Famous Dave's Beats by a Penny

Minnetonka, Minnesota-based Famous Dave's of America, Inc. ( DAVE - Snapshot Report ) recently reported first quarter 2011 adjusted earnings of 15 cents per share, which surpassed the Zacks Consensus Estimate by a penny and was in line with the prior-year quarter earnings.

Famous Dave’s, which owns, franchises and operates restaurants in the U.S, reported total revenue of $37.1 million, up 13.8% year over year. Total revenue was in line with the Zacks Consensus Estimate. The upside in revenue was attributable to higher comparable sales at company-owned restaurants (up 3%), partially offset by a drop of 0.1% at franchised restaurants.

During the quarter, company-owned restaurants sales climbed 15.3% to $32.7 million, due to improved economic conditions, which resulted in higher consumer spending despite a price increase of 2.0%. Moreover, franchise royalty revenue was $4.0 million, flat year over year as higher sales from additional seven franchised restaurants were offset by the two month royalties lost from eight New York and New Jersey restaurants that were divested and lower comps growth.

Operating income plummeted 53.0% to $2.1 million in the reported quarter, due to a significant rise in total expenses.

Store Update

During the quarter, the company opened 3 as well as closed 3 franchised restaurants. At the end of the first quarter, the company’s portfolio boasts of 182 restaurants, including 52 company-owned restaurants and 130 franchise-operated restaurants, located in 37 states.

Financial Position

Famous Dave's ended the quarter with cash and cash equivalents of $2.8 million and shareholders’ equity of $32.0 million.

During the quarter, company also repurchased approximately 0.2 million shares, at an average price of $10.28.

Outlook

For fiscal 2011, the company expects to open 10 to 12 new restaurants and plans capital expenditure of $5.5 million for the renovation and maintenance of existing restaurants along with investment in various infrastructure projects.

Our Take

As the economy is showing signs of improvement, we believe Famous Dave's will be able to generate improved earnings. However, estimates have not budged in the last 30 days, indicating the absence of any near-term catalyst. The Zacks Consensus Estimates for 2011 and 2012 are pegged at 73 cents and 91 cents, respectively.

One of Famous Dave's primary competitors, Buffalo Wild Wings Inc.’s ( BWLD - Analyst Report ) first quarter 2011 earnings of 81 cents per share exceeded the Zacks Consensus Estimate of 73 cents on higher same-store sales growth and lower wing costs.

The company has a Zacks #4 Rank, which implies a short-term Sell rating on the stock. We also reiterate our long-term Neutral recommendation.