Good morning. My name is Gordon and I'll be your conference operator today. At this time, I would like to welcome everyone to the Famous Dave's second quarter 2010 conference call. (Operator Instructions). Thank you. Diana Purcel, you may now begin your conference.
Diana Garvis Purcel
Thank you. Good morning, everyone, and thank you for joining us for Famous Dave's fiscal 2010 second quarter conference call. I'm Diana Purcel, Chief Financial Officer. Also on the call today is Christopher O'Donnell, our Chief Executive Officer.
Before we begin, we'd like to remind those listening that certain matters discussed within are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Famous Dave's believes that the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained.
Factors that could cause actual results to differ materially from Famous Dave's expectations include financial performance, restaurant industry conditions, execution of our restaurant development and construction programs, franchisee performance, ability of our franchisees to meet their development commitments, changes in local or national economic conditions, availability of financing and other risks detailed from time to time in the Company's SEC reports.
Our earnings release, which contains the financial and other statistical information being discussed this morning, was issued yesterday afternoon after market closed and can be accessed by clicking on the Investor Relations link on our website at www.famousdaves.com. As a reminder, this call is being recorded and will be available for replay for seven days.
Now, I will turn the call over to Christopher O'Donnell, Famous Dave's President and CEO. Christopher?
Thank you, Diana. Good morning, everyone, and thank you for joining us. Famous Dave's of America reported the second quarter results yesterday. Based on our most recent completed quarter, it is safe to say that we are seeing some stabilization in our business. We benefited during the quarter from year-over-year improvement as well as sequential improvement in comparable sales on both the Company and franchise fronts.
We were also pleased with the results from our recently acquired New York/New Jersey restaurants. They have met and in some cases exceeded our expectations. Our results, during a time when consumers continue to be cautious in their spending, reflect the focused discipline of our organization and our passion to take care of the guests. Our Company-owned comparable sales for the quarter were up 0.6% over last year.
On a weighted basis, dine-in comprised0.2% of the increase and to-go was 0.6%. These were partially offset by a 0.2% decline in catering. We were particularly encouraged to see the pickup in to-go and dine-in during this quarter. On a year-to-date basis, our comparable sales were down 1.4%, with dine-in representing 1.1% of the decline, to-go was 0.1% and catering 0.2%.
In addition to sales growth, we saw continued improvement in certain restaurant cost categories and also maintained control of G&A spend. Diana will speak to the specifics in greater detail, but we continue to benefit from our lower contracted food prices during 2010, as well as a sourcing of secondary suppliers for core items. We continue to maintain tight controls on our G&A expenses.
While the current business conditions continue to put pressure on our top line, we have been diligent in watching our cost and expenses. As a result, we have been able to continue to deliver the services required of us in the most prudent and cost-effective manner. It’s important to note that we have achieved these results without negatively affecting the guest experience.
We continue to see improvement in our guest satisfaction scores year-over-year, with a diligent focus on turning satisfied guests into highly satisfied guests and turning highly satisfied guests into raving loyal fans. Speaking of fans, we were just named the People's Choice by a two-to-one margin at the Washington D.C. Safeway National Capital Barbecue Battle. This is the fourth year in a row that we've won this prestigious award. System-wide, we continued to win awards in various cities across the United States, including most recently Best Barbecue at the Taste of Tacoma, Washington. Our Rib Team as well as many of our franchise partners' teams will continue to participate in various competitions around the country and we continue to update you on our achievements.
We're excited about the momentum we're seeing in the franchise side of our business. Like the Company restaurants, franchise restaurants have improved their comparable sales results. On a regional basis, we've seen recovery in certain parts of the country that were some of the first to suffer declines in late 2008; Michigan and Nevada, for example. And on a year-to-date basis, 40% of our franchise partners are comp positive.
On the development front, several of our franchise partners are looking to take advantage of the options we provided to build our brand in different ways, such as through smaller footprints and counter-service formats, and to capitalize on great locations with a lower investment cost. As you saw from our release, we slightly adjusted our forecast to eight to ten new franchise openings and one new Company opening in Bel Air, Maryland, which is scheduled to open on August 16. We anticipate the majority of our 2010 franchise openings will be in the fourth quarter.
During the second quarter, we opened new franchise restaurants in Gilbert, Arizona and Idaho Falls, Idaho. It's too early to speak to 2011, but we are currently in discussions with both existing and potentially new partners for growth next year. Now, I wanted to update everyone on the seven New York/New Jersey restaurants we added to our portfolio of Company-owned restaurants this past March. We've been pleased with the integration, the focus, and the results from these locations. During the second quarter, our operations team worked hard to establish trust and rebuild our customer base at these locations. We're seeing positive results in this regard and we're making great progress.
In sum, these locations were a solid addition to our family of Company-owned restaurants, and we remain committed to a strong and growing presence in this region. We haven't forgotten our base of restaurants though, and we continue to invest time and resources in other key locations. We just completed a major renovation of our Calhoun Square Restaurant in Central Minneapolis. Calhoun Square is an upscale urban shopping center that itself is undergoing major renovations. We hosted a grand reopening of our Famous Dave's Barbecue and Blues Club on July 16 to celebrate a new patio, a state-of-the-art smoker, and an overall facelift to the interior of the restaurant.
Over the past couple of quarters, we told you that we've really stepped up our new product development pipeline. At the heart of the effort is the idea of extending the notion of barbecue to the grill. Many of the items we've been testing will be incorporated into our new menu for future limited time offers throughout 2011 and 2012.Our next menu scheduled to launch in early January 2011 will feature a variety of new items and categories. It's the culmination of extensive product development and testing we've been conducting for the past two quarters.
Our new product offerings on this menu will include a new citrus-grilled family of entrees, each with fewer than 600 calories, and a broader offering of terrific appetizers, sandwich and burgers as well. During the quarter, we launched advertising campaigns on TV and radio supporting our summer limited-time promotions. We've gotten rave reviews from our system-wide operators and guests about the creative material in the campaigns.
Our Founder, Famous Dave Anderson, was not only a major contributor to the success of these campaigns, but he's been very busy promoting our brand. On July 2, he was our featured guest on FOX & Friends, grilling up favorites on national TV, just in time for the 4th of July weekend. Dave did a great job promoting our current LTO, the USA of Barbecue, our big summer promotion that featured hot new plates from around the states, including this year's addition of Santa Maria Tri-tip.
We also brought back Buck-A-Bone for a limited time and added a special red, white and blue angel cake. We are delivering value for our guests as well as for our franchise system, as evidenced by 100% system-wide participation in this LTO. We were closing out our USA of Barbecue promotion on August 9.And then, in just three days, August 1, we will celebrate our second annual Dave's Day, to mark our 16th anniversary.
Last year's celebration was a huge success, generating some of the highest traffic during the year, second only to Father's Day. If your name is Dave, David or Davy, you'll get a free entree of up to $15. And if your middle name is one of those, you'll get an entree worth $7.50. We're extremely pleased with the system's participation in this year's promotion, which is up substantially from last year. Now right after that, on August 23, we'll be rolling our next LTO, Sauced-up Wings.
This new offering will feature two brand-new sauces, a grilled pineapple rage, a sweet heat with pineapple and habanera peppers, and Wilbur's Revenge, a flaming hot sauce. We're so pleased with these new sauces that we plan to immediately introduce Wilbur's Revenge into our line of retail products, and will soon follow up with the grilled pineapple rage. Additionally, we're able to lock in some excellent pricing on the wings for this promotion to make this offering really take off.
To sum it all up, we are pleased with our second quarter results and proud of our operations team, as well as the whole organization for their efforts, despite continuing difficult environment. We are cautiously optimistic about the rest of 2010 and are working hard to more than satisfy our guests, our franchise partners, and our shareholders. With that, let me turn the call over to Diana. Diana?
Diana Garvis Purcel
Thank you, Christopher.
Yesterday, Famous Dave's reported revenue of $40.7 million and net income of $2.5 million, or $0.29 per diluted share for the second quarter of 2010. This compares to revenue of $36.3 million and net income of $2.4 million, or$0.26 per diluted share for the second quarter of 2009.Second quarter restaurant sales increased 14.8% year-over-year, reflecting the increased sales from the seven restaurants in New York and New Jersey that were purchased by the Company in March, and a comparable sales increase of 0.6%, that included weighted average price of approximately 1%.
Off-premise sales were 32% of total sales for the second quarter of fiscal 2010, with catering representing 10.5% and to-go representing 21.5%. This compares to off-premise sales of 31.8% for the prior year's second quarter. During the second quarter of fiscal 2010, our per-person average was $14.83, compared with an average of $13.92 for the second quarter of fiscal 2009.
The breakdown by day part for 2010 was $12.81 for lunch and $16.03 for dinner. The 80 Proof promotion during the quarter largely contributed to the increase in our average check year-over-year, as we saw increased appetizer, dessert and liquor sales during the promotions. On the franchise side, second quarter royalty revenue was down 5% from the comparable period in 2009. This decline reflects a net decrease of five franchise restaurants year-over-year.
Eight new franchise restaurants opened since the second quarter of2009, six restaurants closed, and seven restaurants became Company-owned locations. As previously mentioned, two new franchise restaurants opened during the second quarter in Gilbert, Arizona and Idaho Falls, Idaho. The decrease in franchise royalty revenue also reflects a comparable franchise sales decrease of 0.6%. Approximately 48% of our franchise partners reported positive comparable sales during the quarter. Of the 0.6% fiscal 2010 second quarter decline, six states accounted for approximately half of the decline.
Please refer to our press release issued yesterday for a breakdown of other metrics, such as average weekly sales for our Company-owned and franchise-operated restaurants, post and pre-2005, in addition to operating weeks and number of restaurants in the comparable sales base. At the end of the 2010 second quarter, and as of today, we have 52 Company-owned restaurants and 125 franchise-operated restaurants, for a system-wide total of 177 restaurants in 36 states. By comparison, at the end of the 2009 second quarter, we had 46 Company-owned restaurants and 130 franchise-operated restaurants, for a system-wide total of 176 restaurants in 38 states.
We are updating our guidance regarding the number of franchise restaurants we anticipate opening in fiscal 2010 to approximately eight to ten. Of the remaining restaurants we anticipate opening, one is expected to open in the third quarter, and the remainder are expected to open in the fourth quarter. This doesn't include one new Company-owned restaurant, as Christopher mentioned, that will open in August. Our food and beverage costs for the second quarter of 2010 were 29.3% of net restaurant sales, compared to 30.1% for the second quarter of 2009.
There were several contributing factors to this 80-basis point decrease. These include contract negotiations, continuing to dual source items, and the continual focus, visibility and optimization that our food cost management system brings. As discussed on previous calls, we had indicated that we had locked in a 3.5% decrease in pork for 2010, but also guided that we would be watching the markets closely.
As anticipated, we've recently extended our pork contract through December of2011, allowing us to spread a higher cost through the next 18 months, to help reduce cost variability on one of our most important items. We anticipate that even with this extension, we will still have approximately 2% favor ability in 2010 to 2009's pricing. As we look to 2011, pork prices will be approximately 2.3% higher on an annualized basis than 2010's pricing due to this new contract. Our chicken pricing remains firm through 2010 at a price increase of approximately 2.5% over fiscal 2009's pricing. Our brisket contract extends through September of 2010 at a price increase of 5.3% over 2009's pricing. Brisket prices have begun to soften, however, in recent months.
As such, we will be looking to lock in our brisket soon for the remainder of 2010 and into 2011.Hamburger is locked through December and is essentially flat compared to 2009. Our seafood contracts are locked in through the end of 2010 at a blended price increase of approximately 4.5% over fiscal 2009. Lastly, we anticipate an approximate 2.4% price decrease for our side items compared to the prior year due to favorable contracts and the sourcing of secondary suppliers for those products.
On the previous call, we were asked if we could quantify our freight savings as a result of the transition to a new distributor. As we've begun to negotiate our contracts for 2011, our suppliers have incorporated lower freight rates into our new pricing. It is difficult for us to determine the total freight savings since we don't have complete visibility into our suppliers' pricing structure. However, with the new distributor, we have fewer distribution centers. So we are able to maximize shipments from our suppliers to these new distribution centers.
Also, in 2010, although we already contract a large percentage of items, we will further optimize our distribution network by increasing our contracted food items and continue to expand our list of additional suppliers. Finally, we are currently evaluating the possibility of a 1% price increase that would occur beginning in the fourth quarter of fiscal 2010.For the fiscal 2010 time frame, we affirm our previous guidance of a 70 to 80 basis point decrease in food and beverage cost as a percentage of sales year-over-year.
For the second quarter, labor and benefits as a percentage of net restaurant sales were70 basis points unfavorable to the prior year. This was primarily due to increased medical claims and the normalizing of the New York and New Jersey restaurants, which were partially offset by savings from operating below our full manager matrix.
We are updating our guidance regarding labor and benefit costs and now expect that for 2010, labor and benefit cost as a percentage of sales will be approximately 25 to 35 basis points higher than fiscal 2009's percentage, primarily due to higher-than-anticipated employee benefit costs. Operating expenses as a percentage of sales for the second quarter of 2010 were 70 basis points higher than the prior year, primarily reflecting increased occupancy, supply and supervisory costs associated with the addition of the New York and New Jersey restaurants as expected.
These increases were partially offset by lower advertising costs year-over-year. In fiscal 2010, advertising expense will now be approximately 3.3% of net sales, including a 0.5% contribution to the National Ad Fund. We are confident that we will be able to accomplish our marketing objectives while still achieving these cost savings. We are updating our guidance regarding operating expenses as a percentage of net sales for fiscal 2010 and now expect them to be approximately 75 to 85 basis points higher than 2009's percentage.
Depreciation and amortization expense as a percentage of total revenue decreased in the second quarter due to sales leverage from the addition of the New York and New Jersey restaurants. For the remainder of 2010, we still expect depreciation as a percentage of total revenue to be flat to 10 basis points higher, as compared to 2009, due to increased capital spending. Our G&A expenses for the second quarter as a percentage of total revenue were 9.6%, compared with 10.9% for the second quarter of 2009. This decrease is due to leverage on higher revenue year-over-year and our continued focus on managing G&A costs.
Excluding corporate bonus, stock-based compensation, and Board cash compensation, our G&A expense as a percentage of total revenue was 7.9% for the second quarter of fiscal 2010, compared with 9.1% for the comparable period in 2009.For the second quarter, stock-based compensation expense and Board of Director cash compensation expense was $340,000, compared to $237,000 for the second quarter of 2009. This year-over-year change reflects the higher stock price in 2010.
For 2010, we anticipate stock-based compensation and Board of Director cash compensation to be approximately $1.3 million, compared with $832,000 in fiscal 2009.We are updating our guidance regarding G&A. G&A expenses as a percentage of revenue will be approximately 75 to 85 basis points favorable to 2009's percentage, due to increased leverage and a continued focus on controlling administrative costs. As a reminder in 2009, there was a positive 20 basis point impact from the 53rd week.
We had $54,000 of pre-opening expenses in the second quarter related to the upcoming Bel Air, Maryland restaurant opening. We estimate total pre-opening cost of approximately $316,000, including pre-opening rent of approximately $75,000 for this location. We did not open any Company-owned restaurants in 2009, and thus did not have any pre-opening expenses. Interest expense in the second quarter decreased 38% year-over-year, due to the early retirement of five high interest rate notes in 2009.
These savings were partially offset by the addition of the term loan during the first quarter and a higher average balance on our line of credit during the second quarter of 2010 compared to 2009. We are updating our guidance and expect interest expense for 2010 to be approximately 30 to 40 basis points lower as a percentage of revenue, due to leverage, favorable interest rates, and the high interest rate notes paid off in 2009. Lastly, we expect a 34.5% effective tax rate for 2010.Now; I'd like to turn to our balance sheet. Our unrestricted cash and cash equivalents balance at the end of the second quarter of 2010 was approximately $1.8 million.
We ended the quarter with a balance of $12.5 million on our revolving line of credit and were in compliance with all of the covenants associated with our credit facility. As of today, we have a balance of $11.5 million on our line of credit. We generated $6.4 million in cash from operations in the first two quarters of fiscal 2010, compared to $7.3 million for the prior-year comparable period.
This decrease primarily reflects the payout of performance bonuses in March of this year that didn't occur in 2009 and the gain on the acquisition, partially offset by higher net income for the first six months of fiscal 2010.During the first six months of fiscal 2010, we used approximately $1.7 million in cash for capital expenditures. These expenditures have been primarily used for continued investment in our existing restaurants, including approximately $205,000 towards the New York/New Jersey restaurants, and construction of our upcoming new Company-owned restaurants.
We affirm our guidance on capital expenditures and expect 2010 CapEx to be approximately $5.5 million. This includes continued investments in our prior base of restaurants, required capital expenditures for the seven restaurants acquired in March, re-imaging of existing restaurants, the conversion cost of the Bel Air, Maryland restaurant, and investments in corporate infrastructure systems.
During the first two quarters, we also used approximately $4.9 million to repurchase shares under our current share repurchase program. We repurchased approximately 654,000 shares, at an average price of $7.51, excluding commissions. As of today, we have repurchased 761,000 shares under our 1 million share authorization that was approved in August of 2008.Christopher will have a few closing comments, but at this point, we'd like to take your question.
Operator, if you could queue for questions?
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