Famous Dave’s has infamous quarter
The Q3 headlines about Famous Dave’s (NASDAQ:DAVE) aren’t pretty. Turmoil, chaos, dive, darkest hour—this isn’t the fallout anyone wants to see from a quarterly earnings report. But Famous Dave’s might not be in a death spiral, despite falling out of compliance with creditor Wells Fargo.
“There’s no way to spin it as being OK. That said, this balance sheet is not terrible,” said Mark Smith, senior analyst at Feltl and Company.
Carrying a $10.1 million line of credit and cutting debt is a great sign for the company books, but net income dropped by more than half compared to Q3 of 2014 and EBITDA (cash flow) came way down to $1.1 million, compared to $4.4 million last year. Same store sales dropped 9.8 percent and expenses from a few golden parachutes were a one-two punch for the credit covenants.
In a company disclosure in December, Famous Dave’s outlined the new credit agreement with Wells Fargo. In short, Wells Fargo is done crediting the troubled brand.
The limit on the term loan was reduced from $30 million to $12 million, which is already maxed out. The maximum amount of the revolving credit agreement was reduced from $5 million to $3 million, of which there are $1.1 million in outstanding letters of credit.
The company was also restricted from making any growth-related capital expenditures for the remainder of 2015 and no more than $2 million in any fiscal year. Plus, the company must pay $150,000 per month in mandatory principal prepayments going forward instead of the previous 10 percent of principal.
Now they have to stop the bleeding, but with little access to capital.