Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Diversified Restaurant Holdings, Inc. | a8-kearningsreleaseq22017.htm |
| EX-99.1 - EXHIBIT 99.1 - Diversified Restaurant Holdings, Inc. | a991saucq22017earningsrele.htm |
Q2 2017 Financial Results
August 3, 2017
Safe Harbor
2
The information made available in this presentation contains forward-looking statements which
reflect the Company’s current view of future events, results of operations, cash flows,
performance, business prospects and opportunities. Wherever used, the words "anticipate,"
"believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and
similar expressions identify forward-looking statements as such term is defined in the Securities
Exchange Act of 1934. Any such forward-looking statements are subject to risks and
uncertainties and the Company's actual growth, results of operations, financial condition, cash
flows, performance, business prospects and opportunities could differ materially from historical
results or current expectations. Some of these risks include, without limitation, the impact of
economic and industry conditions, competition, food and drug safety issues, store expansion and
remodeling, labor relations issues, costs of providing employee benefits, regulatory matters,
legal and administrative proceedings, information technology, security, severe weather, natural
disasters, accounting matters, other risk factors relating to our business or industry and other
risks detailed from time to time in the Securities and Exchange Commission filings of DRH.
Forward-looking statements contained herein speak only as of the date made and, thus, DRH
undertakes no obligation to update or publicly announce the revision of any of the forward-
looking statements contained herein to reflect new information, future events, developments or
changed circumstances or for any other reason.
Who We Are
NASDAQ: SAUC
IPO: 2008
Market capitalization $59M
Largest Buffalo Wild Wings Franchisee
› Leading operator
› Strong cash generator
› 65 BWW locations
› Recent share price $2.21
› 52 week range $0.70 - $4.12
› Insider ownership 50%
› Institutional ownership 11%
› Shares outstanding 26.7M
3
Pure play franchisee with scale and track record of accretive acquisitions
Market data as of July 31, 2017 (Source: Bloomberg, LP); Ownership as of most recent filing
Second Quarter Key Information
Sales of $39.9M, down $1M vs. last year
Two new Florida restaurants Q2/2016 and one additional Florida location opened June 2017
Same Store Sales off 3.67% (-1.95% YTD)
Adjusted EBITDA of $4.6M, 11.6% of sales
Restaurant-level EBITDA of $6.6M, 16.6% of sales
Strong cash from operations and FCF
Net cash from operations of $2.1M and $6.5M for the quarter and YTD and free cash flow of $3.9M YTD
Cost of sales up 200 basis points vs. Q2 2016 as wing prices were high throughout the quarter and traffic-driving
promotional activity weighed heavily on margins
Lower margin on higher restaurant-level costs, particularly cost of sales
YTD decline driven predominantly by unfavorable Q2 sports calendar in core markets
4
Sales
S-S-S
EBITDA
Margins
Cashflow
Sales and Traffic
5
Q2 2017 NHL & NBA Playoff Impact
6
# of Locations
Impacted
2016 Playoff
Games
2017 Playoff
Games
Variance
Sales $ Impact
(thousands)
Sales $ Impact
per Game per
Location
17 17 0 -17 $ (200) $(693)
20 5 0 -5 $ (55) $(546)
20 4 0 -4 $ (27) $(332)
18 20 11 -9 $ (264) $(1,631)
9 7 4 -3 $ (22) $(824)
64 7 5 -2 $ (210) $(1,640)
Total Impact 60 20 -40 $(778) $(990)
Average Check and Traffic Trends
7
Traffic was negatively affected in Q2 by the Easter shift vs. 2016 and significant drop in play-off
games for the NHL and NBA teams in our core markets – more positive trend in June as these
events primarily impacted April and May
NOTE: Average check is predominantly driven by price but is also influenced by product mix and, to a lesser extent, average guests per check.
2.6% 2.9%
5.5%
5.9%
7.7%
4.1%
1.3%
0.8%
-2.2%
-2.7% -1.8%
-5.4%
-0.3%
-3.7%
-8.3%
-2.5%
-0.7%
4.3%
3.0%
-3.1% -2.0%
0.9% 1.1%
2.2%
0.2%
0.6%
-2.5%
-1.8% -2.0%
-2.0%
-3.0%
-3.3%
-4.3%
2.0%
-1.9%
-5.7%
-0.7%
0.3%
1.1%
-3.0% -3.2%
0.1%
1.7% 1.7%
3.3%
5.7%
7.1%
6.6%
3.1% 2.8%
-0.2%
0.2%
1.4%
-1.1%
-2.3%
-1.8%
-2.9%
-1.8% -1.0%
3.2%
6.1%
-2.1% -2.1%
Q1
2014
Q2
2014
Q3
2014
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Apr
2017
May
2017
Jun
2017
FY
2014
FY
2015
FY
2016
YTD
2017
SSS%
Traffic %
Avg Check %
Q2 Sales Bridge ($M)
8
Same-store sales declined $1.5M driven by the Easter holiday closure which shifted into Q2
(vs. Q1 2016), unfavorable sports outcomes in our markets, and the impact of promotional activity
*Clinton Township, MI significantly impacted by a major sinkhole that, since 12/27/16, has been blocking access to the restaurant (“Fraser
Sinkhole”); University Park, FL access blocked for much of FY 2017 by new diamond interchange construction (I-75 & University Parkway)
$39.5
$39.5
$39.9
$0.5
$0.8
$0.2 $0.4
$41.0
$0.4
$0.4
Q2 2016
Revenue
Non Comp
Locations
Easter
Holiday
Sporting
Events
*Construction Avg Ticket/
Promo Impact
Traffic Q2 2017
Revenue
Sales Driving Initiatives: Delivery
9
Delivery and Carry-Out Sales as % of Total
The delivery channel continues to show strong growth and to date we see no evidence that
delivery sales cannibalize higher margin carry-out business
Delivery Drives Incremental Sales
38 locations now offer delivery service through
third parties (up from 26 last year)
2017 delivery sales are expected to reach
$1.5-$2M
Average delivery check is 13% higher than
dine-in and 17% higher than carry-out
20.6%
19.3% 19.5%
20.4%
21.9% 21.4%
1.9% 2.7% 2.8%
3.1%
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017
% of Carry-Out Sales % of Delivery Sales
Sales Driving Initiatives: Blazin’ Rewards Loyalty
10
Blazin’ Rewards Members
Roll-out began in St. Louis market in mid-2016 and ramped up with remaining locations in
Q1 2017 – the average loyalty check is currently 17% higher than non-loyalty
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
29 32 35 38 41 44 47 50 1 4 7 10 13 16 19 22 25
Week 2016 2017
*Loyalty Attachment Rates
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
29 32 35 38 41 44 47 50 1 4 7 10 13 16 19 22 25
Week 2016 2017
* Loyalty attachment rate = loyalty checks as a percentage of total checks
Sales Driving Initiatives: Promotions
11
Tuesday SSS % Trends Half-Price Wing Tuesday vs. BOGO
-3.4%
8.9%
14.3%
6 Week Prior to
Promo
Post Promo 2016 Post Promo 2017
YTD
The Tuesday wing promotion has proven to drive significant traffic in throughout all dayparts on an
otherwise low volume day; we’re testing a BOGO offer in captive markets with promising early results
* Excludes July 4th holiday
** Check Count may not be a good proxy for traffic given the nature of the BOGO promotion
*** COS % excludes waste and cost that is not attached to a menu item (i.e. fryer oil)
Margins and EBITDA
12
Quarterly Restaurant EBITDA Trends
13
1 – On June 29, 2015, we acquired 18 locations in the St. Louis market to add to our existing 44 units, which had a dilutive AUV of $2.3 million
2 – FF = Franchise-related fees which includes 5.0% royalty and 3.0 – 3.15% NAF (national advertising fund)
Record high chicken wing prices coupled with sales deleveraging placed added pressure on Q2 margins
AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.8 $2.8 $2.6 $2.6
21.8% 20.6% 19.4% 20.3% 21.5% 20.0% 19.6% 16.5% 19.0% 16.6%
21.2% 20.4% 19.4% 17.8%
5.5% 5.9% 6.4% 6.6%
6.5% 6.8% 7.0%
7.2%
6.5%
7.1%
5.2% 6.2% 6.8% 6.8%
8.0% 8.0% 8.0% 8.0%
8.2% 8.1% 8.1%
8.1%
8.0%
8.1%
8.0% 8.0% 8.1%
8.1%
12.6% 13.4% 13.0% 12.7% 11.5% 12.1% 13.3% 14.0% 12.3% 12.9%
13.2% 12.9% 12.7%
12.6%
23.3% 23.9% 25.1% 24.8% 24.4% 25.2% 24.7% 25.0% 24.7% 25.5%
23.8% 24.4% 24.8%
25.1%
28.8% 28.1% 28.1% 27.6% 28.0% 27.9% 27.4% 29.2% 29.4% 29.9% 28.5% 28.1% 28.1% 29.6%
KEY Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 FY2014 FY 2015 FY 2016 YTD
2017
C
O
S
LA
B
O
R
O
P
EX
FF2
OCC
R
ES
T.
EB
IT
D
A
1 1
Cost of Sales Impacts
14
Historically high traditional chicken wing costs and lower yields, coupled with the Tuesday wing
promotions, were responsible for 169bp of the 200bp increase in COS in Q2 2017 vs. 2016
28.8%
28.1% 28.1%
27.6%
28.0% 27.9%
27.4%
29.2% 29.4%
29.9%
28.5%
28.1% 28.1%
29.6%
21.7%
20.1%
20.4%
19.5%
20.3%
20.9%
19.5%
23.5%
24.0%
24.9%
18.4%
20.4%
21.1%
24.4%
$1.89
$1.77
$1.80 $1.79
$1.92 $1.92
$1.70
$1.95
$2.02
$2.03
$1.53
$1.81
$1.87
$2.03
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 FY 2014 FY 2015 FY 2016 YTD
2017
Total COS % Wing Cost % of Total COS Wing Cost/Lb
COS Trends and Wing Impact
15
NOTE: Wing prices shown are the average price paid per pound of fresh, jumbo chicken wings – including distribution costs
of approximately $0.29 per pound
Traditional wing costs hit record highs in Q2 2017 and have remained high in early Q3;
wings as % of total COS spiked to 24.9%
Historical Wing Prices
16
$ / lb. Fresh Jumbo Northeast Chicken Wing Spot Prices
Source: Urner Barry Comtell™ UB Chicken – Northeast Jumbo Wings
NOTE: Logistics cost to restaurants is $0.29 / lb. over the spot price
Volatile fresh wing spot prices have ranged between $1.41 and $1.87/lb. since 2015; late Q2 and
early Q3 prices ($2.02 - $2.05) are record highs
Cost Saving Initiatives
17
To combat the impact of inflationary traditional wing costs, DRH has implemented a number of
high value initiatives to drive down cost of sales – targeting savings in the $3 – 4 million range
(annualized), including the following:
Implemented a wing portioning adjustment in early June
Testing a revised Tuesday promotion in captive markets since mid-June (BOGO offer on
snack/small menu items only) – with favorable early results
Driving down the impact of comps and promos through –
• Implementation of new guidelines and policies
• Introducing aggressive targets to management incentive plans beginning in Q3 2017
Total Labor Trends
18
NOTE: OH = Overhead labor costs including payroll taxes, FUTA, SUTA, health benefits and retirement plan.
Bonus is typically between 1.0-1.2% of sales.
Hourly and total labor costs continue to be held in check as we push productivity initiatives
as a means of offsetting wage inflation
23.3% 23.9%
25.1% 24.8% 24.4%
25.2% 24.7% 25.0% 24.7%
25.5%
24.4% 24.8%
25.1%
12.5% 13.2%
13.8% 13.3% 13.1% 13.6% 13.3% 13.6% 13.1% 13.8% 13.2% 13.4% 13.5%
5.6%
6.0%
6.4%
6.4% 6.2%
6.4% 6.6% 6.6% 6.6%
6.8%
6.1% 6.5% 6.7%
5.2%
4.7%
4.9% 5.2% 5.1%
5.1% 4.8% 4.8% 5.1%
4.8%
5.0% 4.9%
4.9%
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 FY 2015 FY 2016 YTD 2017
Hourly Labor % of Sales Mgmt Labor % of Sales Bonus & OH % of Sales
AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.8 $2.6 $2.6
Adjusted EBITDA Trends
19
21.8%
20.6%
19.4% 20.3%
21.5% 20.0% 19.6% 16.5%
19.0% 16.6%
21.2% 20.4% 19.4% 17.8%
4.2%
8.0%
5.8% 5.1%
5.0% 5.7% 5.7% 5.8%
5.3% 5.2%
5.1% 5.7% 5.7% 5.2%
Key Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 FY2014 FY 2015 FY 2016 YTD
2017
G&
A
R
ES
T.
EB
IT
D
A
Targeting G&A expense at 5.0% of net sales by the second half of 2017 – on pace
AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.5 $2.8 $2.8 $2.6 $2.6
G&A Impacts
20
Q2 2017 saw G&A savings compared with 2016; G&A on pace to achieve targeted 5% of
net sales in the second half of 2017
$2.08
$0.27
$0.12
$2.35
$0.12
Q2 2016
G&A $
Support Expense Support Salaries Marketing Q2 2017
G&A $
0.30%
G&A Actions
21
Targeting second half run rate of 5%
• $1 million run rate savings target
Post – Bagger Dave’s spin-off overhead restructuring coupled with tight
spending controls
• Reductions in salaries and support office expenses
Reduced (more targeted) local marketing spend
• Better leveraging of National Ad Fund spend
• More targeted local spend
The Future
22
Value Creation – Going Forward
23
Value
Proposition
• Best in class operations
• Proven integration skills
• Strong positive cash flow
• Financial strength and flexibility
• Tax benefits to offset over $50 million in pre-tax income
Current
Environment
• Roll-up of other BWW franchisees ready for exit as cycle turns
• Potential future involvement in BWLD re-franchising activity
• Opportunities with new franchised concepts
Growth
Strategy
• Disciplined, value-accretive growth through acquisition
• Supplemented by opportunistic new unit development
Revising Fiscal 2017 Guidance1
24
1 2017 guidance provided as of August 3, 2017
2 Revenue guidance implies SSS for 2017 in range of -0.6% to -2.5%, excluding week 53 of the fiscal year
Free Cash Flow and Net Debt
25
Net debt / EBITDA target in the range of 4x by the end of 2017 and 3.5x by the end of 2018
Dougherty Conference - Minneapolis
Q3 2017 earnings release (call on 11.3.2017)
26
9.19.2017
11.2.2017
Upcoming Investor Relations Calendar
Date Event
Exhibits
27
EBITDA Reconciliation
28
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
Reconciliation between Net Income (Loss) and Adjusted EBITDA and Adjusted Restaurant-Level EBITDA
Three Months Ended (Unaudited) Six Months Ended (Unaudited)
June 25, 2017 June 26, 2016 June 25, 2017 June 26, 2016
Net lncome (Loss) $ (409,090) $ (182,426) $ 422,030 $ 247,978
+ Loss from discontinued operations 117,747 416,770 82,207 1,278,795
+ Income tax expense (benefit) (604,560) (251,546) (582,296) 166,808
+ Interest expense 1,642,306 1,440,552 3,218,260 2,885,492
+ Other income, net (25,140) (36,265) (52,307) (76,007)
+ Loss on asset disposal 264,015 136,927 286,074 184,151
+ Depreciation and amortization 3,271,541 3,824,076 6,904,795 7,586,179
EBITDA $ 4,256,819 $ 5,348,088 $ 10,278,763 $ 12,273,396
+ Pre-opening costs 294,473 445,941 325,843 569,384
+ Non-recurring expenses (Restaurant-level) — — 14,300 71,184
+ Non-recurring expenses (Corporate-level) 71,457 161,436 161,554 225,390
Adjusted EBITDA $ 4,622,749 $ 5,955,465 $ 10,780,460 $ 13,139,354
Adjusted EBITDA margin (%) 11.6 % 14.5 % 12.8 % 15.6 %
+ General and administrative 2,066,409 2,347,052 4,423,375 4,521,343
+ Non-recurring expenses (Corporate-level) (71,457) (161,436) (161,554) (225,390)
Restaurant–Level EBITDA $ 6,617,701 $ 8,141,081 $ 15,042,281 $ 17,435,307
Restaurant–Level EBITDA margin (%) 16.6 % 19.9 % 17.8 % 20.7 %
EBITDA Reconciliation cont.
29
Restaurant-Level EBITDA represents net income (loss) plus the sum of non-restaurant specific general and administrative expenses, restaurant pre-
opening costs, loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and non-recurring
expenses related to acquisitions, equity offerings or other non-recurring expenses. Adjusted EBITDA represents net income (loss) plus the sum of
restaurant pre-opening costs, loss on property and equipment disposals, depreciation and amortization, other income and expenses, interest, taxes, and
non-recurring expenses. We are presenting Restaurant-Level EBITDA and Adjusted EBITDA, which are not presented in accordance with GAAP, because
we believe they provide an additional metric by which to evaluate our operations. When considered together with our GAAP results and the reconciliation to
our net income, we believe they provide a more complete understanding of our business than could be obtained absent this disclosure. We use
Restaurant-Level EBITDA and Adjusted EBITDA together with financial measures prepared in accordance with GAAP, such as revenue, income from
operations, net income, and cash flows from operations, to assess our historical and prospective operating performance and to enhance the understanding
of our core operating performance. Restaurant-Level EBITDA and Adjusted EBITDA are presented because: (i) we believe they are useful measures for
investors to assess the operating performance of our business without the effect of non-cash depreciation and amortization expenses; (ii) we believe
investors will find these measures useful in assessing our ability to service or incur indebtedness; and (iii) they are used internally as benchmarks to
evaluate our operating performance or compare our performance to that of our competitors.
Additionally, we present Restaurant-Level EBITDA because it excludes the impact of general and administrative expenses and restaurant pre-opening
costs, which is non-recurring. The use of Restaurant-Level EBITDA thereby enables us and our investors to compare our operating performance between
periods and to compare our operating performance to the performance of our competitors. The measure is also widely used within the restaurant industry
to evaluate restaurant level productivity, efficiency, and performance. The use of Restaurant-Level EBITDA and Adjusted EBITDA as performance
measures permits a comparative assessment of our operating performance relative to our performance based on GAAP results, while isolating the effects
of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
Companies within our industry exhibit significant variations with respect to capital structure and cost of capital (which affect interest expense and tax rates)
and differences in book depreciation of property and equipment (which affect relative depreciation expense), including significant differences in the
depreciable lives of similar assets among various companies. Our management team believes that Restaurant-Level EBITDA and Adjusted EBITDA
facilitate company-to-company comparisons within our industry by eliminating some of the foregoing variations.
Restaurant-Level EBITDA and Adjusted EBITDA are not determined in accordance with GAAP and should not be considered in isolation or as an
alternative to net income, income from operations, net cash provided by operating, investing, or financing activities, or other financial statement data
presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. Neither Restaurant-Level EBITDA nor Adjusted
EBITDA should be considered as a measure of discretionary cash available to us to invest in the growth of our business. Restaurant-Level EBITDA and
Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies and our presentation of Restaurant-Level
EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual items. Our management
recognizes that Restaurant-Level EBITDA and Adjusted EBITDA have limitations as analytical financial measures.