Overview
InSeptember 2019 a holding company reorganization was completed in whichFamous Dave's of America, Inc. ("FDA") became a wholly owned subsidiary of the new parent holding company namedBBQ Holdings, Inc. ("BBQ Holdings "). As used in this Form 10-Q, "Company", "we" and "our" refer toBBQ Holdings and its wholly owned subsidiaries.BBQ Holdings was incorporated onMarch 29, 2019 under the laws of theState of Minnesota , while FDA was incorporated inMinnesota onMarch 14, 1994 . The Company develops, owns and operates restaurants under the name "Famous Dave's", "Village Inn ", "Barrio Queen", "Granite City",Real Urban Barbecue ", "Clark Crew BBQ", "Tahoe Joe's Steakhouse ", "Bakers Square ", "Craft Republic ", and "Fox & Hound". Additionally, the Company franchises restaurants under the name "Famous Dave's" and "Village Inn ". As ofApril 3, 2022 , there were 144 Famous Dave's restaurants operating in three countries, including 40 Company-owned restaurants and 104 franchise-operated restaurants. This includes the eight Famous Dave's ghost kitchens the Company operates out of itsGranite City restaurants. The first Clark Crew BBQ restaurant opened inDecember 2019 inOklahoma City, Oklahoma .BBQ Holdings has a 20% ownership in this venture. The Company owns and operates 18 Granite City Food & Brewery restaurants located throughout the Midwest and twoReal Urban Barbecue restaurants located inIllinois . OnJuly 30, 2021 , the Company completed the purchase of theVillage Inn family restaurant concept currently with 22 Company-owned restaurants and 103 franchised restaurants, and theBakers Square pie and comfort food concept currently with 14 Company-owned restaurants and four locations whereBakers Square pies are licensed. OnOctober 4, 2021 , the Company opened its secondReal Urban Barbecue restaurant located inOak Brook, Illinois and onOctober 8, 2021 the Company acquired the Tahoe Joe's Steakhouse brand. OnMarch 11, 2022 the Company acquired three bar-centric locations, collectively referred to as "Famous Craft Concepts", and onApril 25, 2022 , the Company executed an Asset Purchase Agreement for another bar-centric restaurant. OnApril 11, 2022 , the Company closed the purchase of Barrio Queen, a chain of seven authentic Mexican fine dining restaurants inPhoenix, Arizona . InMarch 2020 , theWorld Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic andthe United States declared a National Public Health Emergency. As a result, public health measures were taken to minimize exposure to the virus. These measures, some of which are government-mandated, have been implemented globally resulting in a dramatic decrease in economic activity. During the first quarter of 2021, mandated restrictions began to ease in a number of the markets in which the Company operates. Although the Company has experienced some recovery from the initial impact of COVID-19, the long-term impact of COVID-19 on the economy and on its business remains uncertain, the duration and scope of which cannot currently be predicted. As new variants of COVID-19 are being discovered and cases continue to occur at material rates throughout the markets in which the Company does business, the Company cannot predict the severity of another surge, what additional restrictions may be enacted, to what extent it can maintain off-premise sales volumes, whether it can maintain sufficient staffing levels, or if individuals will be comfortable returning to its dining rooms during or following social distancing protocols, and what long-lasting effects the COVID-19 pandemic may have on the restaurants industry as a whole. The potential impact of the COVID-19 pandemic on consumer spending behavior, which may be a function of continued concerns over safety and/or depressed consumer sentiment due to adverse economic conditions, including job losses, will determine the significance of the impact to the Company's operating results and financial
position. - 17 - Table of ContentsBBQ HOLDINGS, INC. AND SUBSIDIARIES
The following table includes the number of Company-owned and franchise-operated restaurants as of the dates presented:
BBQ Holdings Three Months Ended Three Months Ended April 3, 2022 April 4, 2021 Company-owned restaurants: Famous Dave's 40 27 Granite City Food & Brewery 18 18 Real Urban Barbecue 2 1 Clark Crew BBQ 1 1 Village Inn 22 - Bakers Square 14 - Tahoe Joe's 4 - Famous Craft Concepts 3 - End of period 104 47 % of system 33 % 32 % Franchise-operated and licensed restaurants: Famous Dave's 104 100 Village Inn 103 - Bakers Square 4 - End of period 211 100 % of system 67 % 68 % System end of period total 315 147 Of the 104 franchise-operated restaurants, 19 are Famous Dave's ghost kitchens operating out of the kitchen of another restaurant location or a shared kitchen space. Additionally, eight of ourGranite City locations are operating Famous Dave's ghost kitchens under licensing agreements.
Fiscal Year
Our fiscal year ends on the Sunday closest toDecember 31st . Our fiscal year is generally 52 weeks; however, it periodically consists of 53 weeks. Both fiscal year 2022, endingJanuary 1, 2023 , and fiscal year 2021, endedJanuary 2, 2022 , consist of 52 weeks. Revenue Our revenue consists of restaurant sales, franchise-related revenue and licensing, national advertising fund contributions and other revenue. Our franchise-related revenue is comprised of three separate and distinct earnings processes: area development fees, initial franchise fees, and continuing royalty and national advertising fund payments. Currently, our domestic area development fee consists of a one-time, non-refundable payment of approximately$15,000 per restaurant in consideration for the services we perform in preparation of executing each area development agreement. For our international area development agreements, the one-time, non-refundable payment is negotiated on a per development basis and is determined based on the costs incurred to arrange for the sale of that development area. Currently, our initial, non-refundable, franchise fee for domestic growth depends on the restaurant model and varies from$15,000 to$45,000 per location. Finally, franchisees are also required to pay us a monthly royalty equal to a percentage of their net sales. Licensing revenue includes royalties from a retail line of business, including Famous Dave's branded sauces, rubs, marinades and seasonings. Other revenue includes the recognition of gift card breakage, opening assistance and training we provide to our franchise partners, the sale of Real Urban Barbeque consumer packaged goods, and the sale of raw brewing products produced at theGranite City brewing facility. - 18 - Table of ContentsBBQ HOLDINGS, INC. AND SUBSIDIARIES
Costs and Expenses
Restaurant costs and expenses include food, beverage and merchandise costs; labor and benefits costs; and operating expenses, which include occupancy costs, repair and maintenance costs, supplies, advertising and promotion. Certain of these costs and expenses are variable and will increase or decrease with sales volume. The primary fixed costs are restaurant management, operations, and catering support salaries, occupancy and insurance costs.
General and Administrative Expenses
General and administrative expenses include all corporate and administrative functions to support future growth. Salaries and benefits, legal fees, accounting fees, professional consulting fees, travel, rent and general insurance are major items in this category. We also provide franchise services for which the revenue is included in other revenue and the expenses are included in general and administrative expenses.
Results of Operations - the three months ended
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements and notes, and the audited
consolidated financial statements and notes included in our Annual Report on
Form 10-K for the fiscal year ended
The table below presents items in our unaudited condensed consolidated statements of operations as a percentage of net restaurant sales or total revenue, as indicated, for the periods presented.
Three Months Ended April 3, 2022 April 4, 2021 Food and beverage costs(1) 31.3 % 29.9 % Labor and benefits costs(1) 33.0 % 30.5 % Operating expenses(1) 29.3 % 30.5 %
Restaurant-level operating margin(1)(2) 6.4 % 9.1 % Depreciation and amortization expenses(3) 3.8 % 4.2 % General and administrative expenses(3) 8.2 % 10.8 % Income (loss) from operations(3) 0.7 % 2.2 %
(1) As a percentage of restaurant sales, net
(2) Restaurant-level margins are equal to restaurant sales, net, less restaurant
level food and beverage costs, labor and benefit costs, and operating
expenses.
(3) As a percentage of total revenue
Total Revenue
Our components of and changes in revenue consisted of the following for the
three months ended
Three Months Ended (dollars in thousands) April 3, 2022 April 4, 2021 $ Change % Change Revenue: Restaurant sales, net$ 58,731 $ 33,603 $ 25,128 74.8 %
Franchise royalty and fee revenue 3,607 2,374 1,233 51.9 % Franchisee national advertising fund contributions 490 328 162 49.4 % Licensing and other revenue 1,356 1,014 342 33.7 % Total revenue$ 64,184 $ 37,319 $ 26,865 72.0 % - 19 - Table of Contents BBQ HOLDINGS, INC. AND SUBSIDIARIES
Restaurant Sales, net
The increase in year-over-year net restaurant sales for the three months endedApril 3, 2022 was primarily due to the acquisition of 32Village Inn andBakers Square restaurants inJuly 2021 , the acquisiton ofTahoe Joe's inOctober 2021 , and the acquisition of 5 Famous Dave's franchise locations over the past 12 months. Additionally, dining restrictions related to the COVID-19 pandemic eased throughout 2021, resulting in an increase in dine-in sales in the three months endedApril 3, 2022 compared to the three months endedApril 4, 2021 . It is our policy to include in same store net sales base, restaurants that have been open for 12 months underBBQ Holdings' ownership. In the first quarter of 2022, same store net sales for Company-owned restaurants increased 14.5% compared to the first quarter of 2021, respectively.
Franchise-Related Revenue, including national advertising fund contributions
The increase in franchise royalty revenue and national advertising fund contributions year over year was due primarily to the acquisition of the Village Inn brand inJuly 2021 with over 100 franchise locations. Royalties and advertising fund contributions are based on franchisee sales, so the easing of the COVID-19 dining restrictions starting mid-2021 helped increase franchise-related revenue.
Licensing and Other Revenue
For the three months endedApril 3, 2022 , licensing and other revenue grew 33.7% compared to the three months endedApril 4, 2021 . This is due primarily to the recognition of increased gift card breakage.
Average Weekly
The following table shows Company-owned and franchise-operated average weekly same store sales for the periods presented:
Three Months Ended April 3, 2022 April 4, 2021 Average WeeklyNet Sales (AWS): Franchise-Operated Famous Dave's(1)$ 49,585 $ 45,640 Company-Owned Famous Dave's 54,022 49,661 Company-Owned Granite City 71,512 57,382 Company-Owned Clark Crew 146,851 138,782 Company-Owned Real Urban BBQ 44,086 39,459 Company-Owned Village Inn(2) 32,791 27,347
Franchise-Operated Village Inn(1)(2) 33,519 27,940 Company-Owned Bakers Square(2) 27,573 23,200 Company-Owned Tahoe Joe's(2) 84,664 79,262
(1) AWS for franchise-operated restaurants are not our revenues and are not
included in our condensed consolidated financial statements. We believe that
disclosure of comparable restaurant net sales for franchise-operated
restaurants provides useful information to investors because historical
performance and trends of Famous Dave's and
directly to trends in franchise royalty revenues that we receive from such
franchisees and have an impact on the perceived success and value of the
Famous Dave's and Village Inn brands. It also provides a comparison against
which management and investors can analyze the extent to which Company-owned
restaurants are realizing their revenue potential.
(2) Management notes that
owned by the Company in Q1 of 2021, and as such the respective amounts presented above are pro forma in nature. - 20 - Table of ContentsBBQ HOLDINGS, INC. AND SUBSIDIARIES
Food and Beverage Costs
Our food and beverage costs consisted of the following for the three months
ended
Three Months Ended
(dollars in thousands)
82.5 % Food and beverage costs for the three months endedApril 3, 2022 , andApril 4, 2021 , represented approximately 31.3% and 29.9% of net restaurant sales, respectively. This year-over-year increase, as a percentage of net restaurant sales, was a result of increases in commodity costs, which was partially offset by a more favorable commodity mix due to 2021 acquisitions.
Labor and Benefits Costs
Our labor and benefits costs consisted of the following for the three months
ended
Three Months Ended
(dollars in thousands)
89.1 % Labor and benefits costs for the three months endedApril 3, 2022 , andApril 4, 2021 , represented approximately 33.0% and 30.5% of net restaurant sales, respectively. The year-over-year increase, as a percentage of net restaurant sales, was driven in part by increased hourly and salary wage rates, as well as an increase in dine-in sales requiring a higher level of staffing.
Operating Expenses
Our operating expenses consisted of the following for the three months ended
Three Months Ended
(dollars in thousands)
68.2 % Operating expenses for the three months endedApril 3, 2022 , andApril 4, 2021 represented approximately 29.3% and 30.5% of net restaurant sales, respectively. This year-over-year decrease in expense as a percentage of net restaurant sales was due primarily to leverage on our fixed operating costs.
Depreciation and Amortization
Depreciation and amortization expense for the three months endedApril 3, 2022 was$2.4 million , compared to$1.6 million for the three months endedApril 4, 2021 . The increase in depreciation and amortization expense was due to the acquisitions that occurred in the 12 months following the end of the first quarter of 2021.
General and Administrative Expenses
Our general and administrative expenses consisted of the following for the three
months ended
Three Months Ended (dollars in thousands) April 3, 2022 April 4, 2021 $ Change % Change General and administrative expenses $ 5,291 $ 4,038 $
1,253 31.0 % - 21 - Table of ContentsBBQ HOLDINGS, INC. AND SUBSIDIARIES General and administrative expenses for the three months endedApril 3, 2022 , andApril 4, 2021 represented approximately 8.2% and 10.8% of total revenues, respectively. This year-over-year decrease in expense as a percentage of total revenues was due primarily to leverage from the increased revenue resulting from 2021 acquisitions and an increase in dine-in sales.
Asset Impairment, Estimated Lease Termination and Other Closing Costs
The following is a summary of the asset impairment, estimated lease termination and other closings costs we incurred for the periods presented:
Three Months Ended (dollars in thousands) April 3, 2022 April 4, 2021 Asset impairments, net $ 181 $ -
Lease termination and restaurant closure expenses 228 12 Asset impairment, estimated lease termination charges $ 409
$ 12 and other closing costs Income Tax (Expense) Benefit Income tax benefit for the three months endedApril 3, 2022 was approximately$241,000 , or 59.4% of our pretax income and the income tax expense for the three months endedApril 4, 2021 was$82,000 , or 10.5% of our pretax income.
Financial Condition, Liquidity and Capital Resources
Our balance of unrestricted cash and cash equivalents was approximately$35.4 million and$40.3 million as ofApril 3, 2022 , andJanuary 2, 2022 , respectively. Our current ratio, which measures our immediate short-term liquidity, was 1.1 as ofApril 3, 2022 , andJanuary 2, 2022 , respectively. The current ratio is computed by dividing total current assets by total current liabilities. Net cash provided by operating activities was approximately$1.4 million for the first three months endedApril 3, 2022 , and was approximately$4.2 million for the first three months endedApril 4, 2021 . The$2.8 million year-over-year decrease in net cash provided by operating activities was driven by an additional$1 million in gift card liability redemptions which corresponded with higher gift card sales in the fourth quarter of 2021. Additionally, working capital changes decreased cash flow from operations by approximately$2.1 million year-over-year. Net cash used for investing activities was approximately$5.2 million for the three months endedApril 3, 2022 relating primarily to the purchase of the Famous Craft Concepts restaurants, the acquisition of which we closed inMarch 2022 . Net cash used for investing activities was approximately$685,000 for the three months endedApril 4, 2021 , relating to payments for the purchase of equipment and leasehold improvements.
Net cash used for financing activities for the three months ended
Net cash used for financing activities for the three months ended
We are subject to various financial and non-financial covenants on our long-term debt, including a debt-service coverage ratio. As ofApril 3, 2022 , we were in compliance with all of our covenants.
Critical Accounting Policies
Our significant accounting policies are described in Note 1 - Nature of Business and Significant Accounting Policies to the consolidated financial statements included in our Annual Report on Form 10-K for the year endedJanuary 2, 2022 . Except as disclosed in Note 1 "Basis of Presentation" to the accompanying notes to the consolidated financial statements, there have been no updates to our critical accounting policies. - 22 - Table of ContentsBBQ HOLDINGS, INC. AND SUBSIDIARIES
Forward-Looking Information
BBQ Holdings makes written and oral statements from time to time, including statements contained in this Quarterly Report on Form 10-Q regarding its business and prospects, such as projections of future performance, statements of management's plans and objectives, forecasts of market trends and other matters that are forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Statements containing the words or phrases "will likely result", "anticipates", "are expected to", "will continue", "is anticipated", "estimates", "projects", "believes", "expects", "intends", "target", "goal", "plans", "objective", "should" or similar expressions identify forward-looking statements which may appear in documents, reports, filings with theSEC , news releases, written or oral presentations made by our officers or other representatives to analysts, shareholders, investors, news organizations, and others, and discussions with our management and other Company representatives. For such statements, including those contained in this report, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Our future results, including results related to forward-looking statements, involve a number of risks and uncertainties that are difficult to predict, including but not limited to those identified herein under Part II, Item 1A. "Risk Factors" and under Part I, Item 1A. "Risk Factors" of our Annual Report on Form 10-K for the fiscal year endedJanuary 2, 2022 . No assurance can be given that the results reflected in any forward-looking statements will be achieved. Any forward-looking statements made by us or on our behalf speak only as of the date on which such statement is made. Our forward-looking statements are based upon assumptions that are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources that may be subject to revision. We do not undertake any obligation to update or keep current either (i) any forward-looking statements to reflect events or circumstances arising after the date of such statement, or (ii) the important factors that could cause our future results to differ materially from historical results or trends, results anticipated or planned by us, or which are reflected from time to time in any forward-looking statement which may be made by us or on our behalf.
Additional Information on
We are currently subject to the informational requirements of the Securities Exchange Act of 1934, as amended. As a result, we are required to file periodic reports and other information with theSEC , such as annual, quarterly, and current reports, proxy and information statements. You are advised to read this Quarterly Report on Form 10-Q in conjunction with the other reports, proxy statements and other documents we file from time to time with theSEC . If you would like more information regardingBBQ Holdings , ourSEC filings are also available to the public free of charge at theSEC's website. The address of this website is http://www.sec.gov. Our most currentSEC filings, such as our annual, quarterly and current reports, proxy statements and press releases are available to the public free of charge on our website. The address of our website is http://www.bbq-holdings.com. Our website is not intended to be, and is not, a part of this Quarterly Report on Form 10-Q. We will provide electronic or paper copies of ourSEC filings (excluding exhibits) to anyBBQ Holdings shareholder free of charge upon receipt of a written request for any such filing. All requests for ourSEC filings should be sent to the attention of Investor Relations atBBQ Holdings, Inc. ,12701 Whitewater Drive , Suite 100,Minnetonka, MN 55343. - 23 -
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