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Diversified Restaurant Holdings Announces First Quarter Revenue Growth of 40.9%

SOUTHFIELD, Mich., May 18, 2011 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (OTCBB:DFRH) ("DRH" or the "Company"), the owner, operator, and franchisor of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and a leading franchisee for Buffalo Wild Wings® ("BWW"), reports a first quarter revenue increase of $4.4 million or 40.9% to $15.1 million in 2011 from $10.7 million in 2010. The increase was due to a $3.9 million increase associated with three new restaurants opened in 2011 (one Bagger Dave's and two BWW) and four which opened prior to 2011 (one Bagger Dave's and three BWW) but did not meet the criteria for same-store sales for all or part of the three-month period. The remaining $481 thousand increase was related to a 1.4% increase in same-store sales for 16 BWW restaurants opened prior to 2010 and a 4.9% increase in same-store sales for two Bagger Dave's restaurants opened prior to 2010.
/ Source: GlobeNewswire

    SOUTHFIELD, Mich., May 18, 2011 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (OTCBB:DFRH) ("DRH" or the "Company"), the owner, operator, and franchisor of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and a leading franchisee for Buffalo Wild Wings® ("BWW"), reports a first quarter revenue increase of $4.4 million or 40.9% to $15.1 million in 2011 from $10.7 million in 2010. The increase was due to a $3.9 million increase associated with three new restaurants opened in 2011 (one Bagger Dave's and two BWW) and four which opened prior to 2011 (one Bagger Dave's and three BWW) but did not meet the criteria for same-store sales for all or part of the three-month period. The remaining $481 thousand increase was related to a 1.4% increase in same-store sales for 16 BWW restaurants opened prior to 2010 and a 4.9% increase in same-store sales for two Bagger Dave's restaurants opened prior to 2010.

    Net income in the first quarter of 2011 was $753 thousand, or $0.04 per diluted share, compared to $135 thousand, or $0.01 per diluted share, in the same period the prior year.

    David G. Burke, CFO of DRH, commented, "With the continued development of both the Bagger Dave's and Buffalo Wild Wings concepts, we have managed to not only achieve significant revenue growth but are also doing so more profitably. Our effective management of food and labor costs, along with revenue growth being proportionally higher than our fixed cost base, contributed to a successful quarter. We're excited about the opportunities that lay ahead, particularly with recent investments to facilitate the sale and management of Bagger Dave's franchises which will help build the brand and create another stream of revenue for the Company."

    Restaurant Openings

    The following table outlines the restaurant unit information for the 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 existing 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. 2009 comparative results are a consolidation of owned and managed restaurants based on the accounting of an acquisition of entities under common control.

    Results of Operations

    For the three months ended March 27, 2011 ("First Quarter 2011"), revenue was generated from the operations of 21 BWW restaurants (two of which opened in February 2011) and four Bagger Dave's restaurants (one of which opened in late February 2011). For the three months ended March 28, 2010 ("First Quarter 2010"), revenue was generated from the operations of 16 BWW restaurants and three Bagger Dave's restaurants (one of which opened in February 2010).

    Compensation cost increased by $1.2 million or 39.2% to $4.2 million in First Quarter 2011 from $3.0 million in First Quarter 2010. The increase was primarily due to the addition of seven restaurants. Compensation cost as a percentage of sales decreased to 28.0% in First Quarter 2011 from 28.3% in First Quarter 2010 primarily due to a reduction in hourly labor and because our proportional increase in revenue exceeded the increase of non-store level management compensation. This improvement was partially offset by early-stage hourly labor inefficiencies attributable to the opening of three new stores in February 2011.

    Food and beverage cost increased by $900 thousand or 27.4% to $4.3 million in First Quarter 2011 from $3.3 million in First Quarter 2010. The increase was primarily due to the addition of seven restaurants. Food and beverage cost as a percentage of sales decreased to 28.2% in First Quarter 2011 from 31.1% in First Quarter 2010 primarily due to lower bone-in chicken wing prices, menu price increases and efficiencies in food preparation. This decrease was partially offset by increases in other food and beverage prices.

    General and administrative cost increased by $950 thousand or 38.7% to $3.4 million in First Quarter 2011 from $2.5 million in First Quarter 2010. This increase was primarily due to the addition of seven restaurants. General and administrative cost as a percentage of sales decreased to 22.6% in First Quarter 2011 from 22.9% in First Quarter 2010 due to cost reduction initiatives and because the proportional increase in revenue was greater than that of non-store level general and administrative overhead expenses.

    Pre-opening cost increased by $150 thousand or 141.4% to $250 thousand in First Quarter 2011 from $100 thousand in First Quarter 2010. This increase was due to the Company opening three stores in February 2011 versus one store in February 2010. Pre-opening cost as a percentage of sales increased to 1.7% in First Quarter 2011 from 1.0% in First Quarter 2010 for the same reason.

    Occupancy cost increased by $31 thousand or 4.0% to $800 thousand in First Quarter 2011 from $766 thousand in First Quarter 2010. This increase was primarily due to the addition of seven new stores. Occupancy cost as a percentage of sales decreased to 5.3% in First Quarter 2011 from 7.1% in First Quarter 2010 primarily due to the Company taking advantage of the favorable real estate market through a combination of securing lower than average lease rates for all seven new stores and rent reductions at existing locations.

    Depreciation and amortization cost increased by $170 thousand or 28.2% to $775 thousand in First Quarter 2011 from $605 thousand in First Quarter 2010. This increase was primarily due to the addition of seven restaurants. Depreciation and amortization cost as a percentage of sales decreased to 5.1% in First Quarter 2011 from 5.6% in First Quarter 2010 primarily due to the fact that depreciation and amortization cost, for the nine stores acquired in First Quarter 2010, was spread over a revenue period of 87 days in 2010 vs. a period of 91 days in 2011.

    Balance Sheet

    Cash and cash equivalents were $2.1 million at March 27, 2011, compared with $1.3 million Dec 26, 2010.  

    DRH generated $2.1 million in cash from operations during the first quarter of 2011 compared with cash from operations of $1.1 million in the same quarter of the prior year.   The increase in cash flow is attributed to the increase in the number of stores and efficiencies gained at existing stores.   

    Capital expenditures in the first quarter of 2011 were $2.6 million compared with $0.6 million in the first quarter of 2010. Total capital expenditures for the year are expected to be approximately $9.1 million, of which approximately $7.2 million is for new restaurant construction, $0.6 million is for real estate, and $1.3 million is for existing store renovations, which includes a remodel, an addition, upgrades to audio/visual equipment and patio upgrades. Funding for capital will be a combination of operating cash flow and draws on our development line of credit through RBS Charter One.

    Outlook

    During the second half of 2011, DRH plans to build three additional restaurants – its 22nd BWW in University Park, Florida, its 5th Bagger Dave's in East Lansing, Michigan and its 6th Bagger Dave's in a Michigan location yet to be announced. In addition, the Company is investing in remodels of varying degrees in up to eight existing restaurants, one of which is an expansion of its first Bagger Dave's location in Berkley, Michigan. 

    The Company recently hired a veteran in the franchise community to lead the initiative to franchise our Bagger Dave's concept throughout the Midwest, more specifically Michigan, Indiana, Illinois, Ohio, Kentucky and Wisconsin.

    T. Michael Ansley, President and CEO of DRH, concluded, "We are successfully moving forward with our three-pronged growth strategy: continued expansion of our Buffalo Wild Wings restaurants in Florida and Michigan, development of company-owned Bagger Dave's restaurants, and franchising Bagger Dave's to qualified multiunit restaurant operators throughout the Midwest. Our growth is supported by the continued development of our employees and their dedication to provide positive guest experiences in our restaurants."

    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®, 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®, Train Wreck Burger®, and Bagger Dave's Amazingly Delicious Turkey Black Bean Chili®. Currently, there are four locations in the state of Michigan. DRH is approved to franchise Bagger Dave's in the states of Michigan, Indiana, Ohio, Illinois, Kentucky and Wisconsin. For more information, please visit .

    The Company is also a leading BWW franchisee and currently operates 21 BWW restaurants (seven in Florida and 14 in Michigan). 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.

    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.

    CONTACT: Investor Contact: Steven Marcus DME Capital, LLC Phone: 917-648-0663 Email: steven@dmecapital.com Company Contact: David G. Burke Chief Financial Officer Phone: 248.223.9160 Email: dgburke@baggerdaves.com