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Famous Dave's Of America's Earnings: Cost Reductions Gives The Bottom Line A Big Boost

Nov. 21, 2014 4:35 PM ETMTY Food Group Inc. (MTYFF)
William Bias profile picture
William Bias
344 Followers

Summary

  • Famous Dave’s of America struggles with same store sales.
  • Cost controls and long-term debt reduction boosted net income significantly.
  • Lower capital expenditures stemming from a slowdown in expansion contributed to free cash flow gains.

On Nov. 7, restaurant chain Famous Dave's of America (NASDAQ: DAVE) came out with its Q3 2014 quarterly statement which followed up on its earnings statement released on Nov. 5. Established stores are losing ground in terms of growing revenue. However, the company has been focusing on reducing cost and shoring up its balance sheet. Let's take a look to see what's going on with this company.

Revenue declined

Famous Dave's of America saw its year-to-date revenue decline 4%. Its established stores struggled to bring customers through the door, both at its company owned stores and franchisee locations, which saw year-to-date same store sales decline 5.2% and 2.8% respectively vs. the same time last year.

Net income and free cash flow increased

However, the company has been focusing on cost reduction which served as a catalyst for an 86% expansion in year-to-date net income vs. the same time last year. Famous Dave's negotiated better food contracts which contained more favorable pricing. Store pre-opening expenses declined significantly due to a rightful slowdown in expansion. Lower store impairment costs also added to year-to-date growth. The departure of certain executives caused a decline in the general and administrative expense line item contributing to the increase in net income. Moreover, year-to-date free cash flow increased 16% vs. the same time last year. Capital expenditures, due to the aforementioned slowdown in expansion, declined 47% year-over-year contributing to the gain.

Balance sheet improved

Famous Dave's of America's executives focused on shoring up its balance sheet this year. Its $1.5 million in cash last quarter amounted to a miniscule 4.5% of stockholder's equity which remained roughly even with the end of 2013 when it possessed $1.3 million or 4% of stockholder's equity. I prefer to see companies with cash to stockholder's equity of 20% or more to get them through tough times.

This article was written by

William Bias profile picture
344 Followers
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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