Diversified Restaurant Holdings Reports First Quarter 2017 Results

SOUTHFIELD, Mich.–(hospitalitybusinessnews.com)–Diversified Restaurant Holdings, Inc. , the largest franchisee for Buffalo Wild Wings with 64 stores across five states, today announced results for its first quarter ended March 26, 2017.

First Quarter Highlights (from continuing operations)

  • Revenue increased 2.8% to $44.3 million
  • Same-store sales were (0.3%)
  • Achieved net income of $0.8 million, or $0.03 per diluted share
  • Restaurant-level EBITDA of $8.4 million, or 19.0% of sales(1)
  • Adjusted EBITDA was $6.2 million, or 13.9% of sales(1)
  • Total debt, net of cash, reduced $3.0 million in the first quarter

(1) See attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA

“Our first quarter results were encouraging and not only validate our decision to focus solely on the BWW business, but demonstrate the strength of the franchise in the face of continued market headwinds,” commented David G. Burke, President and CEO. “Our promotional efforts, such as Half-Price Wing Tuesdays® helped to improve traffic while our delivery service continues to provide incremental sales. The Blazin’ Rewards® loyalty program, which has now been rolled out to all 64 locations, continues to attract customers and drive higher tickets for those customers that actively participate in the program.”

There were two favorable calendar shifts in the quarter, Christmas and Easter, which positively impacted same-store sales 170 basis points.

Mr. Burke added, “Our core Midwest markets are performing quite well, while our Florida market remains challenged, particularly in the southern end of our franchise area. And, while restaurant-level margins were pressured during the period as a result of all-time high wing costs and promotional activity, we maintained our disciplined approach to managing costs, produced high operating margins and continue to achieve industry-leading restaurant performance.”

First Quarter Results (Unaudited)
($ in thousands) Q1 2017 Q1 2016 Change % Change
Revenue $ 44,338.0 $ 43,143.3 $ 1,194.7 2.8 %
Operating income $ 2,366.6 $ 3,116.0 $ (749.4 ) (24.0 )%
Operating margin 5.3 % 7.2 %
Net income from continuing operations $ 795.6 $ 1,292.4 $ (496.8 ) (38.4 )%
Diluted net income per share (cont. ops.) $ 0.03 $ 0.05 $ (0.02 ) (40.0 )%
Same-store sales (0.3 )% (2.2 )%
Restaurant-level EBITDA(1) $ 8,424.6 $ 9,294.2 $ (869.6 ) (9.4 )%
Restaurant-level EBITDA margin 19.0 % 21.5 %
Adjusted EBITDA(1) $ 6,157.7 $ 7,183.9 $ (1,026.2 ) (14.3 )%
Adjusted EBITDA margin 13.9 % 16.7 %

(1)Please see attached table for a reconciliation of GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA

Balance Sheet Highlights – Continuing Operations

Cash and cash equivalents were $5.4 million at March 26, 2017, compared with $4.0 million at 2016 year-end. Total debt decreased $1.6 million to $119.6 million at the end of the first quarter. Capital expenditures were $1.4 million and were primarily for one restaurant under construction and restaurant refreshes and remodels. Capital expenditures were $6.4 million in the first quarter of 2016.

Fiscal 2017 Guidance

The Company expects the following in 2017:

  • Revenue of $173 million to $178 million
  • Restaurant-level EBITDA of $33 million to $36 million
  • Adjusted EBITDA between $23.5 million to $26.5 million
  • Capital expenditures of approximately $4 million to $6 million
    • One new restaurant: currently in development and expected to open in the second quarter
    • Two to four remodels: planned at approximately $0.6 million each

 

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended
March 26, 2017 March 27, 2016
Revenue $ 44,337,964 $ 43,143,252
Operating expenses

Restaurant operating costs (exclusive of depreciation and amortization shown
separately below):

Food, beverage, and packaging costs 13,038,426 12,059,759
Compensation costs 10,965,530 10,520,246
Occupancy costs 2,893,852 2,766,459
Other operating costs 9,029,876 8,573,747
General and administrative expenses 2,356,966 2,174,291
Pre-opening costs 31,370 123,443
Depreciation and amortization 3,633,254 3,762,102
Loss on asset disposal 22,059 47,224
Total operating expenses 41,971,333 40,027,271
Operating profit 2,366,631 3,115,981
Interest expense (1,575,954 ) (1,444,940 )
Other income, net 27,167 39,742
Income from continuing operations before income taxes 817,844 1,710,783
Income tax expense (22,264 ) (418,354 )
Income from continuing operations 795,580 1,292,429
Discontinued operations
Income (loss) from discontinued operations before income taxes 36,535 (1,423,704 )
Income tax (expense) benefit of discontinued operations (995 ) 561,679
Income (loss) from discontinued operations 35,540 (862,025 )
Net Income $ 831,120 $ 430,404
Basic earnings (loss) per share from:
Continuing operations $ 0.03 $ 0.05
Discontinued operations $ $ (0.03 )
Basic net earnings per share $ 0.03 $ 0.02
Diluted earnings (loss) per share from:
Continuing operations $ 0.03 $ 0.05
Discontinued operations $ $ (0.03 )
Diluted net earnings per share $ 0.03 $ 0.02
Weighted average number of common shares outstanding
Basic 26,629,974 26,298,034
Diluted 26,629,974 26,298,034

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

March 26, December 25,
ASSETS 2017 (UNAUDITED) 2016
Current assets
Cash and cash equivalents $ 5,382,263 $ 4,021,126
Accounts receivable 88,456 276,238
Inventory 1,631,565 1,700,604
Prepaid and other assets 992,732 1,305,936
Total current assets 8,095,016 7,303,904
Deferred income taxes 16,410,956 16,250,928
Property and equipment, net 54,817,201 56,630,031
Intangible assets, net 2,586,563 2,666,364
Goodwill 50,097,081 50,097,081
Other long-term assets 231,455 233,539
Total assets $ 132,238,272 $ 133,181,847
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accounts payable $ 4,121,332 $ 3,995,846
Accrued compensation 1,980,366 2,803,549
Other accrued liabilities 2,893,239 2,642,269
Current portion of long-term debt 11,313,759 11,307,819
Current portion of deferred rent 194,206 194,206
Total current liabilities 20,502,902 20,943,689
Deferred rent, less current portion 2,043,552 2,020,199
Unfavorable operating leases 571,171 591,247
Other long-term liabilities 3,570,054 3,859,231
Long-term debt, less current portion 108,263,169 109,878,201
Total liabilities 134,950,848 137,292,567
Commitments and contingencies (Notes 3, 11 and 12)
Stockholders’ deficit

Common stock – $0.0001 par value; 100,000,000 shares authorized; 26,636,346 and 26,632,222,
respectively, issued and outstanding

2,611 2,610
Additional paid-in capital 21,489,849 21,355,270
Accumulated other comprehensive loss (769,778 ) (934,222 )
Accumulated deficit (23,435,258 ) (24,534,378 )
Total stockholders’ deficit (2,712,576 ) (4,110,720 )
Total liabilities and stockholders’ deficit $ 132,238,272 $ 133,181,847

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

Three Months Ended
March 26, 2017 March 27, 2016
Cash flows from operating activities
Net income $ 831,120 $ 430,404
Net income (loss) from discontinued operations 35,540 (862,025 )
Net income from continuing operations 795,580 1,292,429
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 3,633,254 3,762,102
Amortization of debt discount and loan fees 52,443 50,880
Amortization of gain on sale-leaseback (34,794 ) (39,302 )
Impairment and loss on asset disposals 22,059 47,225
Share-based compensation 123,082 97,426
Deferred income taxes 23,259 317,225
Changes in operating assets and liabilities that provided (used) cash
Accounts receivable 187,782 (309,327 )
Inventory 69,039 (13,670 )
Prepaid and other assets 313,204 240,947
Intangible assets (18,915 ) 46,107
Other long-term assets 2,084 (8,792 )
Accounts payable (208,157 ) (289,041 )
Accrued liabilities (577,438 ) (942,775 )
Deferred rent 23,353 24,124
Net cash provided by operating activities of continuing operations 4,405,835 4,275,558
Net cash provided by (used in) operating activities of discontinued operations 35,540 (1,163,832 )
Net cash provided by operating activities 4,441,375 3,111,726
Cash flows from investing activities
Purchases of property and equipment (1,430,201 ) (6,405,269 )
Net cash used in investing activities of continuing operations (1,430,201 ) (6,405,269 )
Net cash used in investing activities of discontinued operations (1,101,142 )
Net cash used in investing activities (1,430,201 ) (7,506,411 )
Cash flows from financing activities
Proceeds from issuance of long-term debt 1,217,621 3,311,231
Repayments of long-term debt (2,879,156 ) (7,500,000 )
Proceeds from employee stock purchase plan 11,498 10,707
Net cash used in financing activities (1,650,037 ) (4,178,062 )
Net increase (decrease) in cash and cash equivalents 1,361,137 (8,572,747 )
Cash and cash equivalents, beginning of period 4,021,126 13,499,890
Cash and cash equivalents, end of period $ 5,382,263 $ 4,927,143
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation between Net Income and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA
Three Months Ended (Unaudited)
March 26, 2017 March 27, 2016
Net lncome $ 831,120 $ 430,404
+ (Income) loss from discontinued operations (35,540 ) 862,025
+ Income tax expense 22,264 418,355
+ Interest expense 1,575,954 1,444,940
+ Other income, net (27,167 ) (39,743 )
+ Loss on asset disposal 22,059 47,224
+ Depreciation and amortization 3,633,254 3,762,102
EBITDA $ 6,021,944 $ 6,925,307
+ Pre-opening costs 31,370 123,443
+ Non-recurring expenses (Restaurant-level) 14,300 71,184
+ Non-recurring expenses (Corporate-level) 90,097 63,954
Adjusted EBITDA $ 6,157,711 $ 7,183,888
Adjusted EBITDA margin (%) 13.9 % 16.7 %
+ General and administrative 2,356,966 2,174,291
+ Non-recurring expenses (Corporate-level) (90,097 ) (63,954 )
Restaurant–Level EBITDA $ 8,424,580 $ 9,294,225
Restaurant–Level EBITDA margin (%) 19.0 % 21.5 %
Share Button
About the Author