RAVE Restaurant Group Results

RAVE Restaurant Group, Inc. Reports Fourth Quarter and Fiscal Year 2018 Financial Results

RAVE Restaurant Group

RAVE Restaurant Group, Inc. (NASDAQ :RAVE ) yesterday reported financial results for the fourth quarter and fiscal year ended June 24, 2018. 

  • RAVE total comparable store retail sales increased 0.4% in the fourth quarter of fiscal 2018 compared to the same period of the prior year.
  • Pizza Inn domestic comparable store retail sales increased 2.5% in the fourth quarter of fiscal 2018 compared to the same period of the prior year, while total domestic retail sales increased 0.3%.
  • Pie Five comparable store retail sales decreased 6.4% in the fourth quarter compared to the same period of the prior year, while total system-wide retail sales decreased 10.7%.
  • Total revenue decreased by $2.5 million to $2.8 million for the fourth quarter of fiscal 2018 compared to $5.3 million for the same period of the prior year.
  • Net income improved by $4.4 million to $3.3 million compared to a net loss of $1.1 million for the same period of the prior year.
  • The Company reversed $3.4 million of the previous valuation allowance against net deferred tax assets, resulting in a net income tax benefit of $3.3 million.
  • On a fully diluted basis, the Company had net income of $0.21 per share for the fourth quarter of fiscal 2018 compared to a net loss of $0.11 per share for the same period of the prior year.
  • Adjusted EBITDA of $0.3 million was a $0.6 million improvement from the same period of the prior year.
  • Domestic Pizza Inn units increased by one during the quarter bringing the domestic total units open at the end of the quarter to 153.
  • International Pizza Inn units decreased by two during the quarter bringing the international total units open at the end of the quarter to 58.
  • Pie Five units decreased by five during the quarter bringing the total Pie Five units open at the end of the quarter to 73.

Annual Highlights:

  • RAVE total comparable store retail sales decreased 2.1% compared to fiscal 2017.
  • Pizza Inn domestic comparable store retail sales increased 1.8% from the prior year, while total domestic retail sales decreased 1.9%.
  • Pie Five comparable store retail sales decreased 12.9% from the prior year, while total system-wide retail sales decreased 16.7%.
  • Total consolidated revenue decreased 42.0% in fiscal 2018 to $15.1 million.
  • Net income improved by $14.4 million to $1.9 million compared to a net loss of $12.5 million in the prior year.
  • The Company reversed $3.4 million of the previous valuation allowance against net deferred tax assets, resulting in a net income tax benefit of $3.3 million.
  • On a fully diluted basis, the Company reported net income of $0.13 per share compared to a net loss of $1.18 per share in the prior year.
  • Adjusted EBITDA of $0.6 million was a $2.4 million increase from the prior year.
  • Shareholders' Equity increased by $8.4 million to $6.3 million as of the end of fiscal 2018 compared to the prior year
  • Domestic Pizza Inn units decreased by eight during the year bringing domestic total units open at the end of the fiscal year to 153.
  • International Pizza Inn units decreased by two during the year bringing the international total units open at the end of the fiscal year to 58.
  • Pie Five units decreased by eleven during the year bringing the total Pie Five units open at the end of the fiscal year to 73.

RAVE Restaurant Group, Inc. (NASDAQ :RAVE ) today announced results for its fourth quarter and fiscal year ended June 24, 2018. RAVE total comparable store retail sales increased 0.4% in the fourth quarter of fiscal 2018 compared to the same period of the prior year.

The Company's net income of $3.3 million in the fourth quarter, or $0.21 per diluted share, was an increase of $4.4 million, or $0.32 per diluted share, compared to the same period of the prior year. The Company's net income of $1.9 million, or $0.13 per diluted share, in fiscal 2018 was an increase of $14.4 million, or $1.31 per diluted share, compared to the prior year. The improved net income over the prior year was largely due to a $7.9 million improvement in Company-owned stores related primarily to reductions in closed and non-operating store expenses and a $3.4 benefit from a partial reversal of the previous valuation allowance for net deferred tax assets.

Adjusted EBITDA of $0.3 million in the fourth quarter was an increase of $0.6 million compared to the same period of the prior year. Adjusted EBITDA of $0.6 million for the fiscal year was an increase of $2.4 million compared to the prior year.  

"We are encouraged by progress that we've made with both brands," said Scott Crane, Chief Executive Officer for RAVE Restaurant Group, Inc. "The decisions made in fiscal 2018 have laid a solid foundation for success in coming quarters. We are executing on key elements of our revitalization plans which are driving us towards the next phase of growth. Positive trends in comparable store retail sales point to a strong turnaround."

Fourth Quarter Fiscal 2018 Operating Results 

Pizza Inn comparable store and total domestic retail sales increased by 2.5% and 0.3%, respectively, during the fourth quarter of fiscal 2018 compared to the same period of the prior year.

"The fourth quarter of fiscal 2018 marked the sixth consecutive quarter of growth in comparable store retail sales for Pizza Inn," said Bob Bafundo, newly promoted President of RAVE Restaurant Group, Inc. "We attribute the increased restaurant traffic and sales momentum to new initiatives such as online ordering, all-day buffet, and remodeled franchise locations. We believe this momentum is continuing in fiscal 2019. We are closely monitoring the effects of Hurricane Florence on our North Carolina and South Carolina stores but, despite weather challenges, we are optimistic about a seventh consecutive quarter of growth in Pizza Inn comparable store retail sales."

The Company opened its first three Pizza Inn Express, or PIE, kiosk locations including a PIE kiosk in the Fort Lauderdale Airport in the fourth quarter.

"PIE was introduced as a complement to the existing Pizza Inn model and is quickly gaining traction with our guests due to its convenience and with our operators due to its low startup costs," said Bafundo. "PIE will allow Pizza Inn to diversify its footprint into convenience stores, malls, travel centers and airport settings. It also now gives RAVE a pizza business model for virtually every footprint between 50 and 5,000 square feet."

Pie Five comparable store and system-wide retail sales decreased by 6.4% and 10.7%, respectively, for the fourth fiscal quarter compared to the same period of the prior year.

"To combat recent sales challenges, Pie Five has launched several sales initiatives including a low carb cauliflower crust, 14" large shareable pizzas, and sandwich melts," said Crane. "We've been very pleased with the consumer response to these new items, which has led to increased frequency from existing guests and an introduction to new users."

Net income improved by $4.4 million to $3.3 million in the fourth quarter of fiscal 2018, primarily driven by a partial reversal of $3.4 million of the previous valuation allowance against net deferred tax assets. 

Fiscal Year 2018 Operating Results

Pizza Inn comparable store retail sales increased by 1.8% and total domestic retail sales decreased by 1.9% during fiscal 2018 compared to the prior year.

Pie Five comparable store retail sales and system-wide retail sales decreased by 12.9% and 16.7%, respectively, during fiscal 2018 compared to the prior year.

"We are well-positioned for the next phase of growth at Pie Five," said Crane. "Our new initiatives combined with our investments in third-party delivery, online ordering and carry-out have allowed us to capitalize on the strengths of the Pie Five brand. We believe that retail sales will improve in future quarters as these new revenue streams expand."

The Company's net income of $1.9 million, or $0.13 per diluted share, in fiscal 2018 was an increase of $14.4 million, or $1.31 per diluted share, compared to the prior year. The improved net income was largely due to a $7.9 million improvement in Company-owned stores related primarily to reductions in closed and non-operating store expenses and a $3.4 benefit from a partial reversal of the previous valuation allowance for net deferred tax assets.

Adjusted EBITDA of $0.6 million for the fiscal year was an increase of $2.4 million compared to the prior year. 

The Company's cash and cash equivalents increased to $1.4 million as of June 24, 2018, a $0.9 million improvement over the prior year end. The increase in cash and cash equivalents resulted from $4.1 million in cash provided by financing activities, $0.7 million in cash provided by investing activities, offset by $3.9 million in cash used by operating activities. The $4.1 million in cash provided by financing activities resulted from $5.1 million in proceeds from the sale of stock offset by $1.0 million payment of short-term debt. The $0.7 million in cash provided by investing activities was the result of $1.8 million in proceeds from the sale of assets offset by $1.1 million in cash used for capital expenditures. The $3.9 million in cash used by operating activities was primarily the result of payments for lease terminations and reductions of working capital related to the discontinuation of the Norco division.    

Development Review

During the fourth quarter of fiscal 2018, the number of Pizza Inn domestic units increased from 152 to 153 units, while international units declined by two units to 58 units.

"We are proud of the progress we've made with RAVE's legacy brand," said Crane. "Pizza Inn is experiencing a comeback as evidenced by our experienced franchisees stepping up to build new units, and our ability to attract new prospective franchisees to the system. In addition, PIE has bolstered our opportunities in non-traditional settings like airports and convenience stores, allowing for greater flexibility for potential licensees."

In the fourth quarter of fiscal 2018, there were no Pie Five restaurants opened, while five restaurants were closed, bringing the fiscal-year-end total to 73 restaurants.

"The Pie Five model is evolving to meet the modern business climate," said Bafundo. "By closing underperforming Pie Five locations and transferring Company-owned locations to franchisees, we've been able focus our efforts on branding initiatives and the success of our franchisees. We've also introduced a new Pie Five prototype that we're calling the 'Goldilocks' layout. It's a right-sized model that factors in the current labor and real estate environment to offer reduced startup costs and a competitive return on investment at the unit level. This model focuses on speed and simplicity with a limited menu and an emphasis on building off-premise sales through carry-out, online ordering and third-party delivery. Our first Goldilocks location is expected to open in Garden City, Kansas, next month." 

About RAVE Restaurant Group, Inc.

Founded in 1958, Dallas-based RAVE Restaurant Group [NASDAQ :RAVE ] owns, operates, franchises and/or licenses approximately 284 Pie Five Pizza Co. and Pizza Inn restaurants domestically and internationally. Pizza Inn is an international chain featuring freshly made pizzas, along with salads, pastas, and desserts. 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. The Company's common stock is listed on the Nasdaq Capital Market under the symbol "RAVE".

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 
 
 
               

Fiscal Year Ended

               

June 24,

 

June 25,

               

2018

 

2017

                     
                     

REVENUES:

       

$ 15,120

 

$  26,077

                     

COSTS AND EXPENSES:

             
 

Cost of sales

       

3,654

 

13,927

 

General and administrative expenses

       

7,597

 

10,801

 

Franchise expenses

       

2,645

 

2,736

 

Pre-opening expenses

       

114

 

162

 

Loss/(Gain) on sale of assets

       

(144)

 

882

 

Impairment of long-lived assets and other lease charges

       

894

 

5,877

 

Bad debt

       

351

 

342

 

Interest expense

       

183

 

106

 

Depreciation and amortization expense

       

874

 

2,434

   

Total costs and expenses

       

16,168

 

37,267

                     

LOSS FROM CONTINUING OPERATIONS BEFORE TAXES

       

(1,048)

 

(11,190)

 

Income tax expense / (benefit)

       

(3,322)

 

53

INCOME/(LOSS) FROM CONTINUING OPERATIONS

       

2,274

 

(11,243)

                     
 

Loss from discontinued operations

       

(362)

 

(1,248)

NET INCOME / (LOSS)

       

$   1,912

 

$ (12,491)

                     

INCOME / (LOSS) PER SHARE OF COMMON STOCK - BASIC:

           
 

Income / (loss) from continuing operations

       

$     0.17

 

$     (1.06)

 

Loss from discontinued operations

       

(0.03)

 

(0.12)

 

Net income / (loss)

       

$     0.14

 

$     (1.18)

                     

INCOME / (LOSS) PER SHARE OF COMMON STOCK - DILUTED:

         
                     
 

Income / (loss) from continuing operations

       

$     0.16

 

$     (1.06)

 

Loss from discontinued operations

       

(0.03)

 

(0.12)

 

Net income / (loss)

       

$     0.13

 

$     (1.18)

                     

Weighted average common shares outstanding - basic

       

13,854

 

10,617

                     

Weighted average common and

             
 

potential dilutive common shares outstanding

 

14,983

 

10,617

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

           
   

June 24,

 

June 25,

 
   

2018

 

2017

 
           

ASSETS

         
           

CURRENT ASSETS

         

   Cash and cash equivalents

 

$   1,386

 

$      451

 

   Accounts receivable, less allowance for bad debts of $158 and $249, respectively

 

1,518

 

2,761

 

   Other receivable 

 

300

 

-

 

   Notes receivable

 

712

 

675

 

   Inventories

 

6

 

79

 

   Income tax receivable

 

5

 

194

 

   Property held for sale

 

539

 

671

 

   Prepaid expenses and other

 

273

 

295

 

        Total current assets

 

4,739

 

5,126

 
           

LONG-TERM ASSETS

         

   Property, plant and equipment, net

 

1,510

 

3,808

 

   Intangible assets definite-lived, net

 

212

 

239

 

   Long-term notes receivable

 

803

 

127

 

   Deferred tax asset, net

 

3,479

 

-

 

   Deposits and other

 

243

 

246

 

        Total assets

 

$ 10,986

 

$   9,546

 
           

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

         

CURRENT LIABILITIES

         

   Accounts payable - trade

 

$      774

 

$   4,165

 

   Short-term debt

 

-

 

1,000

 

   Accrued expenses

 

1,109

 

1,265

 

   Deferred rent

 

32

 

101

 

   Deferred revenues

 

65

 

212

 

Total current liabilities

 

1,980

 

6,743

 
           

LONG-TERM LIABILITIES

         

   Convertible notes

 

1,562

 

2,749

 

   Deferred rent, net of current portion

 

433

 

655

 

   Deferred revenues, net of current portion

 

670

 

1,425

 

   Other long-term liabilities

 

42

 

53

 

        Total liabilities

 

4,687

 

11,625

 
           

COMMITMENTS AND CONTINGENCIES (SEE NOTE J in Form 10-K)

         
           

SHAREHOLDERS' EQUITY (DEFICIT)

         

   Common stock, $.01 par value; authorized 26,000,000 shares; issued 22,166,674 and 17,786,049 shares, respectively; outstanding 15,047,470 and 10,666,845 shares, respectively

 

222

 

178

 

   Additional paid-in capital

 

33,206

 

26,784

 

   Accumulated deficit

 

(2,493)

 

(4,405)

 

   Treasury stock at cost

         

     Shares in treasury: 7,119,204 

 

(24,636)

 

(24,636)

 

        Total shareholders' equity (deficit)

 

6,299

 

(2,079)

 
           

        Total liabilities and shareholders' equity (deficit)

 

$ 10,986

 

$   9,546

 

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
           

Fiscal Year Ended

           

 June 24, 

 

June 25,

           

2018

 

2017

                 

CASH FLOWS FROM OPERATING ACTIVITIES:

     
               
 

Net income/(loss)

$      1,912

 

$ (12,491)

 

Adjustments to reconcile net inome/(loss) to cash used by operating activities:

     
   

Impairment of fixed assets and other assets

894

 

4,773

   

Stock compensation expense

115

 

58

   

Depreciation and amortization

835

 

2,410

   

Amortization of intangible assets definite-lived

39

 

46

   

Amortization of debt issue costs

35

 

-

   

Gain/loss on the sale of assets

(144)

 

882

   

Provision for bad debt

351

 

342

 

Changes in operating assets and liabilities:

     
   

Accounts receivable

908

 

(576)

   

Inventories

73

 

118

   

Prepaid expenses, deposits and other, net

25

 

116

   

Deferred revenue

(767)

 

(107)

   

Accounts payable - trade

(4,241)

 

350

   

Deferred rent

-

 

-

   

Deferred tax assets

(3,479)

 

-

   

Accrued expenses, deferred rent and other

(458)

 

(1,469)

   

   Cash used by operating activities

(3,902)

 

(5,548)

                 
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

     
 

Proceeds from sale of assets

1,789

 

999

 

Purchase of intangible assets definite-lived

-

 

-

 

Capital expenditures

(1,081)

 

(573)

   

Cash provided by investing activities

708

 

426

                 
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

     
 

Issuance (payments) of short-term debt

(1,000)

 

1,000

 

Proceeds from sale of stock

5,129

 

-

 

Proceeds from issuance of convertible notes

-

 

2,894

 

Proceeds from exercise of stock options

-

 

806

   

Cash provided by financing activities

4,129

 

4,700

                 

Net increase/(decrease) in cash and cash equivalents

935

 

(422)

Cash and cash equivalents, beginning of year

451

 

873

Cash and cash equivalents, end of year

$      1,386

 

$       451

                 
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     
                 

CASH PAID FOR:

     
   

Interest

$         187

 

$         25

   

Income taxes

$           64

 

$         29

                 
 

Non-cash activities:

     
   

Capital expenditures included in accounts payable

$           49

 

$            -

   

Conversion of notes to equity

$      1,314

 

$            -

                 

RAVE RESTAURANT GROUP, INC.

ADJUSTED EBITDA

(In thousands)

       
       
 

Twelve Months Ended

 

June 24,

 

June 25,

 

2018

 

2017

 Net income (loss) 

$            1,912

 

$         (12,491)

 Interest expense 

183

 

106

 Income taxes 

(3,322)

 

53

 Income taxes - discontinued ops 

(60)

 

-

 Depreciation and amortization 

874

 

2,434

 Depreciation and amortization - discontinued ops 

-

 

22

 EBITDA 

$              (413)

 

$           (9,876)

 Stock compensation expense 

115

 

58

 Pre-opening costs 

114

 

162

 (Gain)/Loss on sale/disposal of assets 

(144)

 

882

 Impairment of long-lived assets and other lease charges

894

 

5,877

 Discontinued operations excl taxes 

422

 

1,226

 Closed and non-operating store costs 

(369)

 

(75)

 Adjusted EBITDA 

$               619

 

$           (1,746)

       

 



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