3 Reasons Why Famous Dave’s May Break Out in 2014 and Beyond

Famous Dave’s could be the best investment you've never heard about.

Feb 26, 2014 at 2:00PM

Famousdavesbbq
Famous Dave's

As you've seen with Chipotle Mexican Grill (NYSE:CMG) and Buffalo Wild Wings (NASDAQ:BWLD), when a public restaurant chain gets into rapid-growth mode the Street tends to take notice. Despite the name, not a lot of investors are familiar with Famous Dave's (NASDAQ:DAVE), but if it meets its three expectations for this year and the next that may change in a big way.

Chipotle Mexican Grill and Buffalo Wild Wings have both been huge home runs for investors, rising 800% and 400% respectively over the last five years. This is because these companies kept their costs low, expanded their same-store sales rapidly, and aggressively increased their location counts. Chipotle Mexican Grill and Buffalo Wild Wings have been darlings of Wall Street even among investors who don't normally invest in restaurant stocks. Could Famous Dave's be the next Chipotle Mexican Grill or Buffalo Wild Wings?

The Famous report
On Feb. 12, Famous Dave's reported fiscal fourth-quarter results. Revenue slipped 1.7% to $35.7 million. Same-store sales fell by 2.6%, but this was an improvement over the 6% drop last year. However, that's not what caused the excitement.

More important than sales was that net income exploded up 153% to $1.9 million or $0.25 per share. This was due mostly to Famous Dave's efforts to cut food and beverage costs along with overall operating expenses. This has paid off. The company has been slow to add new locations, as it has a total of 194 now and plans to open just six more in 2014.

Where it starts to really get good
Aside from the soaring net income even in the off-season (Famous Dave's is more of a spring and summer restaurant chain), Famous Dave's took on a new CEO, Ed Rensi, who himself is "famous" for turning McDonald's into a powerhouse in the 1990s.

That all got further clarified during the conference call. Rensi was described as somebody who Famous Dave's "expects great things out of" in "a very short period" and the call showed that he is already on his way toward doing this. As such, Famous Dave's gave no guidance due to the rapid potential changes which have come as a result of Rensi. It almost sounds like he has the Midas touch.

Images

Ed Rensi

Rensi was brought on as an "interim CEO" which left a question mark as to whether the famed executive is only making a brief pit stop at Famous Dave's. The original press release described him as coming on board "for the foreseeable future" to "unleash the potential" of the brand. This implied that he was going to be around for the long term and he was eyeing aggressive expansion and same-store sales growth.

When pushed for answers during the Q&A session, Chairman Dean Riesen said, "We will begin a search, but we are under no pressure since we have such a talented leader with Ed." It sounds like Rensi is here to stay. Don't be surprised if the "interim" is dropped from his title soon.

It's not just Ed. Two more reasons:
The costs for the business have come down and it appears that they will stay down. You saw it with the slippage in sales while net income skyrocketed. This is because in the restaurant business when a company is able to shave its costs, often each dollar it saves finds its way to the bottom line.

Costs had been unusually high for Famous Dave's. CFO Diana Garvis Purcel pointed out that new contracts have been already executed on much of the company's food for 2014. He expects 5.5% food deflation for the year. This extra cost savings should likewise flow right to the bottom line.

Finally, there's a new menu launch coming in April. While it's always a risky venture to change a menu for a restaurant, with Rensi's guidance this venture has an excellent chance of success. When new menus hit restaurants, they can sometimes be game-changers.

Famous

Famous Dave's had already tacked on a 2.5% menu increase in the fourth quarter. As long as the new menu can at least maintain current traffic and order levels, that extra 2.5% should fall to the company's bottom line just like the cost savings did.

Foolish final thoughts
New leadership, a new menu, new pricing, and lower costs could be the perfect storm to set up a successful 2014. With a market cap under $200 million, Famous Dave's share price does not price in much long-term success. If Rensi is successful this year, look for a much more aggressive expansion plan, which he is famous for executing. With only an average of four Famous Dave's in each U.S. state, it's hard not to imagine that there isn't a plethora of opportunities to turn this small chain into a much larger company.

Famous Dave's could be a life changing investment
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers