updated 5/18/2011 9:46:07 AM ET 2011-05-18T13:46:07

  • First quarter revenue increased 40.9% to $15.1 million
  • Operating income increased 237.4% to $1.4 million or 9.2% of revenue
  • Generated $2.1 million of operating cash flow - 13.9% of revenue
  • Net Income increased 456% to $753 thousand or 5.0% of revenue
  • Company opened two Buffalo Wild Wings restaurantsand one Bagger Dave's restaurant in first quarter

SOUTHFIELD, Mich., May 18, 2011 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (OTCBB: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 a leading franchisee for Buffalo Wild Wings® ("BWW"), reports a first quarter revenue increase of $4.4 million or 40.9% to $15.1 million in 2011 from $10.7 million in 2010. The increase was due to a $3.9 million increase associated with three new restaurants opened in 2011 (one Bagger Dave's and two BWW) and four which opened prior to 2011 (one Bagger Dave's and three BWW) but did not meet the criteria for same-store sales for all or part of the three-month period. The remaining $481 thousand increase was related to a 1.4% increase in same-store sales for 16 BWW restaurants opened prior to 2010 and a 4.9% increase in same-store sales for two Bagger Dave's restaurants opened prior to 2010.

Net income in the first quarter of 2011 was $753 thousand, or $0.04 per diluted share, compared to $135 thousand, or $0.01 per diluted share, in the same period the prior year.

David G. Burke, CFO of DRH, commented, "With the continued development of both the Bagger Dave's and Buffalo Wild Wings concepts, we have managed to not only achieve significant revenue growth but are also doing so more profitably. Our effective management of food and labor costs, along with revenue growth being proportionally higher than our fixed cost base, contributed to a successful quarter. We're excited about the opportunities that lay ahead, particularly with recent investments to facilitate the sale and management of Bagger Dave's franchises which will help build the brand and create another stream of revenue for the Company."

Restaurant Openings

The following table outlines the restaurant unit information for the years indicated. "Total owned restaurants" reflects the number of restaurants owned and operated by DRH for each year. From the Company's inception to February 1, 2010, it managed nine existing BWW restaurants that were owned by affiliated parties. On February 1, 2010, these restaurants were acquired by the Company. "Total managed restaurants" reflects the total number of restaurants managed and/or owned by the Company. 2009 comparative results are a consolidation of owned and managed restaurants based on the accounting of an acquisition of entities under common control.

Restaurant Count          
  2011 2010 2009 2008 2007
Beginning of year 22 9 8 2 0
Acquisitions 0 9 0 0 0
Openings 3 4 1 6 2
Planned Openings 3        
Total owned restaurants 28 22 9 8 2
           
Affiliate restaurants under common control 0 0 9 9 9
Total managed restaurants 28 22 18 17 11

Results of Operations

For the three months ended March 27, 2011 ("First Quarter 2011"), revenue was generated from the operations of 21 BWW restaurants (two of which opened in February 2011) and four Bagger Dave's restaurants (one of which opened in late February 2011). For the three months ended March 28, 2010 ("First Quarter 2010"), revenue was generated from the operations of 16 BWW restaurants and three Bagger Dave's restaurants (one of which opened in February 2010).

   Three Months Ended
    March 27  March 28
   2011 2010
      
Total revenue 100.0% 100.0%
      
Operating expenses    
Compensation costs 28% 28.3%
Food and beverage costs 28.2% 31.1%
General and administrative 22.6% 22.9%
Pre-opening 1.7% 1.0%
Occupancy 5.3% 7.1%
Depreciation and amortization 5.1% 5.6%
Total operating expenses 90.9% 96.2%
      
Operating profit 9.2% 3.8%
      
Change in fair value of derivative instruments  0.0% 0.0%
Interest expense -1.9% -1.6%
Other income (expense), net -0.2% 0.2%
      
Income before income taxes 7.1% 2.4%
      
Income tax provision 2.1% 1.1%
      
Net income 5.0% 1.3%

Compensation cost increased by $1.2 million or 39.2% to $4.2 million in First Quarter 2011 from $3.0 million in First Quarter 2010. The increase was primarily due to the addition of seven restaurants. Compensation cost as a percentage of sales decreased to 28.0% in First Quarter 2011 from 28.3% in First Quarter 2010 primarily due to a reduction in hourly labor and because our proportional increase in revenue exceeded the increase of non-store level management compensation. This improvement was partially offset by early-stage hourly labor inefficiencies attributable to the opening of three new stores in February 2011.

Food and beverage cost increased by $900 thousand or 27.4% to $4.3 million in First Quarter 2011 from $3.3 million in First Quarter 2010. The increase was primarily due to the addition of seven restaurants. Food and beverage cost as a percentage of sales decreased to 28.2% in First Quarter 2011 from 31.1% in First Quarter 2010 primarily due to lower bone-in chicken wing prices, menu price increases and efficiencies in food preparation. This decrease was partially offset by increases in other food and beverage prices.

General and administrative cost increased by $950 thousand or 38.7% to $3.4 million in First Quarter 2011 from $2.5 million in First Quarter 2010. This increase was primarily due to the addition of seven restaurants. General and administrative cost as a percentage of sales decreased to 22.6% in First Quarter 2011 from 22.9% in First Quarter 2010 due to cost reduction initiatives and because the proportional increase in revenue was greater than that of non-store level general and administrative overhead expenses.

Pre-opening cost increased by $150 thousand or 141.4% to $250 thousand in First Quarter 2011 from $100 thousand in First Quarter 2010. This increase was due to the Company opening three stores in February 2011 versus one store in February 2010. Pre-opening cost as a percentage of sales increased to 1.7% in First Quarter 2011 from 1.0% in First Quarter 2010 for the same reason.

Occupancy cost increased by $31 thousand or 4.0% to $800 thousand in First Quarter 2011 from $766 thousand in First Quarter 2010. This increase was primarily due to the addition of seven new stores. Occupancy cost as a percentage of sales decreased to 5.3% in First Quarter 2011 from 7.1% in First Quarter 2010 primarily due to the Company taking advantage of the favorable real estate market through a combination of securing lower than average lease rates for all seven new stores and rent reductions at existing locations.

Depreciation and amortization cost increased by $170 thousand or 28.2% to $775 thousand in First Quarter 2011 from $605 thousand in First Quarter 2010. This increase was primarily due to the addition of seven restaurants. Depreciation and amortization cost as a percentage of sales decreased to 5.1% in First Quarter 2011 from 5.6% in First Quarter 2010 primarily due to the fact that depreciation and amortization cost, for the nine stores acquired in First Quarter 2010, was spread over a revenue period of 87 days in 2010 vs. a period of 91 days in 2011.

Balance Sheet

Cash and cash equivalents were $2.1 million at March 27, 2011, compared with $1.3 million Dec 26, 2010.  

DRH generated $2.1 million in cash from operations during the first quarter of 2011 compared with cash from operations of $1.1 million in the same quarter of the prior year.   The increase in cash flow is attributed to the increase in the number of stores and efficiencies gained at existing stores.   

Capital expenditures in the first quarter of 2011 were $2.6 million compared with $0.6 million in the first quarter of 2010. Total capital expenditures for the year are expected to be approximately $9.1 million, of which approximately $7.2 million is for new restaurant construction, $0.6 million is for real estate, and $1.3 million is for existing store renovations, which includes a remodel, an addition, upgrades to audio/visual equipment and patio upgrades. Funding for capital will be a combination of operating cash flow and draws on our development line of credit through RBS Charter One.

Outlook

During the second half of 2011, DRH plans to build three additional restaurants – its 22nd BWW in University Park, Florida, its 5th Bagger Dave's in East Lansing, Michigan and its 6th Bagger Dave's in a Michigan location yet to be announced. In addition, the Company is investing in remodels of varying degrees in up to eight existing restaurants, one of which is an expansion of its first Bagger Dave's location in Berkley, Michigan. 

The Company recently hired a veteran in the franchise community to lead the initiative to franchise our Bagger Dave's concept throughout the Midwest, more specifically Michigan, Indiana, Illinois, Ohio, Kentucky and Wisconsin.

T. Michael Ansley, President and CEO of DRH, concluded, "We are successfully moving forward with our three-pronged growth strategy: continued expansion of our Buffalo Wild Wings restaurants in Florida and Michigan, development of company-owned Bagger Dave's restaurants, and franchising Bagger Dave's to qualified multiunit restaurant operators throughout the Midwest. Our growth is supported by the continued development of our employees and their dedication to provide positive guest experiences in our restaurants."

About Diversified Restaurant Holdings, Inc.

DRH owns and operates its own unique, full-service, ultra-casual restaurant and bar concept, Bagger Dave's Legendary Burger Tavern®, which was launched in January 2008. The concept focuses on local flair with the interior showcasing historic photos of the city in which it resides. It also features an electric train that runs above the dining room and bar areas. 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®. Currently, there are four locations in the state of Michigan. DRH is approved to franchise Bagger Dave's in the states of Michigan, Indiana, Ohio, Illinois, Kentucky and Wisconsin. For more information, please visit www.baggerdaves.com .

The Company is also a leading BWW franchisee and currently operates 21 BWW restaurants (seven in Florida and 14 in Michigan). The recipient of many franchise awards, including an award for the Highest Annual Restaurant Sales, DRH remains on track to fulfill its Area Development Agreement with Buffalo Wild Wings, Inc., which requires a total of 32 BWW restaurants in Michigan and Florida by 2017. Combined with the six restaurants DRH has outside of this Area Development Agreement, the total restaurant count for the Company will be 38.

Safe Harbor Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as "expects," "estimates," "projects," "anticipates," "believes," "could," and other similar words. Forward-looking statements are based upon the current beliefs and expectations of management. All statements addressing operating performance, events, or developments that DRH expects or anticipates will occur in the future, including but not limited to franchise sales, restaurant openings, financial performance, and adverse developments with respect to litigation or increased litigation costs, the operation or performance of the Company's business units, or the market price of its common stock are forward-looking statements. Because they are forward looking, they should be evaluated in light of important risk factors and uncertainties. Actual results may vary materially from those contained in forward-looking statements based on a number of risk factors and uncertainties including, without limitation, our ability to operate in new markets, the cost of commodities, the success of our marketing and other initiatives to attract customers, customer preferences, operating costs, economic conditions, competition, the availability of financing for franchisees and the Company, and the impact of applicable regulations. These and other risk factors and uncertainties are more fully described in the Company's most recent annual and quarterly reports filed with the Securities and Exchange Commission. Undue reliance should not be placed on the Company's forward-looking statements. Except as required by law, DRH disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this press release.

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES    
CONSOLIDATED BALANCE SHEETS (UNAUDITED)    
     
    March 27  December 26
 ASSETS 2011 2010
 Current assets    
 Cash and cash equivalents  $ 2,138,893  $ 1,358,381
 Accounts receivable 57,307 --
 Inventory 379,784 339,059
 Prepaid assets 126,706 209,708
 Other current assets -- 43,348
 Total current assets 2,702,690 1,950,496
      
      
 Property and equipment, net - restricted assets of VIE 1,480,437 1,487,993
 Property and equipment, net 19,029,639 17,252,599
 Intangible assets, net 1,043,601 975,461
 Other long-term assets 69,791 80,099
 Deferred income taxes 330,463 607,744
 Total assets 24,656,621 22,354,392
      
 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)    
      
 Current liabilities    
Current portion of long-term debt (including VIE debt of $89,414) 2,249,197 1,947,676
Accounts payable 1,215,998 1,388,397
Accrued liabilities 1,463,588 1,089,112
Deferred rent 159,257 127,075
 Total current liabilities 5,088,040 4,552,260
      
 Deferred rent 1,700,458 1,622,943
 Other liabilities - interest rate swap 373,021 367,181
 Long-term debt, less current portion (including VIE debt of $1,207,084 and $1,229,437, respectively) 16,884,565 15,936,193
 Total liabilities 24,046,084 22,478,577
      
 Commitments and contingencies (Notes 5, 9, and 11)    
      
 Stockholders' equity (deficit)    
Common stock -- $0.0001 par value; 100,000,000 shares authorized, 18,876,000    
shares issued and outstanding 1,888 1,888
Additional paid-in capital 2,653,285 2,631,304
Retained earnings (accumulated deficit) (2,381,776) (3,096,017)
 Total DRH stockholders' equity (deficit) 273,397 (462,825)
      
 Noncontrolling interest in VIE 337,140 338,640
      
 Total stockholders' equity (deficit) 610,537 (124,185)
      
 Total liabilities and stockholders' equity  $ 24,656,621  $ 22,354,392
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
       
     Three Months Ended
      March 27  March 28
     2011 2010
Revenue      
Food and beverage sales    $ 15,094,616  $ 10,715,878
Total revenue   15,094,616 10,715,878
        
Operating expenses      
Compensation costs   4,226,553 3,036,997
Food and beverage costs   4,251,632 3,337,262
General and administrative   3,406,055 2,455,467
Pre-opening   254,136 105,258
Occupancy   796,534 765,650
Depreciation and amortization   775,361 604,889
Total operating expenses   13,710,271 10,305,523
        
Operating profit   1,384,345 410,355
        
Change in fair value of derivative instruments   (5,840) (470)
Interest expense   (286,810) (169,263)
Other income (expense), net   (28,966) 17,221
        
Income before income taxes   1,062,729 257,843
        
Income tax provision   309,988 122,576
        
Net income    $ 752,741  $ 135,267
        
Less: Net income attributable to noncontrolling interest   $ (38,500) 0
        
Net income attributable to DRH    $ 714,241  $ 135,267
        
Basic earnings per share - as reported    $ 0.04  $ 0.01
Fully diluted earnings per share - as reported    $ 0.04  $ 0.01
        
Weighted average number of common shares      
outstanding      
Basic   18,876,000 18,870,505
Diluted   19,063,203 18,952,979
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
      
   Three Months Ended
    March 27  March 28
   2011 2010
Cash flows from operating activities    
Net income  $ 752,741  $ 135,267
Adjustments to reconcile net income to    
net cash provided by operating activities    
Depreciation and amortization 775,361 570,013
Loss on disposal of property and equipment 23,875 34,875
Share-based compensation 21,981 8,078
Deferred income tax (provision) benefit 277,281 (39,629)
Changes in operating assets and liabilities that    
provided (used) cash    
Accounts receivable (57,307) 376,675
Inventory (40725) 5,131
Prepaid assets 83,002 50,743
Other current assets 43,348 9,926
Intangible assets (77,866) (73,117)
Other long-term assets 10,308 33,688
Accounts payable (172,399) (116,083)
Accrued liabilities 374,476 117,101
Deferred rent 109,697 32,390
Net cash provided by operating activities 2,123,773 1,145,058
      
Cash flows from investing activities    
Purchases of property and equipment (2,558,994) (607,877)
Net cash used in investing activities (2,558,994) (607,877)
      
Cash flows from financing activities    
Proceeds from issuance of long-term debt 1,740,906 236,198
Repayments of long-term debt (491,013) (771,329)
Proceeds from issuance of common stock -- 250,000
Change in fair value of derivative instruments 5,840 470
Distributions (40,000) (552,861)
Net cash provided by (used in) financing activities 1,215,733 (837,522)
      
Net increase (decrease) in cash and cash equivalents 780,512 (300,341)
      
Cash and cash equivalents, beginning of period 1,358,381 1,594,362
      
Cash and cash equivalents, end of period  $ 2,138,893  $ 1,294,021
CONTACT: Investor Contact:
         Steven Marcus
         DME Capital, LLC
         Phone:  917-648-0663
         Email: steven@dmecapital.com
         
         Company Contact:
         David G. Burke
         Chief Financial Officer
         Phone: 248.223.9160
         Email: dgburke@baggerdaves.com

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