Free Annual Reports
Famous Dave's, Served Cold
Some restaurant chains have the potential to fare quite well, all things considered, in this economic environment. Take McDonald's (NYSE:MCD), for example. In spite of the recent turmoil, individuals and families have frequented the fast-food chain because, let's face it, its food tastes good and it's cheap. Its third-quarter 7.1% global comp increase speaks volumes.
On the flip side, there are other chains whose shares I plan to avoid in the near term. One such company is Famous Dave's of America (Nasdaq:DAVE). But before I delve into my thinking, I'll offer some background.
The 10,000-Foot View
If you love barbecue, consider checking out Famous Dave's. As a consumer, it's fantastic - some of the best barbecue I've ever tasted.
Famous Dave's opened its first store in Minnesota back in 1995. Since that time it has expanded its presence, and as of late October, it owned 50 locations and franchised 123 others. The concept is fairly widespread. It has locations, for instance, in Texas, where one might expect a good barbecue chain. But it also has locations in New Jersey and New York that aren't really known for their barbecue. (Learn more about the franchise business model at Share The Wealth With Franchises.)
In short, although I like the food, from an investment standpoint I'm not crazy about Famous Dave's right now.
A Quick Rundown Of Third-Quarter Numbers
In late October, Famous Dave's served up its Q3 results. At first blush they didn't appear to be smoking (pun intended). In the period ended September 28, the company posted an 8-cent loss per share versus a 17-cent gain per share in the comparable period last year.
To be fair, the company does point out in its news release that the results included certain charges that totaled 27 cents a share. So excluding those, the bottom line wasn't all that bad. But by that same token, its same-store sales were off more than 4.6%. And that's a pretty big number.
Among other casual dining results, Darden Restaurants (NYSE:DRI) posted a 1% drop in same-restaurant sales (on a blended basis) at its Red Lobster, Olive Garden and LongHorn Steakhouse concepts in its Q1 ended August 24. And Brinker (NYSE:EAT), known for its Chili's and Macaroni Grill brands, posted a 4% comp decline in its Q1 ended September 24.
I'm a big believer in tracking same-store sales numbers because I view them as a good measure of how stores have been doing on an apples-to-apples basis. (You can read about other important measures at Sinking Your Teeth Into Restaurant Stocks.)
Store Closures
I'm also concerned about news that emerged earlier in the week that the company closed three restaurants in Atlanta due to losses. It's not unheard of for a company to close a location, but three is a big number for Famous Dave's. Why wouldn't those Atlanta stores pan out? I'd think that down south, they would clean up.
With that news, the company also indicated that it has terminated two leases for restaurants expected to open in 2009 in Hoffman Estates, Ill., and Hyattsville, Md. As a result, according to the company, "Famous Dave's could recognize up to $2.5 million in charges in its fiscal 2008 fourth quarter related to the Atlanta closings and lease terminations." Again, this isn't the end of the world, but it is a strike against Famous Dave's.
Earnings Expectations
At present, according to Thomson Financial Network, Famous Dave's is expected to earn 51 cents a share in the current year and 56 cents a share in the next. That's eye-catching, given that the shares trade for less than $3 a pop. However, I question whether that 2009 estimate of 56 cents a share is doable. (See why industry matters at Are Lower P/E Ratio Stocks Always Better Investments?)
Given its lackluster comps and intense competition from both sit-down establishments and fast-food chains, I have a hunch that the number might be a bit aggressive. I sense that estimate may get scaled back in the months ahead given the general economic malaise. I don't think consumers are going to dramatically ratchet up their dining-out dollars anytime soon.
Bottom Line
Famous Dave's offers up what I can say from experience is some darned good barbecue. But from an investment standpoint, I'll pass. I just think there are better opportunities out there.
On the flip side, there are other chains whose shares I plan to avoid in the near term. One such company is Famous Dave's of America (Nasdaq:DAVE). But before I delve into my thinking, I'll offer some background.
The 10,000-Foot View
If you love barbecue, consider checking out Famous Dave's. As a consumer, it's fantastic - some of the best barbecue I've ever tasted.
Famous Dave's opened its first store in Minnesota back in 1995. Since that time it has expanded its presence, and as of late October, it owned 50 locations and franchised 123 others. The concept is fairly widespread. It has locations, for instance, in Texas, where one might expect a good barbecue chain. But it also has locations in New Jersey and New York that aren't really known for their barbecue. (Learn more about the franchise business model at Share The Wealth With Franchises.)
In short, although I like the food, from an investment standpoint I'm not crazy about Famous Dave's right now.
A Quick Rundown Of Third-Quarter Numbers
In late October, Famous Dave's served up its Q3 results. At first blush they didn't appear to be smoking (pun intended). In the period ended September 28, the company posted an 8-cent loss per share versus a 17-cent gain per share in the comparable period last year.
To be fair, the company does point out in its news release that the results included certain charges that totaled 27 cents a share. So excluding those, the bottom line wasn't all that bad. But by that same token, its same-store sales were off more than 4.6%. And that's a pretty big number.
I'm a big believer in tracking same-store sales numbers because I view them as a good measure of how stores have been doing on an apples-to-apples basis. (You can read about other important measures at Sinking Your Teeth Into Restaurant Stocks.)
Store Closures
I'm also concerned about news that emerged earlier in the week that the company closed three restaurants in Atlanta due to losses. It's not unheard of for a company to close a location, but three is a big number for Famous Dave's. Why wouldn't those Atlanta stores pan out? I'd think that down south, they would clean up.
With that news, the company also indicated that it has terminated two leases for restaurants expected to open in 2009 in Hoffman Estates, Ill., and Hyattsville, Md. As a result, according to the company, "Famous Dave's could recognize up to $2.5 million in charges in its fiscal 2008 fourth quarter related to the Atlanta closings and lease terminations." Again, this isn't the end of the world, but it is a strike against Famous Dave's.
Earnings Expectations
At present, according to Thomson Financial Network, Famous Dave's is expected to earn 51 cents a share in the current year and 56 cents a share in the next. That's eye-catching, given that the shares trade for less than $3 a pop. However, I question whether that 2009 estimate of 56 cents a share is doable. (See why industry matters at Are Lower P/E Ratio Stocks Always Better Investments?)
Given its lackluster comps and intense competition from both sit-down establishments and fast-food chains, I have a hunch that the number might be a bit aggressive. I sense that estimate may get scaled back in the months ahead given the general economic malaise. I don't think consumers are going to dramatically ratchet up their dining-out dollars anytime soon.
Bottom Line
Famous Dave's offers up what I can say from experience is some darned good barbecue. But from an investment standpoint, I'll pass. I just think there are better opportunities out there.
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
Free Annual Reports
