By
Jason Ramage
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February 29, 2008
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Investors must have been eagerly awaiting fourth-quarter results from Famous Dave's (Nasdaq: DAVE ) on Wednesday, sending shares up more than 9%.
Unfortunately, the dining chain, which specializes in mouth-watering barbecue, failed to satisfy its shareholders they way it does its hungry patrons. Earnings fell 20% from a year ago to $0.08 per share, wiping out the stock's gains.
Pulling the meat from the bone on the financials, opening new restaurants was the primary reason for the fall. While adding three new restaurants during the quarter helped revenue increase 12.3%, operating inefficiencies from the new franchises, coupled with an enormous 331% increase in pre-opening costs, ate away at Famous Dave's bottom line.
Although company-owned restaurants posted a healthy 3.3% rise in comps, management pointed out concern for franchised same-store sales, which declined 6.8% during the quarter, because of some weak regional economies and a longer-than-average honeymoon period at new restaurants. The satisfying success of Famous Dave's restaurants offers promise that management will deliver a juicy rebound, but I am concerned that earnings will continue to struggle until we finally see a rebound in same-store sales. With 20 to 25 new restaurants planned for this year -- more than last year's 19 openings -- I wouldn't expect reaching double-digit revenue growth to be a problem.
Famous Dave's trades at a small discount to competitors like Buffalo Wild Wings (Nasdaq: BWLD ) and Darden Restaurants (NYSE: DRI ) on a trailing P/E basis. However, while those two are on top of their game, the sales weakness at Famous Dave's gives me pause to clean my fingers of its lip-smacking sweet barbecue sauce. If the company continues to struggle with earnings, these shares could join Brinker International (NYSE: EAT ) on the value menu.
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