increased 9.7% for the second quarter of fiscal 2017 when compared to the same period in the prior year driven by a 31.1% increase in average units open, while system-wide average weekly sales decreased by 14.7%, year over year. Comparable store retail sales decreased by 17.4% for the most recent fiscal quarter compared to the same period in the prior year. Year to date, Pie Five system-wide retail sales increased 21.6% compared to the prior year driven by a 40.9% increase in average units open, while system-wide average weekly sales declined 13.7% year over year. Comparable store retail sales decreased 16.1% during the first six months of fiscal 2017 compared to the same period of the prior year. The Company continues to believe that increased competition within the fast-casual segment and general industry softness contributed to weakened trends within the Pie Five system.

Pizza Inn total domestic retail sales increased 0.4% and decreased 0.6% for the three and six months ended December 25, 2016 compared to the same periods of the prior year. Pizza Inn domestic comparable store retail sales decreased 1.2% and 0.5% for the three and six months ended December 25, 2016 compared to the same periods of the prior year.

"Restaurant trends around the country continue to be challenging," said Crane. "The Pie Five system continues to add new locations and is addressing sales trends through the testing of new sales channels and menu innovation. Pizza Inn continues to see progress through enhanced franchisee engagement and the addition of initiatives such as the new loyalty program and refreshed branding."

Development Review

In the second quarter of fiscal 2017, eight new franchised Pie Five restaurants were opened, while one franchised restaurant was closed, bringing the fiscal quarter-end total unit count to 99 restaurants.

"We continue to see growth of the Pie Five system in key markets," said Crane. "We are excited to see additional traditional and non-traditional opportunities for further development."

Rights Offering Continues

RAVE has previously announced a rights offering for up to $3.0 million of its 4% Convertible Senior Notes due 2022. Pursuant to the rights offering, existing RAVE shareholders have the opportunity to purchase their proportionate share of the convertible notes at the par value of $100 per note. The subscription period is presently scheduled to terminate at 5:00 p.m., Dallas, Texas time, on February 13, 2017, but may be extended by the Company for up to 30 days. The terms of the rights offering and RAVE the convertible notes are described in the final prospectus that has been filed with the Securities and Exchange Commission and is also available at http://raverg.investorroom.com/SEC-filings.

Conference Call

A conference call and audio webcast has been scheduled for 5:00 p.m. Central time today to discuss these results. Details of the conference call are as follows:

  • Date: Wednesday, February 8, 2017
  • Time: 5:00 p.m. Central time
  • Dial-In #:
    1-877-870-4263 U.S. & Canada
    1-412-317-0790 International

Alternatively, the conference call will be webcast at raverg.com. A web-based archive of the conference call will also be available at the above website.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures in evaluating operating performance. These non-GAAP financial measures should not be viewed as an alternative or substitute for its financial statements prepared in accordance with generally accepted accounting principles. Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, stock compensation expense, pre-opening expense, gain/loss on sale of assets, costs related to impairment, other lease charges, non-operating store costs and discontinued operations. A reconciliation of Adjusted EBITDA to net income is included with the accompanying financial statements.

Note Regarding Forward Looking Statements

Certain statements in this press release, other than historical information, may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbors created thereby. These forward-looking statements are based on current expectations that involve numerous risks, uncertainties and assumptions. Assumptions relating to these forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions, regulatory framework and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of RAVE Restaurant Group, Inc. Although the assumptions underlying these forward-looking statements are believed to be reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that any forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of such information should not be regarded as a representation that the objectives and plans of RAVE Restaurant Group, Inc. will be achieved.

About RAVE Restaurant Group, Inc.

Founded in 1958, Dallas-based RAVE Restaurant Group [NASDAQ: RAVE] owns, operates and franchises more than 300 Pie Five Pizza Co. and Pizza Inn restaurants domestically and internationally. Pie Five Pizza Co. is a leader in the rapidly growing fast-casual pizza space offering made-to-order pizzas ready in under five minutes. Pizza Inn is an international chain featuring freshly made pizzas, along with salads, pastas, and desserts. The Company's common stock is listed on the Nasdaq Capital Market under the symbol "RAVE". For more information, please visit www.raverg.com.

Contact:

Jami Zimmerman
RAVE Restaurant Group, Inc.
469-384-5000

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 
                       
         

Three Months Ended

 

Six Months Ended

         

December 25,

 

December 27,

 

December 25,

 

December 27,

         

2016

 

2015

 

2016

 

2015

                       
                       

REVENUES:

 

$          14,792

 

$          15,311

 

$          30,248

 

$          29,847

                       

COSTS AND EXPENSES:

               
 

Cost of sales

 

13,372

 

13,139

 

27,254

 

25,489

 

General and administrative expenses

 

2,175

 

1,694

 

4,078

 

3,263

 

Franchise expenses

 

984

 

949

 

1,836

 

1,808

 

Pre-opening expenses

 

47

 

304

 

66

 

736

 

Loss on sale of assets

 

656

 

-

 

699

 

-

 

Impairment of long-lived assets and other lease charges

 

5,197

 

1,010

 

5,366

 

1,010

 

Bad debt

 

298

 

128

 

351

 

231

 

Interest expense

 

2

 

2

 

2

 

3

   

Total costs and expenses

 

22,731

 

17,226

 

39,652

 

32,540

                       

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES

 

(7,939)

 

(1,915)

 

(9,404)

 

(2,693)

 

Income tax expense

 

5

 

2,892

 

19

 

2,634

LOSS FROM CONTINUING OPERATIONS

 

(7,944)

 

(4,807)

 

(9,423)

 

(5,327)

                       
 

Income (loss) from discontinued operations, net of taxes

 

19

 

(23)

 

2

 

(60)

NET LOSS

 

$           (7,925)

 

$           (4,830)

 

$           (9,421)

 

$           (5,387)

                       

LOSS PER SHARE OF COMMON STOCK - BASIC:

               
 

Loss from continuing operations

 

$             (0.75)

 

$             (0.47)

 

$             (0.89)

 

$             (0.52)

 

Income (loss) from discontinued operations

 

0.01

 

-

 

0.01

 

-

 

Net loss

 

$             (0.74)

 

$             (0.47)

 

$             (0.88)

 

$             (0.52)

                       

LOSS PER SHARE OF COMMON STOCK - DILUTED:

               
                       
 

Loss from continuing operations

 

$             (0.74)

 

$             (0.45)

 

$             (0.88)

 

$             (0.50)

 

Income (loss) from discontinued operations

 

$                    -

 

-

 

-

 

-

 

Net loss

 

$             (0.74)

 

$             (0.45)

 

$             (0.88)

 

$             (0.50)

                       

Weighted average common shares outstanding - basic

 

10,657

 

10,314

 

10,657

 

10,310

                       

Weighted average common and potential dilutive common shares outstanding

 

 

10,681

 

 

10,770

 

 

10,720

 

 

10,859

                           

 

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

                   
             

December 25,

 

June 26,

ASSETS

   

2016 (unaudited)

 

2016

                   

CURRENT ASSETS

         
 

Cash and cash equivalents

 

$

1,098

 

1,104

 

Accounts receivable, less allowance for bad debts accounts of $551 and $198, respectively

   

 

2,430

 

 

2,780

 

Notes receivable

   

120

 

167

 

Inventories

   

199

 

197

 

Income tax receivable

   

194

 

194

 

Property held for sale

   

327

 

-

 

Prepaid expenses and other

   

264

 

430

 

 

 

      Total current assets

   

4,632

 

4,872

               

LONG-TERM ASSETS

         
 

Property, plant and equipment, net

   

5,839

 

12,979

 

Long-term notes receivable

   

328

 

382

 

Deposits and other

   

230

 

272

 

 

 

      Total assets

 

$

11,029

$

18,505

               

LIABILITIES AND SHAREHOLDERS' EQUITY

         

CURRENT LIABILITIES

         
 

Accounts payable - trade

 

$

4,495

 

3,815

 

Short-term debt

   

1,000

 

-

 

Accrued expenses

   

1,104

 

1,220

 

Deferred rent

   

120

 

160

 

Deferred revenues

   

128

 

304

 

 

 

      Total current liabilities

   

6,847

 

5,499

               

LONG-TERM LIABILITIES

         
 

Deferred rent, net of current portion

   

1,497

 

1,710

 

Deferred revenues, net of current portion

   

1,370

 

1,440

 

Other long-term liabilities

   

437

 

453

 

 

 

      Total liabilities

   

10,151

 

9,102

                   

COMMITMENTS AND CONTINGENCIES  (See Note 2)

         
                   

SHAREHOLDERS' EQUITY

         
 

Common stock, $.01 par value; authorized 26,000,000 shares; issued 17,775,951 and 17,460,951 shares, respectively; outstanding 10,656,551 and 10,341,551 shares, respectively

   

 

178

 

 

175

 

Additional paid-in capital

   

26,671

 

25,778

 

Retained earnings (Accumulated Deficit)

   

(1,335)

 

8,086

 

Treasury stock at cost

         
 

 

      Shares in treasury: 7,119,400 

   

(24,636)

 

(24,636)

 

 

         Total shareholders' equity 

   

878

 

9,403

           

$

11,029

$

18,505

 

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands)

 

(Unaudited)

 
                   
           

Six Months Ended

 
           

December 25,

 

December 27,

 
           

2016

 

2015

 
                   

CASH FLOWS FROM OPERATING ACTIVITIES:

       
                   
 

  Net loss

 

$           (9,421)

 

$           (5,387)

 
 

 

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

       
   

Depreciation and amortization

1,539

 

1,118

 
   

Impairment of long-lived assets

4,773

 

1,010

 
   

Stock compensation expense

90

 

90

 
   

Deferred income taxes

-

 

2,593

 
   

Loss on sale/disposal of assets

656

 

2

 
   

Provision for bad debt

351

 

231

 
 

Changes in operating assets and liabilities:

       
   

Notes and accounts receivable

100

 

214

 
   

Inventories

(2)

 

(54)

 
   

Accounts payable - trade

680

 

1,257

 
   

Accrued expenses

(132)

 

(328)

 
   

Deferred rent

(253)

 

426

 
   

Deferred revenue

(246)

 

165

 
   

Prepaid expenses and other

182

 

136

 
   

Cash (used in) provided by operating activities

(1,683)

 

1,473

 
                   

CASH FLOWS FROM INVESTING ACTIVITIES:

       
 

Proceeds from sale of assets

45

 

14

 
 

Capital expenditures

(174)

 

(6,471)

 
   

Cash used in investing activities

(129)

 

(6,457)

 
                   

CASH FLOWS FROM FINANCING ACTIVITIES:

       
 

Proceeds from sale of stock

-

 

773

 
 

Proceeds from stock options

806

 

-

 
 

Net change in debt

1,000

 

-

 
   

Cash provided by financing activities 

1,806

 

773

 
                   

Net decrease in cash and cash equivalents

(6)

 

(4,211)

 

Cash and cash equivalents, beginning of period

1,104

 

5,958

 

Cash and cash equivalents, end of period

$            1,098

 

$            1,747

 

 

 

Three Months Ended

 

December 25,

 

December 27,

 

2016

 

2015

 Net loss 

$           (7,925)

 

$           (4,830)

 Interest expense 

2

 

2

 Income Taxes 

5

 

2,892

 Income Taxes--Discontinued Operations 

-

 

(12)

 Depreciation and amortization 

749

 

601

 EBITDA 

$           (7,169)

 

$           (1,347)

 Stock compensation expense 

45

 

45

 Pre-opening costs 

47

 

304

 Loss on sale/disposal of assets 

656

 

-

 Impairment charges, non-operating store costs and discontinued operations 

5,242

 

1,059

 Adjusted EBITDA 

$           (1,179)

 

$                 61

SOURCE RAVE Restaurant Group, Inc.

###

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