RAVE Restaurant Group, Inc. Reports Third Fiscal Quarter Financial Results

RAVE Restaurant Group, Inc. (NASDAQ:  RAVE) today reported financial results for the third quarter of fiscal 2016 ended March 27, 2016. 

Third Quarter Highlights: 

• Total consolidated revenue increased 28.2% to $15.3 million compared to $11.9 million in the third quarter of fiscal 2016.  
• Pie Five comparable store retail sales decreased 4.0% from the same period of the prior year. 
• Pie Five system-wide retail sales increased 118%, and average weekly sales declined 8.6%, year over year. 
• Pizza Inn domestic comparable store retail sales decreased 2.2% from the same period of the prior year, while total domestic retail sales decreased by 9.0%. 
• Net loss of $1.2 million was $0.7 million greater than the same quarter of the prior year due to lower sales and financial performance by Company-owned Pie Five stores in newer markets and the absence of income tax benefits. 
• Adjusted EBITDA of ($0.2) million was $0.3 million less than the same quarter of the prior year. 
• Pie Five Company-owned restaurant operating cash flow decreased to $0.1 million from $0.4 million in the same period of the prior year. 
• Opening of six Pie Five restaurants during the quarter brought the total Pie Five restaurants open at the end of the quarter to 85.

Revenues of $15.3 million and $45.1 million for the third quarter and year to date fiscal 2016 were 28.2% and 31.4%, respectively, higher than the same periods of the prior year.  For the three and nine months ended March 27, 2016, the Company reported a net loss of $1.2 million and $6.6 million, respectively, compared to a loss of $0.6 million and $1.2 million for the comparable periods of the prior year.  On a fully diluted basis, the loss was $0.12 per share and $0.61 per share for the third quarter and year to date fiscal 2016, compared to a loss of $0.05 per share and $0.12 per share for the same periods of the prior year.  The increased losses for the three month period ended March 27, 2016 was primarily the result of the absence of income tax benefits, higher general and administrative costs related to additional corporate personnel and digital initiatives, decreased income from the Pizza Inn international franchisee in the Middle East and the impact of compressed margins in newly entered Pie Five company markets, which negative effects were partially offset by increased income from the Pizza Inn and Pie Five franchise systems.  The increased loss for the nine month period ended March 27, 2016 was also impacted by an impairment expense of $0.8 million, a full valuation allowance of $4.0 million against all net deferred tax assets and increased pre-opening expenses.

"The highlight for the quarter was continued expansion of the Pie Five system," said Randy Gier, Chief Executive Officer, Rave Restaurant Group, Inc. "Comps for the quarter were disappointing and while we are experiencing similar headwinds as the rest of the industry, we have identified root causes and corrective actions that will take place over the coming quarters. We are emphasizing operations and service initiatives designed to enhance efficiency, throughput, and guest experience that we believe will allow us to continue the positive comparable store growth trend that we previously experienced." 

Third Quarter Fiscal 2016 Operating Results

Total revenues for the third quarter of fiscal 2016 and the comparable prior year quarter were $15.3 million and $11.9 million, respectively, an increase of 28.2% year over year.  Additional franchise development fees previously received from Pie Five franchisees have been deferred and will be recognized as future restaurants are opened.  Pizza Inn domestic comparable store retail sales decreased 2.2% from the same period in the prior year.  

For Pie Five, system-wide retail sales increased 118% for the third quarter of fiscal 2016 when compared to the same period in the prior year driven by a 140% increase in average units open, while system-wide average weekly sales decreased by 8.6%.  Comparable store retail sales decreased by 4.0% for the most recent fiscal quarter compared to the same period in the prior year.  Several factors contributed to this decrease, including (i) new franchise stores entering the comp base this quarter overlapping prior year extended honeymoon period sales, (ii) continued impact of cannibalization from several new restaurants in the Dallas market, (iii) a franchise restaurant new to the comparable base undergoing road construction that is materially impacting sales and (iv) the overlapping in March and April of a very successful television campaign in the DFW market in the prior year.  Our comparable store base is growing but still small and thus individual store events can cause a material impact on comparable performance.  The decrease in Pie Five average weekly sales was primarily due to the decline in comparable store sales as well as the entry into new company markets and several franchise stores that opened with particularly high volumes in the prior year.

Development Review

In the third quarter of fiscal 2016, six new Pie Five restaurants were opened, comprised of three Company-owned restaurants and three franchised restaurants, while three restaurants were closed, bringing the fiscal quarter-end total unit count to 85 restaurants.  So far in the current quarter the Company has signed one new franchise development agreement with an existing franchisee for two Pie Five restaurants.  The Company currently has franchise restaurant development commitments totaling approximately 450 Pie Five restaurants. 

"We opened six new Pie Five Pizza restaurants in the third quarter and four new restaurants this quarter," said Gier. "We continue to build restaurants and expand our footprint. We have a strong pipeline for growth with a highly experienced group of franchise operators. We remain positive about long-term earnings growth." 

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures in evaluating operating performance.  These non-GAAP financial measures should not be viewed as an alternative or substitute for its financial statements prepared in accordance with generally accepted accounting principles.  Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, stock compensation expense, pre-opening expense, costs related to impairment charges and discontinued operations.  A reconciliation of Adjusted EBITDA to net income is included with the accompanying financial statements.  

About RAVE Restaurant Group, Inc.

Founded in 1958, Dallas-based RAVE Restaurant Group [NASDAQ: RAVE] owns, operates and franchises more than 300 Pie Five Pizza Co. and Pizza Inn restaurants domestically and internationally. Pie Five Pizza Co. is a leader in the rapidly growing fast-casual pizza space offering made-to-order pizzas ready in under five minutes. Pizza Inn is an international chain featuring freshly made pizzas, along with salads, pastas, and desserts.