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Del Frisco's Restaurant Group, Inc. Announces Third Quarter 2015 Results

SOUTHLAKE, Texas, Oct. 13, 2015 (GLOBE NEWSWIRE) -- Del Frisco's Restaurant Group, Inc. (NASDAQ:DFRG), the owner and operator of the Del Frisco's Double Eagle Steak House, Sullivan's Steakhouse, and Del Frisco's Grille restaurant concepts, reported financial results today for the third quarter ended September 8, 2015. The Company also revised its outlook for the 2015 fiscal year and provided development guidance for the 2016 fiscal year.

Key highlights from the third quarter 2015 compared to the third quarter 2014 include:

  • Consolidated revenues increased 10.8% to $68.6 million from $61.9 million.
  • Revenues at Del Frisco's Grille increased 32.1% to $19.9 million from $15.1 million.
  • Comparable restaurant sales decreased 1.4% at Del Frisco's Double Eagle Steak House.
  • Comparable restaurant sales increased 1.2% at Sullivan's Steakhouse.
  • Comparable restaurant sales decreased 3.5% at Del Frisco's Grille.
  • Cost of sales, as a percentage of consolidated revenues, improved to 29.0% from 30.2%.
  • Adjusted Net Income*, a non-GAAP measure, of $0.9 million, or $0.04 per diluted share, compared to Adjusted Net Income of $1.6 million, or $0.07 per diluted share. GAAP Net Loss of $1.0 million, or $0.04 per diluted share, compared to GAAP Net Income of $1.8 million, or $0.08 per diluted share.
  • Restaurant-level EBITDA**, a non-GAAP measure, increased 4.6% to $12.3 million from $11.8 million.

* Adjusted Net Income, a non-GAAP measure, represents pre-tax income (loss) from continuing operations plus Day Star (dba Lone Star Steakhouse) lease guarantees and non-cash impairment charges minus income tax expense at an effective tax rate of 31%. For a reconciliation of Adjusted Net Income to the most directly comparable financial measure presented in accordance with GAAP and a discussion of why we consider it useful, see the financial information accompanying this release.

** Restaurant-level EBITDA, a non-GAAP measure, represents Operating Income (loss) before depreciation and amortization plus the sum of certain non-operating expenses, including pre-opening costs, non-cash impairment charges and general and administrative expenses. For a reconciliation of restaurant-level EBITDA to the most directly comparable financial measure presented in accordance with GAAP and a discussion of why we consider it useful, see the financial information accompanying this release.

Mark S. Mednansky, Chief Executive Officer of Del Frisco's Restaurant Group, Inc., said, "While we did see improvements in several areas, top line results did not meet our expectations for the third quarter. Sullivan's comparable restaurant sales turned positive, Del Frisco's Grille's comparable restaurant sales improved sequentially from the second quarter, and both brands demonstrated improvements in restaurant-level EBITDA margins. Del Frisco's Double Eagle faced customer count challenges at several locations, driven significantly by fewer private dining events, and experienced softer sales during shoulder periods. The combination of these factors yielded negative comparable restaurant sales at our flagship brand after an impressive five and half years of consistent gains along with deleveraging of restaurant-level EBITDA margins. We are working to reignite our sales momentum at Del Frisco's beginning with our 16-week fourth quarter, which includes the important Holiday season."

Mednansky concluded, "Del Frisco's Restaurant Group remains a long-term growth story and we are encouraged that our 2015 restaurant class is off to a resounding start. Still, we will be limiting development next year to the relocation of our North Dallas Del Frisco's Double Eagle restaurant to Uptown Dallas and two to three additional Del Frisco's Grille restaurants. This will allow us to devote greater effort towards refining and improving operations at all of our existing restaurants as we continue to fine-tune our site selection process. After this transitional period, we anticipate resuming our ten percent new unit growth plans in 2017 and beyond."

Review of Third Quarter 2015 Operating Results

Consolidated revenues increased $6.7 million, or 10.8%, to $68.6 million in the third quarter of 2015 from $61.9 million in the third quarter of 2014. Total operating weeks increased to 571 from 497. Total comparable restaurant sales decreased 1.2% in the third quarter of 2015 following a total comparable restaurant sales increase of 3.7% in the third quarter of 2014.

Restaurant-level EBITDA** increased $0.5 million, or 4.6%, to $12.3 million in the third quarter of 2015 from $11.8 million in the third quarter of 2014. As a percentage of consolidated revenues, restaurant-level EBITDA decreased to 18.0% from 19.0%.

General and Administrative expenses increased $0.6 million to $5.2 million in the third quarter of 2015 from $4.7 million in the third quarter of 2014. This increase was due to increased management education, compensation and non-cash stock compensation expenses. As a percentage of consolidated revenues, general and administrative costs increased to 7.6% from 7.5%.

During the third quarter of 2015, we determined that the carrying amount of one of our Del Frisco's Grille restaurants was most likely not recoverable. Therefore, we recorded a non-cash impairment charge of $3.3 million, which represents the difference between the carrying value of the restaurant assets and the estimated value of furniture and equipment that may be transferred to future Del Frisco's Grille locations.

GAAP Net Loss was $1.0 million, or $0.04 per diluted share, in the third quarter of 2015 compared to GAAP Net Income of $1.8 million, or $0.08 per diluted share, in the third quarter of 2014.

Adjusted Net Income* was $0.9 million, or $0.04 per diluted share, compared to Adjusted Net Income of $1.6 million, or $0.07 per diluted share, in the third quarter of 2014.

Segment Results

We operate the Del Frisco's Double Eagle Steak House, Sullivan's Steakhouse, and Del Frisco's Grille concepts as operating segments.

Del Frisco's Double Eagle Steak House

  • Revenues increased 7.3%, or $2.3 million, to $33.1 million in the third quarter of 2015 from $30.8 million in the third quarter of 2014. This increase was primarily due to an additional 16 operating weeks during the quarter (to 136 from 120), partially offset by a 1.4% decrease in comparable restaurant sales. The decline in comparable restaurant sales was comprised of a 4.3% decrease in customer counts, partially offset by a 2.9% increase in average check.
  • Restaurant-level EBITDA** decreased 1.0%, or $85,000, to $8.0 million in the third quarter of 2015 from $8.1 million in the third quarter of 2014. As a percentage of revenues, restaurant-level EBITDA decreased to 24.3% from 26.4% as the brand experienced higher restaurant operating expenses driven primarily by non-comparable restaurants. These were partially offset by lower cost of sales as a percentage of revenues.

Sullivan's Steakhouse

  • Revenues decreased 2.6%, or $0.4 million, to $15.6 million in the third quarter of 2015 from $16.1 million in the third quarter of 2014. This decrease was due to 12 fewer operating weeks during the quarter (to 216 from 228) as a result of a restaurant closure earlier this year, partially offset by a 1.2% increase in comparable restaurant sales. The improvement in comparable restaurant sales was comprised of a 0.8% increase in customer counts and a 0.4% increase in average check.
  • Restaurant-level EBITDA** held steady at $1.8 million in the third quarter of 2015 as compared to the same period last year. As a percentage of revenues, restaurant-level EBITDA increased to 11.3% from 11.2% as the brand experienced lower restaurant operating expenses that were partially offset by higher cost of sales.

Del Frisco's Grille

  • Revenues increased 32.1%, or $4.8 million, to $19.9 million in the third quarter of 2015 from $15.1 million in the third quarter of 2014. This increase was primarily due to 70 additional operating weeks (to 219 from 149) resulting from six restaurant openings subsequent to the end of third quarter of 2014, partially offset by a 3.5% decrease in comparable restaurant sales. The decline in comparable restaurant sales was comprised of a 1.2% decrease in customer counts and a 2.3% decrease in average check.
  • Restaurant-level EBITDA** increased 34.8%, or $0.7 million, to $2.5 million in the third quarter of 2015 from $1.9 million in the third quarter of 2014. As a percentage of revenues, restaurant-level EBITDA increased to 12.7% from 12.4% as the brand experienced lower cost of sales and labor, which more than offset higher operating expenses, occupancy, and marketing and advertising costs.

Stock Repurchase

During the third quarter of 2015, we repurchased 189,027 shares of common stock for $3.0 million under the authority provided by our Board of Directors in October 2014.

Outlook

The following statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks that could impact future operating results and financial conditions.

Based upon current information, we are revising our guidance for the 52-week fiscal year 2015, which ends on December 29, 2015.

  • Consolidated revenue growth of 9% to 11% (previously 10% to 13%).
  • Total comparable restaurant sales of -1.0% to 0.5% (previously 0.5% to 1.5%).
  • One Del Frisco's Double Eagle Steak House and six Del Frisco's Grille openings.
  • One Sullivan's Steakhouse closing.
  • Cost of sales of 28.8% to 29.5% of consolidated revenues (previously 28.8% to 29.8%).
  • Restaurant-level EBITDA** of 21.6% to 22.0% of consolidated revenues (previously 21.8% to 22.2%).
  • General and Administrative expenses of approximately $23.8 million to $24.3 million.
  • Pre-opening expenses of approximately $5.0 million to $5.5 million.
  • Effective tax rate of approximately 30% to 32%.
  • Gross capital expenditures (before tenant allowances) of $40 million to $45 million.
  • Annual adjusted net income* per diluted share between $0.80 and $0.83.

The above outlook does not include expected one-time termination and closing costs associated with the closing of certain restaurant locations.

Development

In the third quarter of 2015, we opened two Del Frisco's Grilles in Plano, Texas and Stamford, Connecticut and a Del Frisco's Double Eagle Steak House in Orlando, Florida. In the fourth quarter, we have already opened two Del Frisco's Grilles in Little Rock, Arkansas and Hoboken, New Jersey, and will open a Del Frisco's Grille in Cherry Creek, Colorado in early November.

Early in the fourth quarter of 2016, we will be moving the Del Frisco's Double Eagle Steak House in North Dallas to Uptown Dallas. Del Frisco's Double Eagle Steak House Dallas will continue to serve guests from its current location in North Dallas until the new restaurant is completed. We will also open two to three additional Del Frisco's Grilles during the 2016 fiscal year.

Conference Call

We will host a conference call to discuss the financial results for the third quarter 2015 ended September 8, 2015 today at 7:30 AM Central Time. Hosting the conference call will be Mark S. Mednansky, Chief Executive Officer, and Tom Pennison, Chief Financial Officer.

The conference call can be accessed live over the phone by dialing 888-211-0226 or for international callers by dialing 913-661-9178. A replay will be available afterwards and can be accessed by dialing 877-870-5176 or for international callers by dialing 858-384-5517; the passcode is 625058. The replay will be available until Tuesday, October 20, 2015.

The conference call will also be webcast live from our corporate website at www.DFRG.com under the investor relations section. An archive of the webcast will also be available through the corporate website shortly after the call has concluded.

About Del Frisco's Restaurant Group, Inc.

Based in Southlake, Texas, near Dallas, Del Frisco's Restaurant Group, Inc. is a collection of 51 restaurants across 22 states and Washington, D.C., including Del Frisco's Double Eagle Steak House, Sullivan's Steakhouse, and Del Frisco's Grille. Del Frisco's Double Eagle Steak House serves up flawless cuisine that's bold and delicious, an extensive award-winning wine list and a level of service that reminds guests that they're the boss. Sullivan's Steakhouse is a great neighborhood place for a big night out on the town - with outstanding food, hand-shaken martinis, an award winning wine list, and live entertainment all under one roof. Del Frisco's Grille is modern, inviting, stylish and fun, taking the classic bar and grill to new heights, and drawing inspiration from bold flavors and market-fresh ingredients.

For further information about our restaurants, to make reservations, or to purchase gift cards, please visit: www.DelFriscos.com, www.SullivansSteakhouse.com, and www.DelFriscosGrille.com. For more information about Del Frisco's Restaurant Group, Inc., please visit www.DFRG.com.

Forward-Looking Statements

Certain statements in this press release, including statements under the heading "Outlook" are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. We use words such as "anticipate", "believe", "could", "should", "estimate", "expect", "intend", "may", "predict", "project", "target", and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: factors that could affect our ability to achieve and manage our planned expansion, such as the availability of a sufficient number of suitable new restaurant sites and the availability of qualified employees; the uncertainty of our ability to achieve expected levels of comparable restaurant sales increases; the performance of new restaurants and their impact on existing restaurant sales; increases in the cost of food ingredients and other key supplies; the risk of food-borne illnesses and other health concerns about our food; the potential for increased labor costs or difficulty retaining qualified employees, including as a result of immigration enforcement activities; risks relating to our expansion into new markets; the impact of federal, state or local government regulations relating to our employees and the sale of food or alcoholic beverages. Additional factors that could cause actual results to differ materially from our forward-looking statements are set forth in our reports filed with the Securities and Exchange Commission.

DEL FRISCO'S RESTAURANT GROUP, INC.
Condensed Consolidated Income (Loss) Statements - Unaudited
(dollar amounts in thousands, except share and per share data)
12 Weeks Ended 36 Weeks Ended
September 8, September 9, September 8, September 9,
2015 2014 2015 2014
Revenues $ 68,629 $ 61,949 $ 217,507 $ 195,957
Costs and expenses:
Costs of sales 19,901 18,693 62,839 59,038
Restaurant operating expenses 34,625 30,046 103,832 90,654
Marketing and advertising costs 1,765 1,410 4,882 4,017
Pre-opening costs 2,044 1,577 3,790 2,867
General and administrative costs 5,225 4,673 16,611 14,202
Secondary public offering costs -- -- -- 5
Non-cash impairment charges 3,338 -- 3,338 --
Depreciation and amortization 3,811 3,098 11,001 9,053
Operating income (loss) (2,080) 2,452 11,214 16,121
Other income (expense), net:
Interest expense (11) (18) (43) (49)
Other (61) (61) (238) (100)
Income (loss) before income taxes (2,152) 2,373 10,933 15,972
Income tax (benefit) expense (1,117) 588 2,861 4,896
Net income (loss) $ (1,035) $ 1,785 $ 8,072 $ 11,076
Basic earnings (loss) per share $ (0.04) $ 0.08 $ 0.34 $ 0.47
Diluted earnings (loss) per share $ (0.04) $ 0.08 $ 0.34 $ 0.47
Shares used in computing net income per common share:
Basic 23,360,744 23,464,306 23,416,502 23,513,905
Diluted 23,360,744 23,682,508 23,584,426 23,754,781
DEL FRISCO'S RESTAURANT GROUP, INC.
Selected Balance Sheet Data
(dollar amounts in thousands)
September 8, December 30,
2015 2014
(unaudited)
Cash and cash equivalents $ 1,239 $ 3,520
Total assets 338,425 319,666
Long-term debt 15,100 --
Total stockholders' equity 218,350 210,983

Reconciliation of Non-GAAP Measures and Segment Information

We prepare our financial statements in accordance with generally accepted accounting principles (GAAP). Within our press release, we make reference to non-GAAP Adjusted Net Income and Restaurant-level EBITDA. Adjusted Net Income represents pre-tax income (loss) from operations plus the sum of non-cash impairment charges, third party lease guarantees and secondary public offering costs, minus income tax expense at an effective tax rate of 31%. We believe that this measure represents a useful internal measure of performance as it excludes certain one-time non-operation related expenditures. Restaurant-level EBITDA is calculated by adding back to operating income (loss) depreciation and amortization plus the sum of certain non-operating expenses, including pre-opening costs, public offering expenses, non-cash impairment charges, and general and administrative expenses. We believe that this measure also represents a useful internal measure of performance. Accordingly, we include these non-GAAP measures so that investors have the same financial data that management uses in evaluating performance, and we believe that it will assist the investment community in assessing our underlying performance on a quarter-over-quarter basis. However, because these measures are not determined in accordance with GAAP, such measures are susceptible to varying calculations and not all companies calculate these measures in the same manner. As a result, these measures as presented may not be directly comparable to a similarly titled measure presented by other companies. These non-GAAP measures are presented as supplemental information and not as alternatives to any GAAP measurements. The following tables include a reconciliation of pre-tax income (loss) from continuing operations to adjusted net income and a reconciliation of restaurant-level EBITDA to operating income:

12 Weeks Ended 36 Weeks Ended
September 8, September 9, September 8, September 9,
2015 2014 2015 2014
Adjusted Net Income:
Pre-tax income (loss) $ (2,152) $ 2,373 $ 10,933 $ 15,972
Day Star Rest. Grp dba Lone Star Steakhouse lease guarantees 58 -- 210 --
Secondary public offering costs -- -- -- 5
Non-cash impairment charges 3,338 -- 3,338 --
Non-GAAP Adjustments 3,396 -- 3,548 5
Adjusted Pre-tax Income 1,244 2,373 14,481 15,977
Income Tax (@ 31%) 386 736 4,489 4,953
Adjusted Net Income $ 858 $ 1,637 $ 9,992 $ 11,024
Basic EPS (Adjusted) $ 0.04 $ 0.07 $ 0.43 $ 0.47
Diluted EPS (Adjusted) $ 0.04 $ 0.07 $ 0.42 $ 0.46
Segment Information and Restaurant-Level EBITDA Reconciliation
12 Weeks Ended September 8, 2015 (unaudited)
$ in thousands Del Frisco's Sullivan's Del Frisco's Grille Consolidated
Revenues $ 33,059 100.0% $ 15,650 100.0% $ 19,920 100.0% $ 68,629 100.0%
Costs and expenses:
Cost of sales 10,010 30.3% 4,737 30.3% 5,154 25.9% 19,901 29.0%
Labor 8,178 24.7% 4,887 31.2% 6,465 32.5% 19,530 28.4%
Operating expenses 3,738 11.3% 2,473 15.8% 2,954 14.8% 9,165 13.4%
Occupancy 2,436 7.4% 1,158 7.4% 2,336 11.7% 5,930 8.6%
Restaurant operating expenses 14,352 43.4% 8,518 54.4% 11,755 59.0% 34,625 50.4%
Marketing and advertising costs 656 2.0% 626 4.0% 483 2.4% 1,765 2.6%
Restaurant-level EBITDA 8,041 24.3% 1,769 11.3% 2,528 12.7% 12,338 18.0%
Pre-opening costs 2,044 3.0%
General and administrative 5,225 7.6%
Non-cash impairment charges 3,338 4.9%
Depreciation and amortization 3,811 5.5%
Operating loss $ (2,080) -3.0%
Restaurant operating weeks 136 216 219 571
Average weekly volume $ 243.1 $ 72.5 $ 91.0 $ 120.2
12 Weeks Ended September 9, 2014 (unaudited)
$ in thousands Del Frisco's Sullivan's Del Frisco's Grille Consolidated
Revenues $ 30,803 100.0% $ 16,067 100.0% $ 15,079 100.0% $ 61,949 100.0%
Costs and expenses:
Cost of sales 9,753 31.7% 4,784 29.8% 4,156 27.6% 18,693 30.2%
Labor 7,117 23.1% 4,912 30.6% 5,106 33.9% 17,135 27.6%
Operating expenses 3,151 10.2% 2,656 16.5% 2,155 14.3% 7,962 12.9%
Occupancy 2,114 6.9% 1,274 7.9% 1,561 10.3% 4,949 8.0%
Restaurant operating expenses 12,382 40.2% 8,842 55.0% 8,822 58.5% 30,046 48.5%
Marketing and advertising costs 542 1.7% 642 4.0% 226 1.5% 1,410 2.3%
Restaurant-level EBITDA 8,126 26.4% 1,799 11.2% 1,875 12.4% 11,800 19.0%
Pre-opening costs 1,577 2.5%
General and administrative 4,673 7.5%
Depreciation and amortization 3,098 5.0%
Operating income $ 2,452 4.0%
Restaurant operating weeks 120 228 149 497
Average weekly volume $ 256.7 $ 70.5 $ 101.2 $ 124.6
36 Weeks Ended September 8, 2015 (unaudited)
$ in thousands Del Frisco's Sullivan's Del Frisco's Grille Consolidated
Revenues $ 106,255 100.0% $ 52,966 100.0% $ 58,286 100.0% $ 217,507 100.0%
Costs and expenses:
Cost of sales 31,747 29.9% 15,929 30.1% 15,163 26.0% 62,839 28.9%
Labor 25,020 23.5% 15,846 29.9% 18,644 32.0% 59,510 27.3%
Operating expenses 10,814 10.2% 7,963 15.0% 7,895 13.6% 26,672 12.3%
Occupancy 7,451 7.0% 3,595 6.8% 6,604 11.3% 17,650 8.1%
Restaurant operating expenses 43,285 40.7% 27,404 51.7% 33,143 56.9% 103,832 47.7%
Marketing and advertising costs 1,731 1.6% 1,601 3.0% 1,550 2.6% 4,882 2.2%
Restaurant-level EBITDA 29,492 27.8% 8,032 15.2% 8,430 14.5% 45,954 21.1%
Pre-opening costs 3,790 1.8%
General and administrative 16,611 7.6%
Non-cash impairment charges 3,338 1.5%
Depreciation and amortization 11,001 5.1%
Operating income $ 11,214 5.2%
Restaurant operating weeks 400 670 606 1,676
Average weekly volume $ 265.6 $ 79.1 $ 96.2 $ 129.8
36 Weeks Ended September 9, 2014 (unaudited)
$ in thousands Del Frisco's Sullivan's Del Frisco's Grille Consolidated
Revenues $ 97,233 100.0% $ 53,523 100.0% $ 45,201 100.0% $ 195,957 100.0%
Costs and expenses:
Cost of sales 30,355 31.2% 16,110 30.1% 12,573 27.8% 59,038 30.1%
Labor 22,020 22.7% 15,706 29.3% 14,515 32.1% 52,241 26.7%
Operating expenses 9,535 9.8% 8,392 15.7% 5,957 13.2% 23,884 12.2%
Occupancy 6,447 6.6% 3,721 7.0% 4,361 9.6% 14,529 7.4%
Restaurant operating expenses 38,002 39.1% 27,819 52.0% 24,833 54.9% 90,654 46.3%
Marketing and advertising costs 1,640 1.7% 1,676 3.1% 701 1.6% 4,017 2.0%
Restaurant-level EBITDA 27,236 28.0% 7,918 14.8% 7,094 15.7% 42,248 21.6%
Pre-opening costs 2,867 1.5%
General and administrative 14,202 7.3%
Secondary public offering costs 5 0.0%
Depreciation and amortization 9,053 4.6%
Operating income $ 16,121 8.2%
Restaurant operating weeks 360 684 414 1,458
Average weekly volume $ 270.1 $ 78.3 $ 109.2 $ 134.4

CONTACT: Investor Relations Contact: Raphael Gross 203-682-8253 investorrelations@dfrg.com Media Relations Contact: Christine Beggan 203-682-8329 Christine.Beggan@icrinc.com

Source:Del Frisco's Restaurant Group