Investors cheered barbecue specialist Famous Dave's (Nasdaq: DAVE) after the restaurateur posted its first-quarter results.
Net sales increased 7% compared with the same period a year ago. The revenue growth was driven primarily by new restaurants, as well as by franchise royalties. The robust franchise biz is a good sign, as it shows that active investors believe in the viability of this concept.
But we need to temper this optimism with the reality that older units -- those restaurants in operation for more than 18 months -- continue to struggle. For the quarter, comparable same-store sales declined 0.9% compared with the same period a year ago.
As far as weak comps go, management is placing the blame on what it calls a "traditionally" slower quarter. Nonetheless, it behooves potential investors to keep a close eye on this metric. Looking ahead, CEO David Goronkin sees blue skies and lots of BBQ, as he asserts, "We have solid momentum going into the barbecue season."
One of the main things going for Famous Dave's is potential. The company only has 145 units in operation, suggesting there is plenty of room for growth. It has development agreements in place to open up an additional 162 units in the near future. Also, the company recently entered a development agreement to open four locations in Puerto Rico -- its first effort to expand outside the continental United States.
Plus, consider that what would've been its most significant competition -- Smokey Bones -- is now likely out of the development picture, since Darden Restaurants (NYSE: DRI) is in the process of transforming the concept away from its BBQ heritage. In terms of a national chain that's all about serving the best BBQ in town, Famous Dave's has no real competition.
Does that mean this stock is a winner? It has been a winner of late -- the company's stock has been on a nice little run over the past few years, rising from a low of $6 and some change to its current level of more than $18. But despite the success, the recent comps data remains a cause for concern.
At the least, Famous Dave's warrants further research as a potential investment.
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Fool contributor Jeremy MacNealy has no financial interest in any company mentioned. The Motley Fool has a disclosure policy.
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