RAVE Restaurant Group Results

RAVE Restaurant Group, Inc. Second Fiscal Quarter Revenues Down 3.4 Percent

RAVE Restaurant Group

RAVE Restaurant Group, Inc. (NASDAQ:  RAVE) today reported financial results for the second quarter of fiscal 2017 ended December 25, 2016. 

Second Quarter Highlights

  • Total consolidated revenue decreased 3.4% to $14.8 million compared to $15.3 million in the second quarter of fiscal 2016. 
  • Pie Five comparable store retail sales decreased 17.4% from the same period of the prior year. 
  • Pie Five system-wide retail sales increased 9.7%, while average weekly sales declined 14.7%, year over year. 
  • Pizza Inn domestic comparable store retail sales decreased 1.2% from the same period of the prior year, while total domestic retail sales increased by 0.4%. 
  • Net loss of $7.9 million was $3.1 million greater than the same quarter of the prior year primarily due to increased impairments and other lease charges, and losses from the sale of assets. 
  • On a fully diluted basis, the loss was $0.74 per share for the second quarter of fiscal 2017, compared to a loss of $0.45 per share for the same period of the prior year. 
  • Adjusted EBITDA of ($1.2) million was $1.2 million less than the same quarter of the prior year. 
  • Company-owned Pie Five operating cash flow decreased $0.3 million from the same period of the prior year. 
  • Net addition of seven Pie Five restaurants during the quarter brought the total Pie Five restaurants open at the end of the quarter to 99.

"We are aggressively exploring bold new strategies that can be deployed to ultimately improve financial performance," said Scott Crane, Chief Executive Officer for Rave Restaurant Group, Inc. "Over the next year we will be addressing underperforming markets while also improving the overall customer experience at all of our restaurants." 

Second Quarter Fiscal 2017 Operating Results

Revenues of $14.8 million and $30.2 million for the second quarter and year to date fiscal 2017 were 3.4% lower and 1.3% higher, respectively, than the same periods of the prior year. For the three and six months ended December 25, 2016, the Company reported a net loss of $7.9 million and $9.4 million, respectively, compared to a loss of $4.8 million and $5.4 million for the comparable periods of the prior year. On a fully diluted basis, the loss was $0.74 per share and $0.89 per share for the second quarter and year to date fiscal 2017, compared to a loss of $0.47 per share and $0.52 per share for the same periods of the prior year. The increased losses for the three and six month periods ended December 27, 2015 were primarily the result of a $4.8 million non-cash impairment expense in the second quarter of fiscal 2017 related to the carrying value of Company-owned Pie Five restaurants, as well as other lease charges and losses on sale of assets. In addition, the Company continued to provide a full valuation allowance against its deferred tax assets. Adjusted EBITDA declined $1.2 million and $1.7 million for the three and six month periods ended December 25, 2016, to $(1.2) millionand $(1.4) million, respectively. The decline in Adjusted EBITDA was driven by executive search fees and bad debt expenses totaling $0.5 million, as well as decreased average unit volumes at company Pie Five locations. 

Pie Five system-wide retail sales increased 9.7% for the second quarter of fiscal 2017 when compared to the same period in the prior year driven by a 31.1% increase in average units open, while system-wide average weekly sales decreased by 14.7%, year over year. Comparable store retail sales decreased by 17.4% for the most recent fiscal quarter compared to the same period in the prior year. Year to date, Pie Five system-wide retail sales increased 21.6% compared to the prior year driven by a 40.9% increase in average units open, while system-wide average weekly sales declined 13.7% year over year. Comparable store retail sales decreased 16.1% during the first six months of fiscal 2017 compared to the same period of the prior year. The Company continues to believe that increased competition within the fast-casual segment and general industry softness contributed to weakened trends within the Pie Five system.

Pizza Inn total domestic retail sales increased 0.4% and decreased 0.6% for the three and six months ended December 25, 2016compared to the same periods of the prior year. Pizza Inn domestic comparable store retail sales decreased 1.2% and 0.5% for the three and six months ended December 25, 2016 compared to the same periods of the prior year.

"Restaurant trends around the country continue to be challenging," said Crane. "The Pie Five system continues to add new locations and is addressing sales trends through the testing of new sales channels and menu innovation. Pizza Inn continues to see progress through enhanced franchisee engagement and the addition of initiatives such as the new loyalty program and refreshed branding."

Development Review

In the second quarter of fiscal 2017, eight new franchised Pie Five restaurants were opened, while one franchised restaurant was closed, bringing the fiscal quarter-end total unit count to 99 restaurants. 

"We continue to see growth of the Pie Five system in key markets," said Crane. "We are excited to see additional traditional and non-traditional opportunities for further development."

Rights Offering Continues

RAVE has previously announced a rights offering for up to $3.0 million of its 4% Convertible Senior Notes due 2022. Pursuant to the rights offering, existing RAVE shareholders have the opportunity to purchase their proportionate share of the convertible notes at the par value of $100 per note. The subscription period is presently scheduled to terminate at 5:00 p.m., Dallas, Texas time, on February 13, 2017, but may be extended by the Company for up to 30 days. The terms of the rights offering and RAVE the convertible notes are described in the final prospectus that has been filed with the Securities and Exchange Commission and is also available at http://raverg.investorroom.com/SEC-filings.

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. The Company's common stock is listed on the Nasdaq Capital Market under the symbol "RAVE".

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Six Months Ended

December 25,

December 27,

December 25,

December 27,

2016

2015

2016

2015

REVENUES:

$          14,792

$          15,311

$          30,248

$          29,847

COSTS AND EXPENSES:

Cost of sales

13,372

13,139

27,254

25,489

General and administrative expenses

2,175

1,694

4,078

3,263

Franchise expenses

984

949

1,836

1,808

Pre-opening expenses

47

304

66

736

Loss on sale of assets

656

-

699

-

Impairment of long-lived assets and other lease charges

5,197

1,010

5,366

1,010

Bad debt

298

128

351

231

Interest expense

2

2

2

3

Total costs and expenses

22,731

17,226

39,652

32,540

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES

(7,939)

(1,915)

(9,404)

(2,693)

Income tax expense

5

2,892

19

2,634

LOSS FROM CONTINUING OPERATIONS

(7,944)

(4,807)

(9,423)

(5,327)

Income (loss) from discontinued operations, net of taxes

19

(23)

2

(60)

NET LOSS

$           (7,925)

$           (4,830)

$           (9,421)

$           (5,387)

LOSS PER SHARE OF COMMON STOCK - BASIC:

Loss from continuing operations

$             (0.75)

$             (0.47)

$             (0.89)

$             (0.52)

Income (loss) from discontinued operations

0.01

-

0.01

-

Net loss

$             (0.74)

$             (0.47)

$             (0.88)

$             (0.52)

LOSS PER SHARE OF COMMON STOCK - DILUTED:

Loss from continuing operations

$             (0.74)

$             (0.45)

$             (0.88)

$             (0.50)

Income (loss) from discontinued operations

$                    -

-

-

-

Net loss

$             (0.74)

$             (0.45)

$             (0.88)

$             (0.50)

Weighted average common shares outstanding - basic

10,657

10,314

10,657

10,310

Weighted average common and potential dilutive common shares outstanding

 

10,681

 

10,770

 

10,720

 

10,859

 

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

December 25, 

June 26,

ASSETS

2016 (unaudited)

2016

CURRENT ASSETS

Cash and cash equivalents

$

1,098

1,104

Accounts receivable, less allowance for bad debts accounts of $551 and $198, respectively

 

2,430

 

2,780

Notes receivable

120

167

Inventories

199

197

Income tax receivable

194

194

Property held for sale

327

-

Prepaid expenses and other

264

430

 

 

      Total current assets

4,632

4,872

LONG-TERM ASSETS

Property, plant and equipment, net

5,839

12,979

Long-term notes receivable

328

382

Deposits and other

230

272

 

 

      Total assets

$

11,029

$

18,505

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable - trade

$

4,495

3,815

Short-term debt

1,000

-

Accrued expenses

1,104

1,220

Deferred rent

120

160

Deferred revenues

128

304

 

 

      Total current liabilities

6,847

5,499

LONG-TERM LIABILITIES

Deferred rent, net of current portion

1,497

1,710

Deferred revenues, net of current portion

1,370

1,440

Other long-term liabilities

437

453

 

 

      Total liabilities

10,151

9,102

COMMITMENTS AND CONTINGENCIES  (See Note 2)

SHAREHOLDERS' EQUITY

Common stock, $.01 par value; authorized 26,000,000 shares; issued 17,775,951 and 17,460,951 shares, respectively; outstanding 10,656,551 and 10,341,551 shares, respectively

 

178

 

175

Additional paid-in capital

26,671

25,778

Retained earnings (Accumulated Deficit)

(1,335)

8,086

Treasury stock at cost

 

      Shares in treasury: 7,119,400 

(24,636)

(24,636)

 

         Total shareholders' equity 

878

9,403

$

11,029

$

18,505

 

RAVE RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

December 25,

December 27,

2016

2015

CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss

$           (9,421)

$           (5,387)

 

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

Depreciation and amortization

1,539

1,118

Impairment of long-lived assets

4,773

1,010

Stock compensation expense

90

90

Deferred income taxes

-

2,593

Loss on sale/disposal of assets

656

2

Provision for bad debt

351

231

Changes in operating assets and liabilities:

Notes and accounts receivable

100

214

Inventories

(2)

(54)

Accounts payable - trade

680

1,257

Accrued expenses

(132)

(328)

Deferred rent

(253)

426

Deferred revenue

(246)

165

Prepaid expenses and other

182

136

Cash (used in) provided by operating activities

(1,683)

1,473

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of assets

45

14

Capital expenditures

(174)

(6,471)

Cash used in investing activities

(129)

(6,457)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of stock

-

773

Proceeds from stock options

806

-

Net change in debt

1,000

-

Cash provided by financing activities 

1,806

773

Net decrease in cash and cash equivalents

(6)

(4,211)

Cash and cash equivalents, beginning of period

1,104

5,958

Cash and cash equivalents, end of period

$            1,098

$            1,747

 

Three Months Ended

December 25,

December 27,

2016

2015

 Net loss 

$           (7,925)

$           (4,830)

 Interest expense 

2

2

 Income Taxes 

5

2,892

 Income Taxes--Discontinued Operations 

-

(12)

 Depreciation and amortization 

749

601

 EBITDA 

$           (7,169)

$           (1,347)

 Stock compensation expense 

45

45

 Pre-opening costs 

47

304

 Loss on sale/disposal of assets 

656

-

 Impairment charges, non-operating store costs and discontinued operations 

5,242

1,059

 Adjusted EBITDA 

$           (1,179)

$                 61



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