Diversified Restaurant Holdings Reports Fourth Quarter Revenue Up 62.4%

  • Achieved record fourth quarter and full-year revenue of $26.1 million and $77.4 million, respectively
  • DRH generated $7.6 million in cash from operations, a 15.4% increase over 2011
  • Company increased total restaurant locations in 2012 by 60.7% to 45 locations; Expects to open 10 additional locations in 2013

SOUTHFIELD, Mich., April 1, 2013 (GLOBE NEWSWIRE) -- Diversified Restaurant Holdings, Inc. (OTCQB:DFRH) ("DRH" or the "Company"), the creator, developer, and operator of the unique, full-service, ultra-casual restaurant and bar Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and one of the largest franchisees for Buffalo Wild Wings® ("BWW"), announced results for the fourth quarter and year ended December 30, 2012.

Fourth quarter revenue of $26.1 million (a 14-week period) was up $10.0 million, or 62.4%, from the fourth quarter of 2011 (a 13-week period). Fiscal 2012 (a 53-week period) sales grew $16.7 million to $77.4 million from fiscal 2011 (a 52-week period). Sales growth was driven by the addition of eight corporate-owned restaurants and eight acquired locations as well as improved economic conditions in the areas in which the Company operates. At the end of 2012, there were 45 total restaurants operating, comprised of 12 Bagger Dave's and 33 BWW, compared with 28 restaurants at the end of 2011. On a consolidated basis, excluding the additional week in 2012, same store sales were up 9.2% and 7.6% for the fourth quarter and fiscal 2012, respectively.

"Our 2012 record results demonstrate the effectiveness of our growth strategy and brand recognition in the marketplace. We continued investing in our restaurant portfolio by adding 16 corporate locations and upgrading our current facilities," commented T. Michael Ansley, President and CEO of DRH.

Mr. Ansley added, "We strive to provide a consistent and unique dining experience to our customers. While we have been growing rapidly our customers remain our top focus and maintaining this consistent experience is paramount to our ongoing success."

Fourth Quarter Operating Results

Food, beverage, and packaging costs increased to $8.2 million in the fourth quarter of 2012 from $4.8 million in the prior-year period, primarily due to the opening of new restaurants along with the impact of increased commodity food prices and inflationary factors. The average cost per pound for bone-in chicken wings increased dramatically in 2012 compared with the average cost per pound in 2011. Food, beverage, and packaging costs as a percentage of sales were 31.4% and 29.9% in the fourth quarters of 2012 and 2011, respectively.

Compensation costs increased $2.5 million to $6.6 million in fourth quarter of 2012 from $4.1 million in fourth quarter of 2011 due to the increased staffing needs for the new restaurants. However, as a percentage of sales, labor costs improved to 25.3% in fourth quarter of 2012 from 25.7% in the prior-year period.

Net loss attributable to DRH in the fourth quarter of 2012 was $623,008, a decrease from net income of $528,293 in the same period of the prior year.

Full Year 2012 Review

Total revenue of $77.4 million for fiscal 2012 reflects $6.7 million that was attributable to revenue generated from the new locations that did not meet the criteria for same-store-sales reporting. In addition, $4.1 million was attributable to the eight BWW locations purchased in September 2012, and a $5.9 million increase in same store sales growth.

Operating expenses were up 32.8% in 2012, reflecting the addition of the new stores during the year.

DRH generated $1.6 million in operating profit in 2012, a decrease of $2.0 million compared with $3.6 million in 2011, primarily due to increased food, beverage, and packaging costs as a result of the number of restaurants operated and a 62.8% year-over-year increase in the average cost per pound for bone-in chicken wings. For fiscal 2012, net income attributable to DRH was $180,099, or $0.01 per diluted share, compared with net income of $1.8 million, or $0.10 per diluted share, in fiscal 2011.

The increase in the number of restaurants was the result of two expansion programs. The Company opened nine restaurants, six Bagger Dave's and three BWW, during 2012 which included the fourth quarter opening of the largest BWW, by square footage, in Downtown Detroit, Michigan. The first franchised Bagger Dave's was also opened in Missouri in June 2012. Additionally, the Company acquired eight BWW restaurants with four operating in Illinois and four in Indiana. The acquisition included the right to develop a fifth Indiana BWW restaurant location, which the Company intends to open by the end of 2013.

Balance Sheet

Cash and cash equivalents were $2.7 million at December 30, 2012, compared with $1.5 million at December 25, 2011. The Company generated $7.6 million in cash from operations in 2012, up $1.0 million over the prior year, as a result of improved working capital.

Capital expenditures increased to $15.7 million in 2012, with new restaurant construction accounting for $14.5 million. The Company is committed to reinvesting in its stores and is following a definitive schedule of continued improvements and remodeling to maintain a positive dining experience for its guests. For 2013, the Company estimates capital expenditures to range between $22.5 million and $26.0 million, with the majority focused on new restaurant opening expenses.

Outlook

In 2013, DRH plans to open 10 additional restaurants which will be comprised mostly of Bagger Dave's. Over the next five years, in total, the Company expects to open 35 to 45 new Bagger Dave's and 14 new BWW.

Mr. Ansley concluded, "We will remain aggressive in our growth strategy as we progress through 2013. We invested time and resources into building brand recognition for our Bagger Dave's restaurants and we expect significant growth to come from this franchise moving forward. We will also continue expanding our portfolio by adding additional Buffalo Wild Wings restaurants as opportunities for acquisition and geographic expansion arise."

About Diversified Restaurant Holdings

Diversified Restaurant Holdings, Inc. ("DRH" or the "Company") is the owner, operator, and franchisor of the unique, full-service, ultra-casual restaurant concept, Bagger Dave's Legendary Burger Tavern® ("Bagger Dave's") and one of the largest Buffalo Wild Wings® ("BWW") franchisees. Between the two concepts, the Company currently operates 44 corporate-owned restaurants in Michigan, Florida, Illinois, and Indiana, and one franchised Bagger Dave's in Missouri, for a total of 45 restaurants. The Company routinely posts news and other important information on its website at www.diversifiedrestaurantholdings.com.

Bagger Dave's offers a full-service, family-friendly restaurant and bar with a casual, comfortable atmosphere. The menu features freshly-made burgers (never frozen), accompanied by more than 30 toppings from which to choose, along with fresh-cut fries, hand-dipped milkshakes, and a selection of craft beer and wine. Signature items include Sloppy Dave's BBQ®, Train Wreck Burger®, and Bagger Dave's Amazingly Delicious Turkey Black Bean Chili®. The Bagger Dave's concept emphasizes local flair by showcasing historical photos of the city in which each restaurant resides and features an electric train that runs above the dining room and bar areas. Currently, there are 11 corporate-owned locations and one franchised location. For more information, visit www.baggerdaves.com.

DRH operates 33 BWW restaurants: 15 in Michigan, 10 in Florida, four in Illinois and four in Indiana. The Company has opened 19 new BWW restaurants in fulfillment of its 32-restaurant Area Development Agreement ("ADA") with franchisor Buffalo Wild Wings, Inc. (Nasdaq:BWLD). The remaining 13 restaurants under the ADA agreement, along with an additional franchise agreement in Indiana, suggest that the Company will operate 47 BWW's by 2017.

Safe Harbor Statement

The information made available in this news release contains forward-looking statements which reflect DRH's current view of future events, results of operations, cash flows, performance, business prospects and opportunities. Wherever used, the words "anticipate," "believe," "expect," "intend," "plan," "project," "will continue," "will likely result," "may," and similar expressions identify forward-looking statements as such term is defined in the Securities Exchange Act of 1934. Any such forward-looking statements are subject to risks and uncertainties and the Company's actual growth, results of operations, financial condition, cash flows, performance, business prospects and opportunities could differ materially from historical results or current expectations. Some of these risks include, without limitation, the impact of economic and industry conditions, competition, food and drug safety issues, restaurant expansion and remodeling, labor relations issues, costs of providing employee benefits, regulatory matters, legal and administrative proceedings, information technology, security, severe weather, natural disasters, accounting matters, other risk factors relating to our business or industry and other risks detailed from time to time in the Securities and Exchange Commission filings of DRH. Forward-looking statements contained herein speak only as of the date made and, thus, DRH undertakes no obligation to update or publicly announce the revision of any of the forward-looking statements contained herein to reflect new information, future events, developments or changed circumstances or for any other reason.

FINANCIAL TABLES TO FOLLOW

DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Twelve Months Ended
December 30 December 25 December 30 December 25
2012 2011 2012 2011
Revenue
Food and beverage sales $26,119,920 $16,040,094 $77,435,684 $60,657,475
Franchise royalties and fees 3,987 50,000 11,524 50,000
Total revenue 26,123,907 16,090,094 77,447,208 60,707,475
Operating expenses
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
Food, beverage, and packaging 8,213,106 4,803,476 24,117,399 17,486,880
Compensation costs 6,607,849 4,137,504 19,448,210 15,226,145
Occupancy 1,502,639 902,923 4,289,966 3,291,339
Other operating costs 4,810,163 3,228,841 15,008,171 11,854,581
General and administrative expenses 2,257,353 1,547,116 6,585,908 5,023,212
Pre-opening costs 1,244,292 310,616 1,792,168 714,330
Depreciation and amortization 1,656,704 987,711 4,587,310 3,479,360
Loss on disposal of property and equipment 6,856 1,308 36,833 31,465
Total operating expenses 26,298,962 15,919,495 75,865,965 57,107,312
Operating profit (loss) (175,055) 170,599 1,581,243 3,600,163
Change in fair value of derivative instruments -- 98,431 (43,361) (246,818)
Interest expense (439,428) (261,357) (1,282,991) (1,137,725)
Other income (expense), net (342,079) 328,658 20,081 366,497
Income (loss) before income taxes (956,562) 336,331 274,972 2,582,117
Income tax provision (benefit) (333,554) (230,575) (167) 586,086
Net income (loss) (623,008) 566,906 275,139 1,996,031
Less: (Income) attributable to noncontrolling interest -- (38,613) (95,040) (153,845)
Net income (loss) attributable to DRH $ (623,008) $ 528, 293 $180,099 $1,842,186
Basic earnings (loss) per share $ (0.03) $ 0.03 $0.01 $0.10
Fully diluted (loss) earnings per share $ (0.03) $ 0.03 $0.01 $0.10
Weighted-average number of common shares outstanding
Basic 18,949,556 18,902,782 18,949,556 18,902,782
Diluted 19,091,849 19,055,500 19,091,849 19,055,500
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 30 December 25
ASSETS 2012 2011
Current assets
Cash and cash equivalents $ 2,700,328 $ 1,537,497
Accounts receivable 248,403 20,497
Inventory 809,084 601,765
Prepaid assets 447,429 207,608
Total current assets 4,205,244 2,367,367
Deferred income taxes 846,746 272,332
Property and equipment, net - restricted assets of VIE -- 1,457,770
Property and equipment, net 40,286,490 22,064,544
Intangible assets, net 2,509,337 1,113,997
Goodwill 8,578,776 --
Other long-term assets 118,145 74,389
Total assets $ 56,544,738 $ 27,350,399
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,952,017 $ 1,682,462
Accrued compensation 1,647,075 760,548
Other accrued liabilities 1,013,369 649,784
Current portion of long-term debt 6,095,684 2,967,135
Current portion of deferred rent 226,106 180,480
Total current liabilities 12,934,251 6,240,409
Deferred rent, less current portion 2,274,753 1,750,017
Unfavorable operating leases 849,478 --
Other liabilities - interest rate swaps 430,751 613,999
Long-term debt, less current portion 38,551,601 16,841,355
Total liabilities 55,040,834 25,445,780
Stockholders' equity
Common stock -- $0.0001 par value; 100,000,000 shares authorized; 18,951,700 and 18,936,400
shares, respectively, issued and outstanding 1,888 1,888
Additional paid-in capital 2,991,526 2,771,077
Accumulated other comprehensive loss (284,294) --
Retained earnings (accumulated deficit) (1,205,216) (1,253,831)
Total DRH stockholders' equity 1,503,904 1,519,134
Noncontrolling interest in VIE -- 385,485
Total stockholders' equity 1,503,904 1,904,619
Total liabilities and stockholders' equity $ 56,544,738 $ 27,350,399
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Twelve Months Ended
December 30 December 25
2012 2011
Cash flows from operating activities
Net income $ 275,139 $ 1,996,031
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 4,587,310 3,479,360
Write off of loan fees 141,329 --
Loss on disposal of property and equipment 36,833 31,465
Share-based compensation 220,449 139,773
Change in fair value of derivative instruments 43,361 246,818
Deferred income taxes (133,287) 335,412
Changes in operating assets and liabilities that provided (used) cash
Accounts receivable (227,906) (20,497)
Inventory (141,547) (262,706)
Prepaid assets (210,434) 2,100
Other current assets -- 43,348
Intangible assets (1,044,899) (215,562)
Other long-term assets (43,756) 5,710
Accounts payable 2,269,555 294,065
Accrued liabilities 1,250,112 321,220
Deferred rent 570,362 180,479
Net cash provided by operating activities 7,592,621 6,577,016
Cash flows from investing activities
Purchases of property and equipment (15,675,329) (8,215,522)
Acquisition of business, net of cash acquired (14,686,575) --
Cash paid in excess of book value of noncontrolling interest (866,681) --
Net cash used in investing activities (31,228,585) (8,215,522)
Cash flows from financing activities
Proceeds from issuance of long-term debt 63,521,824 4,181,373
Repayments of long-term debt (38,683,029) (2,256,751)
Distributions from noncontrolling interest (40,000) (107,000)
Net cash provided by financing activities 24,798,795 1,817,622
Net increase in cash and cash equivalents 1,162,831 179,116
Cash and cash equivalents, beginning of period 1,537,497 1,358,381
Cash and cash equivalents, end of period $ 2,700,328 $ 1,537,497
DIVERSIFIED RESTAURANT HOLDINGS, INC. AND SUBSIDIARIES
OPERATING PERFORMANCE (UNAUDITED)
($ in millions) Three Months
Ended

Fiscal Year Ended

YOY

YOY
Dec. 30,
2012
Dec. 25,
2011
Dec. 30,
2012
Dec. 25,
2011
Increase
(Decrease)
Percent
Change
Food, beverage, and packaging costs $8.2 $ 4.8 $24.1 $17.5 $6.6 37.9%
% of revenue 31.4% 29.9% 31.1% 28.8%
G & A expenses $2.3 $ 1.5 $6.6 $5.0 $1.6 31.1%
% of revenue 8.6% 9.6% 8.5% 8.3%
Operating profit (loss) $ (0.2) $ 0.2 $ 1.6 $ 3.6 $ (2.0) (56.1)%
Operating margin -0.7% 1.1% 2.0% 5.9%

CONTACT: Investor Contact: Deborah K. Pawlowski Kei Advisors LLC Phone: 716.843.3908 Email: dpawlowski@keiadvisors.com Company Contact: David G. Burke Chief Financial Officer Phone: 248.223.9160Source:Diversified Restaurant Holdings, Inc.