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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

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.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

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. The show is also heard weekly on dozens of 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. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers