Credit Compliance Issue No Death Knell for Famous Dave’s
The headlines about Famous Dave’s (NASDAQ:DAVE) aren’t pretty. Turmoil, chaos, dive, darkest hour—this isn’t what you want to see from a quarterly earnings report. But Famous Dave’s might not be in that bad of shape despite the news the barbecue company announcing it was 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. “I don’t think it turns into a big deal here because they’ve got cash flow, but it’s a really bad headline.”
Getting out of compliance isn’t something you see very often these post-recession days. But the combination of a bad quarter and expenses from what Famous Dave’s called “various one-time charges resulting from management and strategic changes” was a one-two punch for the company’s credit covenants.
“You had a bunch of things going on. Some of it was people; they let people go at corporate,” said Smith. “That cuts cost, but at the same time you’ve got severance in the near term.”
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 came way down to $1.1 million, compared to $4.4 million last year.
“Given where EBITDA and net income has come in, they tripped their covenants here,” said Smith. “I think it was an awful quarter, it’s really tough.”
And it was an awful quarter; same store sales were down 9.8% in Q3, compared to a decrease of 5.7% last year. But with ample real estate to unload and a decent balance sheet, the credit issue should be resolved quick.
“You’ve got a couple real estate pieces, so I think even without selling any real estate, I think they can go to the bank and get a waiver on this and not have an issue,” said Smith.
There are some positive signs. The return of Dave Anderson as CEO means they’re taking their food and culture problems serious, and slashing debt means they’re taking a good look at their books.
“There’s decent potential here and there’s really interesting things that these guys could do. But in the near term, for the next couple quarters you’ve just got to stop the bleeding and then you can start looking at what you can do down the road,” said Smith, who likened the brand to an ER patient. “I think that looking at what Dave [Anderson] has done with this old southern barbecue joint is really interesting and the potential for Famous Dave’s to do similar concepts.”
Encouraging news, but it might not be the best addition to your portfolio. Feltl’s EPS target is $.17 for the year, down from their $.57 target and the lowest since 2003.