- Net income increased to $151k vs. $(1)k
- Third quarter revenue increased 27.7% to $14.6m
- Cash and cash equivalents increased by 62.0%
- Operating profit increased 38.8% to $786k
- Total current assets increased by 46.0%
SOUTHFIELD, Mich., Nov. 9, 2011 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (OTCBB:DFRH) (the "Company," or "DRH"), both a franchisor of Bagger Dave's Legendary Burger Tavern(R) ("Bagger Dave's"), a full-service, ultra-casual restaurant and bar, and a leading franchisee of 22 Buffalo Wild Wings(R) ("BWW") restaurants, reports a third quarter revenue increase of $3.2 million or 27.7% to $14.6 million in 2011 from $11.4 million in 2010. The increase was primarily due to the opening of four new restaurants in 2011 (two Bagger Dave's restaurants and two BWW restaurants) and revenues generated by four restaurants (one Bagger Dave's restaurant and three BWW restaurants) that opened prior to 2011 but did not meet the criteria for same-store-sales criteria used by DRH.
Net income attributable to DRH in the third quarter of 2011 was $151 thousand, or $0.01 per diluted share, compared to an adjusted loss of (0.00) per diluted share in the same period of the prior year.
David G. Burke, CFO of DRH, commented, "Our commitment to our customers and our ability to execute new restaurant openings, continues to pay off. Our growth plans for 2011 are right on schedule and we expect nothing less in 2012."
RESTAURANT OPENINGS
The following table outlines the restaurant unit information for the fiscal years indicated. "Total owned restaurants" reflects the number of restaurants owned and operated by DRH for each year. From the Company's inception to February 1, 2010, it managed nine BWW restaurants that were owned by affiliated parties. On February 1, 2010, these restaurants were acquired by the Company. "Total managed restaurants" reflects the total number of restaurants managed and/or owned by the Company. Our 2009 comparative results are a consolidation of owned and managed restaurants based on the accounting of an acquisition of entities under common control (refer to Note 3 in the notes to consolidated financial statements for further details).
| 2011 | 2010 | 2009 | 2008 | 2007 | |
| Beginning of year | 22 | 9 | 8 | 2 | 0 |
| Acquisitions | 0 | 9 | 0 | 0 | 0 |
| Openings | 5 | 4 | 1 | 6 | 2 |
| Planned openings | 1 | N/A | N/A | N/A | N/A |
| Total owned restaurants | 28 | 22 | 9 | 8 | 2 |
| Affiliate restaurants under common control | 0 | 0 | 9 | 9 | 9 |
| Total managed restaurants | 28 | 22 | 18 | 17 | 11 |
RESULTS OF OPERATIONS
For the three months ended September 25, 2011 ("Third Quarter 2011") and the nine months ended September 25, 2011 ("Year to Date 2011"), revenue was generated from the operations of 21 BWW restaurants (two of which opened in February 2011) and five Bagger Dave's restaurants (of which one opened in late February 2011 and another opened in mid-September 2011). The Company opened its 22nd BWW restaurant on October 30, 2011. For the three months ended September 26, 2010 ("Third Quarter 2010") and nine months ended September 26, 2010 ("Year to Date 2010"), revenue was generated from the operations of 18 BWW restaurants (of which one opened in June 2010 and another opened in August 2010) and three Bagger Dave's restaurants (one of which opened in February 2010).
Results of Operations for the Three Months Ended September 25, 2011 and September 26, 2010
Our operating results below are expressed as a percentage of total revenue on the basis of comparison to prior periods.
| Three Months Ended | ||
| September 25 | September 26 | |
| 2011 | 2010 | |
| Total revenue | 100.0% | 100.0% |
| Operating expenses | ||
| Compensation costs | 29.2% | 29.3.% |
| Food and beverage costs | 29.0% | 29.0% |
| General and administrative | 23.6% | 23.0% |
| Pre-opening | 0.9% | 0.6% |
| Occupancy | 5.9% | 7.1% |
| Depreciation and amortization | 6.0% | 6.1% |
| Total operating expenses | 94.6% | 95.1% |
| Operating profit | 5.4% | 4.9% |
Total revenue for Third Quarter 2011 was $14.6 million, an increase of $3.2 million or 27.7% over the $11.4 million of revenue generated during Third Quarter 2010. The increase was primarily attributable to two factors. First, approximately $2.6 million of the increase was attributable to revenues generated from the opening of four new restaurants in 2011 (two Bagger Dave's restaurant and two BWW restaurants) and revenues generated by four restaurants (one Bagger Dave's restaurant and three BWW restaurants) that opened prior to 2011 but did not meet the criteria for same-store-sales for all or part of the three-month period. Second, we believe the remaining $596 thousand increase was related to a 5.7% increase in same-store-sales for 16 BWW restaurants meeting our same-store-sales criteria and a 10.2% increase in same-store-sales for three Bagger Dave's restaurants meeting our same-store-sales criteria.
Compensation cost increased by $908 thousand or 27.1% to $4.3 million in Third Quarter 2011 from $3.3 million in Third Quarter 2010. The increase was primarily due to the addition of six restaurants. Compensation cost as a percentage of sales decreased to 29.2% in Third Quarter 2011 from 29.3% in Third Quarter 2010 primarily due to the fact that the proportional increase in revenue exceeded the increase of management compensation.
Food and beverage cost increased by $926 thousand or 28.0% to $4.2 million in Third Quarter 2011 from $3.3 million in Third Quarter 2010. The increase was primarily due to the addition of six restaurants. Food and beverage cost as a percentage of sales remained consistent at 29.0% in Third Quarter 2011 and Third Quarter 2010.
General and administrative cost increased by $816 thousand or 31.1% to $3.4 million in Third Quarter 2011 from $2.6 million in Third Quarter 2010. This increase was primarily due to the addition of six restaurants. General and administrative cost as a percentage of sales increased to 23.6% in Third Quarter 2011 from 23.0% in Third Quarter 2010 primarily due to a nonrecurring increase in professional fees.
Pre-opening cost increased by $69 thousand or 104.2% to $135 thousand in Third Quarter 2011 from $66 thousand in Third Quarter 2010. The difference in pre-opening cost was due to the timing and overall cost to build and open new stores during the period. The Company had one new store opening in the Third Quarter 2011 and two scheduled openings in early Fourth Quarter 2011, versus one store opening in Third Quarter 2010 and one store opening in Fourth Quarter 2010. Pre-opening cost as a percentage of sales increased to 0.9% in Third Quarter 2011 from 0.6% in Third Quarter 2010.
Occupancy cost increased by $44 thousand or 5.4% to $855 thousand in Third Quarter 2011 from $811 thousand in Third Quarter 2010. This increase was primarily due to the addition of six new stores. Occupancy cost as a percentage of sales decreased to 5.9% in Third Quarter 2011 from 7.1% in Third Quarter 2010, primarily due to the Brandon building acquisition in June 2010 as well as negotiated rate reductions.
Depreciation and amortization cost increased by $183 thousand or 26.1% to $881 thousand in Third Quarter 2011 from $699 thousand in Third Quarter 2010. This increase was primarily due to the addition of six restaurants. Depreciation and amortization cost as a percentage of sales decreased to 6.0% in Third Quarter 2011 from 6.1% in Third Quarter 2010 primarily due to the increase in same-store-sales.
Balance Sheet and Cash Flow
Cash and cash equivalents were $2.2 million at September 25, 2011 compared with $1.4 million at December 26, 2010.
DRH generated $5.5 million in cash from operations in year to date 2011 compared with cash from operations of $2.8 million in the same period in the prior year. The increase in cash flows is attributed to the increase in the number of stores and efficiencies gained at existing stores.
Total capital expenditures for the 2011 year are expected to be approximately $9.1 million, of which approximately $7.2 million is for new restaurant construction, $1.3 million is for existing store renovations, and $0.6 million is for real estate.
Outlook for fourth quarter in 2011 and for 2012
During the final quarter 2011, on November 13, 2011, DRH will open its sixth Bagger Dave's restaurant in Cascade Township, Michigan.
On June 7, 2011, the Company, together with its wholly-owned subsidiaries, entered into a First Amended and Restated Development Line of Credit Agreement (the "DLOC Agreement") with RBS, N.A. ("RBS"). The DLOC Agreement provides for an $8 million credit facility with RBS (the "Credit Facility"). The Credit Facility consists of a $7 million development line of credit ("DLOC") and a $1 million revolving line of credit ("Revolving Line of Credit"). The Credit Facility will fund the development of Buffalo Wild Wings in the states of Florida and Michigan and Bagger Dave's restaurants in up to six states in the Midwest. The remaining capital needs will be funded via operational cash flows.
Michael Ansley, President and CEO of DRH, stated, "We are pleased with our performance and very excited about the opportunities that lie ahead. We continue to not only grow Buffalo Wild Wings but also fulfill our commitment to expand Bagger Dave's throughout the Midwest with a combination of Company-owned stores and new franchisees. 2012 will be the strongest year yet for Diversified Restaurant Holdings."
About Diversified Restaurant Holdings, Inc.
DRH owns and operates its own unique, full-service, ultra-casual restaurant and bar concept, Bagger Dave's Legendary Burger Tavern(R), which was launched in January 2008. The concept focuses on local flair with the interior showcasing historic photos of the city in which it resides. It also features an electric train that runs above the dining room and bar areas. Bagger Dave's offers a full-service, family-friendly restaurant and bar with a casual, comfortable atmosphere. The menu features freshly-made burgers (never frozen), accompanied by more than 30 toppings from which to choose, fresh-cut fries, hand-dipped milkshakes, and a selection of craft beer and wine. Signature items include Sloppy Dave's BBQ(R), Train Wreck Burger(R), and Bagger Dave's Amazingly Delicious Turkey Black Bean Chili(R). Currently, there are five locations in the state of Michigan (with the sixth restaurant scheduled to open on November 13, 2011). DRH is approved to franchise Bagger Dave's in the states of Michigan, Indiana, Ohio, Illinois, Kentucky, Wisconsin, and Missouri. For more information, please visit www.baggerdaves.com.
The Company is also a leading BWW franchisee and currently operates 22 BWW restaurants (eight in Florida and 14 in Michigan). The 22nd BWW restaurant opened in University Park, Florida on October 30, 2011. The recipient of many franchise awards, including an award for the Highest Annual Restaurant Sales, DRH remains on track to fulfill its Area Development Agreement with Buffalo Wild Wings, Inc., which requires a total of 32 BWW restaurants in Michigan and Florida by 2017. Combined with the six restaurants DRH has outside of this Area Development Agreement, the total restaurant count for the Company will be 38 by 2017.
Safe Harbor Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are subject to risks, uncertainties and assumptions and are identified by words such as "expects," "estimates," "projects," "anticipates," "believes," "could," and other similar words. Forward-looking statements are based upon the current beliefs and expectations of management. All statements addressing operating performance, events, or developments that DRH expects or anticipates will occur in the future, including but not limited to franchise sales, restaurant openings, financial performance, and adverse developments with respect to litigation or increased litigation costs, the operation or performance of the Company's business units, or the market price of its common stock are forward-looking statements. Because they are forward looking, they should be evaluated in light of important risk factors and uncertainties. Actual results may vary materially from those contained in forward-looking statements based on a number of risk factors and uncertainties including, without limitation, our ability to operate in new markets, the cost of commodities, the success of our marketing and other initiatives to attract customers, customer preferences, operating costs, economic conditions, competition, the availability of financing for franchisees and the Company, and the impact of applicable regulations. These and other risk factors and uncertainties are more fully described in the Company's most recent annual and quarterly reports filed with the Securities and Exchange Commission. Undue reliance should not be placed on the Company's forward-looking statements. Except as required by law, DRH disclaims any obligation to update or publicly announce any revisions to any of the forward-looking statements contained in this press release.
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||
| September 25 | December 26 | |
| ASSETS | 2011 | 2010 |
| Current assets | ||
| Cash and cash equivalents | $2,199,922 | $1,358,381 |
| Accounts receivable | 14,348 | -- |
| Inventory | 479,604 | 339,059 |
| Prepaid assets | 153,268 | 209,708 |
| Other current assets | -- | 43,348 |
| Total current assets | 2,847,142 | 1,950,496 |
| Property and equipment, net - restricted assets of VIE | 1,465,326 | 1,487,993 |
| Property and equipment, net | 20,772,884 | 17,252,599 |
| Intangible assets, net | 1,080,154 | 975,461 |
| Other long-term assets | 84,674 | 80,099 |
| Deferred income taxes | -- | 607,744 |
| Total assets | $26,250,180 | $22,354,392 |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||
| Current liabilities | ||
| Current portion of long-term debt (including VIE debt of $89,414) | $2,884,518 | $1,947,676 |
| Accounts payable | 1,465,577 | 1,388,397 |
| Accrued liabilities | 1,541,967 | 1,089,112 |
| Deferred rent | 168,205 | 127,075 |
| Total current liabilities | 6,060,267 | 4,552,260 |
| Deferred rent | 1,734,870 | 1,622,943 |
| Deferred income taxes | 410 | -- |
| Other liabilities - interest rate swap | 712,430 | 367,181 |
| Long-term debt, less current portion (including VIE debt of $1,162,377 and $1,229,437) | 16,478,319 | 15,936,193 |
| Total liabilities | 24,986,296 | 22,478,577 |
| Commitments and contingencies (Notes 6, 10, and 11) | ||
| Stockholders' equity (deficit) | ||
| Common stock - $0.0001 par value; 100,000,000 shares authorized, 18,876,000 shares issued and outstanding | 1,888 | 1,888 |
| Additional paid-in capital | 2,697,248 | 2,631,304 |
| Retained earnings (accumulated deficit) | (1,782,124) | (3,096,017) |
| Total DRH stockholders' equity (deficit) | 917,012 | (462,825) |
| Noncontrolling interest in VIE | 346,872 | 338,640 |
| Total stockholders' equity (deficit) | 1,263,884 | (124,185) |
| Total liabilities and stockholders' equity | $26,250,180 | $22,354,392 |
| The accompanying notes are an integral part of these interim consolidated financial statements. | ||
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||||
| CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||
| Three Months Ended | Nine Months Ended | |||
| September 25 | September 26 | September 25 | September 26 | |
| 2011 | 2010 | 2011 | 2010 | |
| Revenue | ||||
| Food and beverage sales | $14,588,078 | $11,423,726 | $44,617,381 | $32,823,425 |
| Total revenue | 14,588,078 | 11,423,726 | 44,617,381 | 32,823,425 |
| Operating expenses | ||||
| Compensation costs | 4,254,003 | 3,346,237 | 12,757,321 | 9,780,263 |
| Food and beverage costs | 4,236,077 | 3,310,374 | 12,683,404 | 9,785,584 |
| General and administrative | 3,440,926 | 2,624,892 | 10,310,680 | 7,708,569 |
| Pre-opening | 135,009 | 66,129 | 403,714 | 283,308 |
| Occupancy | 854,624 | 810,969 | 2,444,948 | 2,144,808 |
| Depreciation and amortization | 881,432 | 698,770 | 2,491,649 | 1,944,374 |
| Total operating expenses | 13,802,071 | 10,857,371 | 41,091,716 | 31,646,906 |
| Operating profit | 786,007 | 566,355 | 3,525,665 | 1,176,519 |
| Change in fair value of derivative instruments | (140,629) | (177,707) | (345,249) | (582,628) |
| Interest expense | (282,934) | (349,548) | (876,368) | (1,037,424) |
| Other income (expense), net | (17,749) | 3,508 | (58,262) | 5,071 |
| Income (loss) before income taxes | 344,695 | 42,608 | 2,245,786 | (438,462) |
| Income tax provision | (155,176) | (131,119) | (816,661) | (9,232) |
| Net income (loss) | $189,519 | $ (88,511) | $1,429,125 | $(447,694) |
| Net (income) loss attributable to noncontrolling interest | (38,747) | 88,446 | (115,232) | 88,446 |
| Net income (loss) attributable to DRH | $150,772 | $ (65) | $1,313,893 | $(359,248) |
| Basic earnings (loss) per share - as reported | $0.01 | $(0.00) | $ 0.07 | $ (0.02) |
| Fully diluted earnings (loss) per share - as reported | $0.01 | $(0.00) | $ 0.07 | $ (0.02) |
| Weighted average number of common shares outstanding | ||||
| Basic | 18,876,000 | 18,870,505 | 18,876,000 | 18,870,505 |
| Diluted | 19,039,692 | 18,870,505 | 19,048,836 | 18,870,505 |
| The accompanying notes are an integral part of these interim consolidated financial statements. | ||||
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) | |||||||
| Retained | Accumulated | ||||||
| Additional | Earnings | Other | Total | ||||
| Common Stock | Paid-in | (Accumulated | Comprehensive | Noncontrolling | Stockholders' | ||
| Shares | Amount | Capital | Deficit) | Income (Loss) | Interest | Equity (Deficit) | |
| Balances - December 26, 2010, as previously reported | 18,876,000 | $1,888 | $2,631,304 | $ (2,728,836) | $ (367,181) | $-- | $ (462,825) |
| Reclassification of fair value of interest rate swap | -- | -- | -- | (367,181) | 367,181 | -- | -- |
| Initial consolidation of VIE | -- | -- | -- | -- | -- | 338,640 | 338,640 |
| Balances - December 26, 2010, as adjusted | 18,876,000 | 1,888 | 2,631,304 | (3,096,017) | -- | 338,640 | (124,185) |
| Share-based compensation | -- | -- | 65,944 | -- | -- | -- | 65,944 |
| Net income | -- | -- | -- | 1,313,893 | -- | 115,232 | 1,429,125 |
| Dividends | -- | -- | -- | -- | -- | (107,000) | (107,000) |
| Balances - September 25, 2011 | 18,876,000 | $1,888 | $2,697,248 | $ (1,782,124) | $-- | $346,872 | $1,263,884 |
| The accompanying notes are an integral part of these interim consolidated financial statements. | |||||||
| DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES | ||
| CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||
| Nine Months Ended | ||
| September 25 | September 26 | |
| 2011 | 2010 | |
| Cash flows from operating activities | ||
| Net income (loss) | $1,429,125 | $ (447,694) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||
| Depreciation and amortization | 2,491,649 | 1,944,375 |
| Loss on disposal of property and equipment | 30,157 | 217,868 |
| Share-based compensation | 65,944 | 21,409 |
| Change in fair value of derivative instruments | 345,249 | 582,628 |
| Deferred income tax benefit (provision) | 608,154 | (203,780) |
| Changes in operating assets and liabilities that provided (used) cash | ||
| Accounts receivable | (14,348) | 376,675 |
| Inventory | (140,545) | (1,196) |
| Prepaid assets | 56,440 | (87,328) |
| Other current assets | 43,348 | (69,025) |
| Intangible assets | (72,822) | (111,198) |
| Other long-term assets | (4,575) | (6,864) |
| Accounts payable | 77,180 | (68,884) |
| Accrued liabilities | 452,855 | 462,929 |
| Deferred rent | 153,057 | 209,990 |
| Net cash provided by operating activities | 5,520,868 | 2,819,905 |
| Cash flows from investing activities | ||
| Purchases of property and equipment | (6,051,295) | (4,176,237) |
| Net cash used in investing activities | (6,051,295) | (4,176,237) |
| Cash flows from financing activities | ||
| Proceeds from issuance of long-term debt | 3,138,321 | 3,086,496 |
| Repayments of long-term debt | (1,659,353) | (2,059,215) |
| Proceeds from issuance of common stock | -- | 250,000 |
| Dividends | (107,000) | (552,861) |
| Net cash provided by financing activities | 1,371,968 | 724,420 |
| Net increase (decrease) in cash and cash equivalents | 841,541 | (631,912) |
| Cash and cash equivalents, beginning of period | 1,358,381 | 1,660,099 |
| Cash and cash equivalents, end of period | $2,199,922 | $ 1,028,187 |
| The accompanying notes are an integral part of these interim consolidated financial statements. | ||