RAVE Restaurant Group, Inc. Reports Second Fiscal Quarter 2018 Financial Results

Distribution Business Outsourced while Company Stores Franchised

DALLAS - Feb. 6, 2018 // PRNewswire // - RAVE Restaurant Group, Inc. (NASDAQ: RAVE) today reported financial results for the second quarter of fiscal 2018 ended December 24, 2017.

Second Quarter Highlights:

  • Total consolidated revenue decreased 38.1% to $4.2 million compared to $6.8 million in the second quarter of fiscal 2017.
  • Pizza Inn domestic comparable store retail sales increased 2.7% from the same period of the prior year, while total domestic retail sales decreased by 3.3%.
  • Pie Five comparable store retail sales decreased 13.7% from the same period of the prior year, while total system-wide retail sales decreased by 18.8%.
  • Company-owned Pie Five average weekly sales increased 10.2% year over year.
  • Net loss improved by $7.3 million to $0.6 million for the second quarter of fiscal 2018 compared to $7.9 million for the same quarter of the prior year, primarily due to closures of underperforming Company Pie Five units, lower closed store expenses, increased gains from sale of assets, lower impairment expenses, lower lease termination expenses, and reductions to general and administrative expenses.
  • On a fully diluted basis, the company reported a loss of $0.04 per share for the second quarter of fiscal 2018 compared to a loss of $0.74 per share for the same period of the prior year.
  • Adjusted EBITDA of ($0.2) million was $0.9 million better than the same quarter of the prior year.
  • Company-owned Pie Five operating cash flow decreased $0.1 million from the same period of the prior year.
  • Net reduction of three Pie Five restaurants during the quarter brought the total Pie Five restaurants open at the end of the quarter to 80.

"By all indications, we have a solid plan in place that is driving improvements to profitability of continuing operations and lowering overhead expenses," said Scott Crane, Chief Executive Officer of Rave Restaurant Group, Inc. "As we simplify our business through the outsourcing of our supply chain and distribution business, as well as reducing our corporate store footprint, we will lessen our overall financial exposure and improve the stability of our business model."

Second Quarter Fiscal 2018 Operating Results

Revenues of $4.2 million and $9.6 million for the second quarter and year to date fiscal 2018 were 38.1% and 32.4% lower, respectively, than the same periods of the prior year. For the three and six month periods ended December 24, 2017, the Company reported a net loss of $0.6 million and $0.9 million, respectively, compared to a loss of $7.9 million and $9.4 million for the same periods of the prior year. On a fully diluted basis, the loss was $0.04 per share and $0.07 per share, respectively, for the second quarter and year to date fiscal 2018, compared to a loss of $0.74 per share and $0.89 per share for the same periods of the prior year. The decreased loss for the three month period ended December 24, 2017 was primarily the result of $5.8 million improvement in loss from continuing operations before taxes from Company-owned restaurants, $0.8 million improvement in gain on sale of assets, and $0.5 million decrease in corporate general and administrative expenses. The decreased loss for the six month period ended December 24, 2017 was primarily the result of $6.4 million improvement in loss from continuing operations before taxes from Company-owned restaurants, $0.9 million improvement in gain on sale of assets, and $0.4 million decrease in corporate general and administrative expenses. The Company continued to provide a full valuation allowance against its deferred tax assets. Adjusted EBITDA improved $0.9 million and $1.4 million for the three and six month periods ended December 24, 2017 to ($0.2) million and $0.5 million, respectively. The improvement in Adjusted EBITDA was driven by improvements to net loss, decreased depreciation and amortization, increased average weekly sales at Company-owned Pie Five locations, and positive comparable sales at Pizza Inn locations.

During the fiscal quarter ended December 24, 2017, the Company discontinued its Norco distribution division and revised its arrangements with third party suppliers and distributors of food, equipment and supplies. As a result, sale of food, equipment and supplies is no longer recognized as revenue and the cost of such items is no longer included in cost of sales. The Company now recognizes incentive revenues received from third party suppliers and distributors as revenue.

"Our new, simplified approach to supply chain management provides more transparency and efficiency for our franchisees. It has also provided us opportunities to make reductions in general and administrative costs," said Crane.

Pie Five system-wide retail sales decreased 18.8% for the second quarter of fiscal 2018 when compared to the same period in the prior year, primarily driven by a 15.5% decrease in average units open. Comparable store retail sales decreased by 13.7% for the most recent fiscal quarter compared to the same period in the prior year. Year to date, Pie Five system-wide retail sales decreased 18.0% compared to the same period in the prior year, primarily driven by a 10.8% decrease in average units open. Comparable store retail sales decreased by 15.5% during the first six months of fiscal 2018 compared to the same period of the prior year.

In keeping with health-based consumer trends, Pie Five recently introduced a cauliflower pizza crust to its dough line-up. The new cauliflower crust, along with continued testing of other product innovations, are all part of enhancing the Pie Five guest experience.

"We continue to see an opportunity to take advantage of growth in areas such as delivery, cauliflower pizza crusts, and shareable pizzas, with the goal of increasing frequency among our loyal guest base," said Crane.

Pizza Inn total domestic retail sales decreased 3.3% and 2.1%, respectively, for the three and six month periods ended December 24, 2017, compared to the same periods of the prior year. Pizza Inn domestic comparable store retail sales increased 2.7% and 2.2%, respectively, for the three and six month periods ended December 24, 2017, compared to the same periods of the prior year.

"We are pleased that Pizza Inn continues to ride a growth trajectory with positive same store sales trends," said Crane. "We recently announced a new concept, P.I.E, developed as a complement to the brand refresh and expansion initiatives at Pizza Inn. Convenience stores are a $575 billion industry with 70% of sales attributed to in-store purchases. This new concept allows Pizza Inn to diversify its footprint and is a great way to reach new customers in a faster setting, while still serving the same iconic, quality pizza our guests have come to expect."

Geared towards convenience stores, but also an airport or entertainment venue option, P.I.E will allow customers to order and pay at a kiosk for grab-and-go, or pick up their food at a designated spot. Pizza Inn has a strong presence in the southeastern part of the country where the convenience store segment has the nation's highest grouping of independent operators.

Development Review

In the second quarter of fiscal 2018, two new franchised Pie Five restaurants were opened, while five franchised restaurants were closed, bringing the quarter-end total unit count to 80 restaurants. The Company also refranchised 11 Company-owned locations in the DFW market during the quarter.

"We are diligently pursuing a refranchising strategy at Pie Five," said Crane. "This shift in our model allows us to focus on best-in-class support of our franchise community so that they can, in turn, provide a great guest experience."

During the second fiscal quarter, the number of Pizza Inn domestic units declined to 156, while international units increased to 62.

"We continue to be pleased with new development and remodeling of Pizza Inn units," said Crane. "In addition, our P.I.E concept is attractive to non-traditional operators because it allows them to have the quality of the Pizza Inn platform as an option. Historically, that quality hasn't been available to them at a minimal investment."

Conference Call

A conference call and audio webcast have been scheduled to discuss these results. Details of the conference call are as follows:

Date:
Wednesday, February 7, 2018

Time:
5:00 p.m. Central time

Dial-In #:
1-844-492-3725 U.S. & Canada
1-412-317-5108 International

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. EBITDA, Adjusted EBITDA and restaurant operating cash flow are non-GAAP financial measures that the Company believes are useful to investors in understanding its operating performance. However, 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.

RAVE Restaurant Group, Inc. considers EBITDA and Adjusted EBITDA to be important supplemental measures of operating performance that are commonly used by securities analysts, investors and other parties interested in our industry. The Company believes that EBITDA is helpful to investors in evaluating its results of operations without the impact of expenses affected by financing methods, accounting methods and the tax environment. The Company believes that Adjusted EBITDA provides additional useful information to investors by excluding non-operational or non-recurring expenses to provide a measure of operating performance that is more comparable from period to period. The Company believes that restaurant operating cash flow is a useful metric to investors in evaluating the ongoing operating performance of Company-owned Pie Five and Pizza Inn restaurants and comparing such store operating performance from period to period. Management also uses these non-GAAP financial measures for evaluating operating performance, assessing the effectiveness of business strategies, projecting future capital needs, budgeting and other planning purposes

"EBITDA" represents earnings before interest, taxes, depreciation and amortization. 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. "Restaurant operating cash flow" represents the pre-tax income earned by Company-owned restaurants before (1) allocated marketing and advertising expenses, (2) depreciation and amortization, (3) pre-opening expenses, (4) operations management and extraordinary expenses, (5) impairment and other lease charges, and (6) non-operating store costs. A reconciliation of these non-GAAP financial measures 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 approximately 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:

Investor Relations
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 24,

 

December 25,

 

December 24,

 

December 25,

             

2017

 

2016

 

2017

 

2016

                           
                           

REVENUES:

     

$             4,197

 

$            6,780

 

$             9,629

 

$          14,246

                           

COSTS AND EXPENSES:

               
 

Cost of sales

 

1,055

 

3,858

 

3,142

 

8,305

 

General and administrative expenses

 

2,017

 

2,967

 

4,111

 

5,525

 

Franchise expenses

 

743

 

685

 

1,344

 

1,263

 

Pre-opening expenses

 

(1)

 

47

 

114

 

54

 

(Gain)/Loss on sale of assets

 

(166)

 

656

 

(165)

 

699

 

Impairment of long-lived assets and other lease charges

 

533

 

5,057

 

681

 

5,226

 

Bad debt

 

89

 

298

 

213

 

351

 

Interest expense

 

63

 

2

 

131

 

2

 

Depreciation and amortization expense

 

288

 

740

 

600

 

1,517

   

Total costs and expenses

 

4,621

 

14,310

 

10,171

 

22,942

                           

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES

 

(424)

 

(7,530)

 

(542)

 

(8,696)

 

Income tax expense / (benefit)

 

(27)

 

5

 

(14)

 

10

LOSS FROM CONTINUING OPERATIONS

 

(397)

 

(7,535)

 

(528)

 

(8,706)

                           
 

Loss from discontinued operations

 

(180)

 

(390)

 

(405)

 

(715)

NET LOSS

 

$               (577)

 

$           (7,925)

 

$               (933)

 

$           (9,421)

                           

LOSS PER SHARE OF COMMON STOCK - BASIC:

               
 

Loss from continuing operations

 

$              (0.03)

 

$             (0.71)

 

$              (0.04)

 

$             (0.82)

 

Loss from discontinued operations

 

(0.01)

 

(0.03)

 

(0.03)

 

(0.07)

 

Net loss

 

$              (0.04)

 

$             (0.74)

 

$              (0.07)

 

$             (0.89)

                           

LOSS PER SHARE OF COMMON STOCK - DILUTED:

               
                           
 

Loss from continuing operations

 

$              (0.03)

 

$             (0.71)

 

$              (0.04)

 

$             (0.82)

 

Loss from discontinued operations

 

$              (0.01)

 

$             (0.03)

 

$              (0.03)

 

$             (0.07)

 

Net loss

 

$              (0.04)

 

$             (0.74)

 

$              (0.07)

 

$             (0.89)

                           

Weighted average common shares outstanding - basic

 

14,344

 

10,657

 

12,742

 

10,575

                           

Weighted average common and potential dilutive common shares outstanding

 

14,344

 

10,657

 

12,742

 

10,575

                           

See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

                           

 

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

           
   

December 24,

 

June 25,

 
   

2017 (unaudited)

 

2017

 
           

ASSETS

         
           

CURRENT ASSETS

         

   Cash and Cash Equivalents

 

$                     1,428

 

$                        451

 

   Accounts receivable, less allowance for bad debts accounts of $332 and $249, respectively

 

1,494

 

2,761

 

   Notes receivable

 

2,060

 

675

 

   Inventories

 

19

 

79

 

   Income tax receivable

 

-

 

194

 

   Property held for sale

 

608

 

671

 

   Prepaid expenses and other

 

448

 

295

 

        Total current assets

 

6,057

 

5,126

 
           

LONG-TERM ASSETS

         

   Property, plant and equipment, net

 

1,667

 

3,808

 

   Intangible assets definite-lived, net

 

228

 

239

 

   Long-term notes receivable

 

-

 

127

 

   Deposits and other

 

243

 

246

 

        Total assets

 

$                     8,195

 

$                     9,546

 
           

LIABILITIES AND SHAREHOLDERS' EQUITY

         

CURRENT LIABILITIES

         

   Accounts payable - trade

 

$                     1,428

 

$                     4,165

 

   Short-term debt

 

-

 

1,000

 

   Accrued expenses

 

854

 

1,265

 

   Deferred rent

 

41

 

101

 

   Deferred revenues

 

97

 

212

 

Total current liabilities

 

2,420

 

6,743

 
           

   Convertible notes

 

1,459

 

2,749

 

   Deferred rent, net of current portion

 

294

 

655

 

   Deferred revenues, net of current portion

 

715

 

1,425

 

   Other long-term liabilities

 

45

 

53

 

        Total liabilities

 

4,933

 

11,625

 
           

SHAREHOLDERS' EQUITY

         

   Common stock, $.01 par value; authorized 26,000,000 shares; issued 22,015,608 and 17,786,049 shares, respectively; outstanding 14,896,208 and 10,666,649 shares, respectively

 

220

 

178

 

   Additional paid-in capital

 

33,016

 

26,784

 

   Accumulated deficit

 

(5,338)

 

(4,405)

 

   Treasury stock at cost

         

     Shares in treasury: 7,119,400 

 

(24,636)

 

(24,636)

 

        Total shareholders' equity (deficit)

 

3,262

 

(2,079)

 
           
   

$                     8,195

 

$                     9,546

 
           

 See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

 
           

 

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(In thousands)

 

(Unaudited)

 
                   
           

Six Months Ended

 
           

December 24,

 

December 25,

 
           

2017

 

2016

 
                   

CASH FLOWS FROM OPERATING ACTIVITIES:

       
                   
 

Net loss

 

$                (933)

 

$               (9,421)

 
 

Adjustments to reconcile net loss to 

       
   

cash used in operating activities:

       
   

Depreciation and amortization

581

 

1,513

 
   

Amortization of intangible assets definite-lived

19

 

26

 
   

Amortization of debt issue costs

23

 

-

 
   

Impairment of long-lived assets

681

 

4,773

 
   

Stock compensation expense

19

 

90

 
   

(Gain)/loss on sale/disposal of assets

(166)

 

699

 
   

Provision for bad debt

213

 

351

 
 

Changes in operating assets and liabilities:

       
   

Accounts receivable

1,376

 

100

 
   

Inventories

60

 

(2)

 
   

Accounts payable - trade

(3,667)

 

680

 
   

Accrued expenses

(419)

 

(132)

 
   

Deferred rent

(421)

 

(253)

 
   

Deferred revenue

(690)

 

(246)

 
   

Prepaid expenses and other

(150)

 

182

 
   

Cash used in operating activities

(3,474)

 

(1,640)

 
                   

CASH FLOWS FROM INVESTING ACTIVITIES:

       
 

Proceeds from sale of assets

939

 

45

 
 

Purchase of intangible assets definite-lived

(9)

 

-

 
 

Capital expenditures

(421)

 

(217)

 
   

Cash provided by (used in) investing activities

509

 

(172)

 
                   

CASH FLOWS FROM FINANCING ACTIVITIES:

       
 

Proceeds from sale of stock

4,942

 

-

 
 

Proceeds from stock options

-

 

806

 
 

Net change in other debt

(1,000)

 

1,000

 
   

Cash provided by financing activities 

3,942

 

1,806

 
                   

Net increase (decrease) in cash and cash equivalents

977

 

(6)

 

Cash and cash equivalents, beginning of period

451

 

873

 

Cash and cash equivalents, end of period

$               1,428

 

$                   867

 
                   
                   
                   

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 
                   
 

Cash paid during the period:

       
     

Interest paid

$                  115

 

$                        -

 
     

Taxes paid

$                    48

 

$                     25

 
 

Non-cash activities:

       
   

Capital expenditures included in accounts payable

$                  125

 

$                        -

 
                   

See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

 

RAVE RESTAURANT GROUP, INC.

ADJUSTED EBITDA

(In thousands)

(Unaudited)

               
               
 

Three Months Ended

 

Six Months Ended

 

December 24,

 

December 25,

 

December 24,

 

December 25,

 

2017

 

2016

 

2017

 

2016

 Net loss 

$              (577)

 

$           (7,925)

 

$              (933)

 

$           (9,421)

 Interest expense 

63

 

2

 

131

 

2

 Income taxes 

(27)

 

5

 

(14)

 

10

 Depreciation and amortization 

288

 

740

 

600

 

1,517

 EBITDA 

$              (253)

 

$           (7,178)

 

$              (216)

 

$           (7,892)

 Stock compensation expense 

10

 

45

 

19

 

90

 Pre-opening costs 

(1)

 

47

 

114

 

54

 (Gain)/Loss on sale/disposal of assets 

(166)

 

656

 

(165)

 

699

 Impairment of long-lived assets and other lease charges

533

 

5,057

 

681

 

5,226

 Discontinued operations and closed and non-operating store costs 

(291)

 

347

 

72

 

884

 Adjusted EBITDA 

$              (168)

 

$           (1,026)

 

$               505

 

$              (939)

     

See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

SOURCE RAVE Restaurant Group, Inc.

###

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