It's college football season, and my beloved Ohio State Buckeyes, ranked No. 1 in the nation, are heading toward a super-bout with archrival Michigan to determine who will play for the national championship. If the restaurant industry had its own Bowl Championship Series, there's one concept you wouldn't see there, and that's Champps Entertainment (NASDAQ:CMPP).
I've eaten at a Champps Restaurant and Bar a few times in the past couple years; for the most part, I've been pleased with the food, service, and overall environment. But apparently, I'm alone in that sentiment. Once again, first-quarter sales for the restaurateur portray a lackluster sales environment.
Net sales for the period declined 4.3%, to $49.3 million, compared with the same period a year ago. Comparable same-store sales didn't fare much better, dropping 3.9%. Regrettably, management pointed toward macro-economic factors -- as well as increased "media advertising and discounting" among competitors -- as reasons for the weakness.
Why did I characterize management's response as regrettable? I have no doubt it is a tough economic and competitive environment for restaurants -- I've covered many restaurants and know this to be true. But some restaurants are doing quite well despite the not-so-amiable environment.
These remarks indicate that Champps' leadership is failing to recognize the steps it can take to remedy the situation. To his credit, CEO Mike O'Donnell did admit that "These outside influences aside, we are disappointed in our results this quarter, as it is our job to adjust and focus on increasing sales and controlling costs."
Sales growth should be the key initiative for the company, as the lack of revenue growth is negatively affecting other metrics. For example, while sales were declining, restaurant labor costs -- which are typically more stable and fixed -- increased as a percentage of net sales to 33%. This "de-leveraging effect" contributed toward an operating loss of $316,000, compared with an operating gain of $616,000 in the year-ago period.
Restaurant expansion, menu development, and an improved training program are a few of the initiatives that Champps is using to get sales going in the right direction again. Will these steps be enough to make it a title contender in the future? Time will tell, but if history is any indicator, don't bank on it.
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F ool contributor Jeremy MacNealy has a player rating of 97.50 and is ranked 311 out of 12,412 participants at Motley Fool CAPS . He has no financial interest in any company mentioned. The Motley Fool has a nifty disclosure policy .
