A Management Shake-Up at This Restaurant Chain Is Great News

Ignite Restaurant Group (NASDAQ: IRG  ) is looking to accelerate the turnaround of its Romano's Macaroni Grill chain. To do so, the company hired John Gilbert, who resigned his position as CEO of Famous Dave's of America (NASDAQ: DAVE  ) , as president. His focus will be strengthening the Macaroni Grill brand and better positioning the chain against Olive Garden, owned by Darden Restaurants (NYSE: DRI  ) .

Ignite is moving David Catalano from president of Macaroni Grill over to its Brick House Tavern + Taps to become the president of that division. Investors are hoping for a turnaround, as Ignite shares have underperformed the market and are down more than 6% in the past year.

Macaroni Grill in need of a turnaround
Ignite purchased Macaroni Grill in April 2013. Since then, things have not worked out for the company or its investors. And Macaroni Grill's impact on Ignite is quite large. In the fourth quarter, total company revenue was $186.9 million, $88.3 million of which came from Macaroni Grill.

It was a rough quarter for Ignite, with fourth-quarter comparable sales at Macaroni Grill dropping 9%. This compares to comparable sales increases of 1.9% and 6.6%, respectively, at Ignite's Joe's Crab Shack and Brick House Tavern + Tap. The weakness from Macaroni Grill led Ignite to post a fourth-quarter loss of $0.16 a share.

Signs of improvement
Since Ignite purchased Macaroni Grill, the focus has been on improving unit operations and revising the menu with new items and an upgraded wine list. Here the chain is starting to see some improvements.

According to a survey conducted by Nation's Restaurant News, Macaroni Grill is now among the top 10 casual-dining chains and is No. 1 in the Italian casual- dining category, ahead of Olive Garden. The survey reviewed 162-plus dining chains and more than 44,000 customers participated.

How Ignite is looking to turn things around
One way Ignite is looking to turn things around is by converting underperforming Macaroni Grill locations to Brick House Tavern + Taps. The Brick House concept was created as a real estate management option, and what's good about the concept is that its American menu and beer variety appeal to a wide customer base.

So far, the conversion from Macaroni Grill to Brick House has worked. Already the company has converted two Macaroni Grill locations. In both instances, average weekly sales have increased more than 100%. This year, Ignite will convert five Macaroni Grill locations to Brick House.

Ignite is also offering its managers incentives. Ignite is awarding all of its general managers 1,000 shares of stock with a three- and five-year vesting period. I see this as a good move; it will help Ignite retain quality managers and eliminate turnover.

How are Famous Dave's and Darden Restaurants doing?
While Gilbert may have resigned as CEO of Famous Dave's, the chain did pretty well finding a replacement. Ed Rensi  has been appointed interim CEO. His focus will be on rolling out Famous Dave's fast-casual concept. The company is looking to grow faster and develop an alternative to its sit-down restaurants.

Activist investors Starboard Value and Barington Capital are hoping for a shake-up in Darden's management. While Darden CEO Clarence Otis has proposed spinning off Red Lobster, this plan has been met with resistance from Starboard Value and other shareholders. Both Red Lobster and Olive Garden were affected by the winter weather, as same-restaurant traffic for both chains dropped in January and February.

How do shares compare?
Shares of Ignite are trading at 0.5 times sales and 26 times next year's earnings. Darden shares are trading at 18 times next year's earnings and 0.8 times sales. Investors also get a 4.3% dividend yield owning Darden. Famous Dave's trades at 18 times next year's earnings as well but trade at a higher sales multiple of 1.3 times sales.

Famous Dave's shares have outperformed the market, rising more than 150% in the past year. Most of this run has happened since Rensi's appointment as CEO, with investors betting on the former McDonald's executive to take the company to the next level.

Foolish assessment
I see the management shake-up at Macaroni Grill as a positive development for Ignite. Gilbert can focus on growing the brand, and Catalano knows the operational side of things; he can work on the conversions of Macaroni Grills to Brick House.

While Ignite posted a loss in 2013, the company will be profitable going forward. Ignite's management has experience in turning around struggling restaurant chains, as Joe's Crab Shack was suffering before Ignite purchased the chain. Under Ignite's leadership, Joe's has shown positive annual comparable sales for six consecutive years. I see Ignite accomplishing the same with Macaroni Grill over the long run.

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