Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Diversified Restaurant Holdings, Inc. | a991saucq12017earningsrele.htm |
| 8-K - 8-K - Diversified Restaurant Holdings, Inc. | a8-kearningsreleaseq12017.htm |
Q1 2017 Financial Results
May 4, 2017
2
Safe Harbor
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 $76M
Largest Buffalo Wild Wings Franchisee
› Leading operator
› Strong cash generator
› 64 BWW locations
› Recent share price $2.87
› 52 week range $0.70 - $2.96
› Insider ownership 49%
› Institutional ownership 12%
› Shares outstanding 26.7M
3
Pure play franchisee with scale and track record of accretive acquisitions
Market data as of May 1, 2017 (Source: Bloomberg, LP); Ownership as of most recent filing
First Quarter Highlights
Sales up 2.8% to $44.3M
Two new Florida restaurants in 2017 vs. 2016
Same Store Sales off 0.3%, compared to industry decline of 1.7%
Adjusted EBITDA of $6.2M, 13.9% of sales
Restaurant-level EBITDA of $8.4M, 19.0% of sales
Strong cash from operations and FCF
Net cash from operations of $4.4M and free cash flow of $3.0M for the quarter
Cost of sales up 140 basis points vs. Q1 2016 as wing prices were high throughout the quarter (some relief
expected in Q2) and traffic-driving promotional activity weighed heavily on margins
Lower margin on higher restaurant-level expenses
Substantial improvement vs. prior 4 quarters driven by improved traffic but partially offset by declining average
check resulting from increased discount activity; aided by favorable calendar
4
Sales
S-S-S
EBITDA
Margins
Cashflow
Sales and Traffic
5
6
Traffic was a strong positive in Q1 2017 – driven in part by increased promotional activity resulting
in a negative effect on average check
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%
4.3%
3.0%
-3.1%
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%
1.1%
-3.0% -3.2%
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%
3.2%
6.1%
0.1%
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 FY 2014 FY 2015 FY 2016
SSS%
Traffic %
Avg Check %
Average Check and Traffic Trends
Delivery
• Delivery available at nearly half the system in Q2 (29 locations)
• Implementing increased menu pricing for delivery in Q2
Blazin’ Rewards
• Completed roll out across entire network in Q1 2017
• Aggressive training and education initiatives
• Bounce back coupon for sign-up
Other initiatives
• Promotions (Half-Price Wing Tuesdays, BOGO Blitzes)
• Large parties and catering
• 15-Minute lunch
7
Sales and Traffic-Driving Actions
8
Delivery
External Sales as % of Total
26 Locations
In Q3 2016, DRH aggressively pursued partnerships with regional and national delivery services
to increase kitchen utilization and drive incremental sales – delivery channel is showing strong
growth and to date we see no evidence that delivery sales cannibalize carry-out sales
Delivery Drives Incremental Sales
2017 delivery sales expected to reach
$1.5-$2M; 26 Q1 delivery locations with an
additional 3 in Q2
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%
1.9% 2.7% 2.8%
Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017
% of Carry-Out Sales % of Delivery Sales
9
Blazin’ Rewards Loyalty Program
Blazin’ Rewards Members
After a strong pilot of the new Blazin’ Rewards program in our 18 St. Louis area locations,
we rolled out the program to all 64 locations in Q1 2017
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
29 31 33 35 37 39 41 43 45 47 49 51 1 3 5 7 9 11 13 15
Week 2016 2017
Successful Pilot Leads to Full Rollout
Blazin’ Rewards pilot program rolled
out in 18 St. Louis area locations in
July 2016
In Q1 2017 all remaining locations
rolled out the Blazin’ Rewards program
As of April 2017, over 44,000 DRH
guests were enrolled in the program
Average loyalty check currently
20% higher than non-loyalty
10
Half-Price Wing Tuesday Promotion
Tuesday SSS % Trends Half-Price Wing Tuesday Promo
-3.4%
8.9%
15.5%
6 Week Prior to
Promo
Post Promo 2016 Post Promo 2017
YTD
The half-price wing Tuesday promotion has proven to drive significant traffic throughout all
dayparts on an otherwise lower volume day – contribution margin on incremental sales over 50%
Leveraging various media to promote:
Sport, Talk and Music Radio
Pandora®
Digital Media
Outdoor
In-store digital (Rockbot®) & POP
Margins and EBITDA
11
12
Quarterly Restaurant EBITDA Trends
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 $2.3 million
2 – FF = Franchise-related fees which includes 5.0% royalty and 3.0 – 3.15% NAF (national advertising fund)
Both margins and AUV’s sequentially improved in Q1 2017; cost of sales up on increased
promotional activity and higher wing costs
AUV ($M) $3.1 $2.8 $2.7 $2.7 $2.7 $2.6 $2.6 $2.6 $2.8 $2.8 $2.8 $2.6
21.8% 20.6% 19.4% 20.3% 21.5% 20.0% 19.6% 16.5% 19.0%
21.2% 20.4% 19.4%
5.5% 5.9% 6.4% 6.6%
6.5% 6.8% 7.0%
7.2%
6.5%
5.2% 6.2% 6.8%
8.0% 8.0% 8.0% 8.0%
8.2% 8.1% 8.1%
8.1%
8.0% 8.0% 8.0% 8.1%
12.6% 13.4% 13.0% 12.7%
11.5% 12.1% 13.3%
14.0% 12.3%
13.2% 12.9% 12.7%
23.3% 23.9% 25.1% 24.8% 24.4% 25.2% 24.7% 25.0% 24.7% 23.8% 24.4% 24.8%
28.8% 28.1% 28.1% 27.6% 28.0% 27.9% 27.4% 29.2% 29.4% 28.5% 28.1% 28.1%
KEY Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 FY2014 FY 2015 FY 2016
C
O
S
LA
B
O
R
OPE
X
FF2
OCC
R
ES
T.
EB
IT
D
A
1
13
Cost of Sales Impacts
Q1 2016
COS %
Bone-In Wing
Costs
Wing Yield 1/2 Price Promo St. Louis
Boneless Promo
Boneless Wing
Costs
Alcohol Costs Sales Mix/
Waste/Other
Food Costs
Q1 2017
COS %
28.0%
0.35%
0.25%
0.43%
0.30% 0.24%
0.35%
29.4%
0.08%
Historically high traditional (bone-in) wing costs and lower yields, coupled with the Half-Price
Wing Tuesdays promotion, drove 103 of the 140 basis point increase in COS % in Q1 2017
28.8%
28.1% 28.1%
27.6%
28.0% 27.9%
27.4%
29.2% 29.4%
28.5%
28.1% 28.1%
21.7%
20.1%
20.4%
19.5%
20.3%
20.9%
19.5%
23.5%
24.0%
18.4%
20.4%
21.1%
$1.89
$1.77
$1.80 $1.79
$1.92 $1.92
$1.70
$1.95
$2.02
$1.53
$1.81
$1.87
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 FY 2014 FY 2015 FY 2016
Total COS % Wing Cost % of Total COS Wing Cost/Lb
14
COS Trends and Wing Impact
NOTE: Wing prices are the average price paid per pound of fresh, jumbo chicken wings – including distribution costs
(approximately $0.29 per pound)
Traditional wing costs hit record highs in Q1 2017 and have trended higher in early Q2;
wings as % of total COS spiked to 24.0%
15
Historical Wing Prices
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
$ / lb. Fresh Jumbo Chicken Wing Spot Prices
Source: Urner Barry Comtell™ UB Chicken – Midwest Jumbo Wings
NOTE: Logistics cost to restaurants is $0.29 / lb. over the spot price
Volatile fresh wing prices have ranged between $1.41 and $1.87/lb. since 2015; early Q2 upward
trend is not typical
$0.75
$0.95
$1.15
$1.35
$1.55
$1.75
$1.95
2014 2015 2016 2017
16
Cost of Sales Actions
Testing revised Wing Tuesday promotion in markets we control
(40 stores - Tampa, St. Louis, N. Michigan)
• Eliminating the “half-off” concept
• Introducing “BOGO” (buy one / get one free)
• Limiting to two sizes with higher margin – snack and small
Discontinued the “Half-off Boneless Thursdays” promotion that was
tested in the St. Louis market (return to “70¢ Boneless Thursdays”)
• Incremental traffic on an already stronger day not sufficient to justify the
higher cost of the “half-off” promotion
• “70¢” per wing price reduces the cost of the promotion
Menu price increase of 1.8% effective May 2017
Increasing all prices on delivery menu by 10% effective May 2017
17
Total Labor Trends
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%
23.8%
24.4% 24.8%
12.5% 13.2%
13.8% 13.3% 13.1% 13.6% 13.3% 13.6% 13.1% 12.9% 13.2% 13.4%
5.6%
6.0%
6.4%
6.4% 6.2%
6.4% 6.6% 6.6% 6.6%
5.8% 6.1%
6.5%
5.2%
4.7%
4.9% 5.2% 5.1%
5.1% 4.8% 4.8% 5.1%
5.1%
5.0%
4.9%
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 FY 2014 FY 2015 FY 2016
Hourly Labor % of Sales Mgmt Labor % of Sales Bonus & OH % of Sales
18
Adjusted EBITDA Trends
21.8%
20.6%
19.4% 20.3%
21.5% 20.0% 19.6%
16.5%
19.0% 21.2% 20.4% 19.4%
4.3%
8.0%
5.8% 5.1%
5.0% 5.7% 5.7%
5.8%
5.3% 5.1% 5.7% 5.6%
Key Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 FY2014 FY 2015 FY 2016
G&
A
R
ES
T.
EB
IT
D
A
G&A expenses increased with the St. Louis acquisition in 2015 and we have not yet driven
leverage against the higher costs – plan to drive G&A toward 5.0% by 2H 2017
19
G&A Impacts
G&A expenses were higher than our target of 5% of net sales in Q1 2017 as sales slightly lagged
expectations – initiatives in place to drive reduction toward targeted range for remainder of 2017
Q1 2016
G&A %
Support Expense Support Salaries Marketing Q1 2017
G&A %
5.0%
0.4% 0.5%
5.3%
0.2%
20
G&A Actions
Targeting second half run rate of 5% even at low end
of sales guidance
• $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
21
22
Value Creation – Going Forward
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 for BWLD re-franchising activity
• Opportunities with new franchised concepts
Growth
Strategy
• Disciplined, value-accretive growth through acquisition
• Supplemented by opportunistic new unit development
23
Reiterating Fiscal 2017 Guidance1
Revenue of $173 million to $178 million
Restaurant-level EBITDA of $33.0 million to $36.0 million
Adjusted EBITDA between $23.5 million to $26.5 million
Capital expenditures of approximately $4 million to $6 million
• One new restaurant under construction – opening June 2017
• At least two remodels planned for 2017 – targeted at ~$0.6 million each
1 2017 guidance provided as of May 4, 2017
24
Free Cash Flow and Net Debt
Net debt / EBITDA target in the range of 4x by the end of 2017 and 3x by the end of 2018
Citi Restaurant Seminar
Marcum MicroCap Conference – New York City
Q2 2017 earnings release (call on August 4th)
Dougherty Conference – Minneapolis
25
May 22nd
June 15th
August 3rd
September 19th
Upcoming Investor Relations Calendar
Exhibits
26
27
EBITDA Reconciliation
28
EBITDA Reconciliation cont.
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.