RAVE Restaurant Group Results

RAVE Restaurant Group, Inc. Reports First Quarter 2019 Financial Results

RAVE sees improvements in comparable store retail sales and net income

RAVE Restaurant Group

RAVE Restaurant Group, Inc. (NASDAQ: RAVE) reported financial results for the first quarter of fiscal 2019 ended September 23, 2018.

  • RAVE total comparable store retail sales increased 1.1% in the first quarter of fiscal 2019 compared to the same period of the prior year.
  • Pizza Inn domestic comparable store retail sales increased 2.3% in the first quarter of fiscal 2019 compared to the same period of the prior year despite adverse impacts from Hurricane Florence. Total domestic retail sales increased 0.4%.
  • Pie Five comparable store retail sales decreased 1.8% in the first quarter of fiscal 2019 compared to the same period of the prior year, while total system-wide retail sales decreased 6.4%.
  • Total revenue decreased by $2.4 million to $3.0 million for the first quarter of fiscal 2019 compared to $5.4 million for the same period of the prior year primarily driven by reduced Company-owned store count.
  • Net income improved by $0.5 million to $0.1 million for the first quarter of fiscal 2019 compared to a net loss of $0.4 million for the same period of the prior year.
  • On a fully diluted basis, the Company had net income of $0.01 per share for the first quarter of fiscal 2019 compared to a net loss of $0.03 per share for the same period of the prior year.
  • EBITDA of $0.3 million for the first quarter of fiscal 2019 was an increase of $0.3 million from the same period of the prior year.
  • Adjusted EBITDA of $0.5 million for the first quarter of fiscal 2019 was a $0.2 million decrease from the same period of the prior year primarily driven by the prior year's $0.7 million in revenue for franchise and development fees, including defaulted area development agreements, partially offset by savings in Corporate general and administrative expenses and income improvement in Company-owned stores.
  • There was no net change in domestic Pizza Inn unit count during the first quarter of fiscal 2019, ending at 153 stores.
  • International Pizza Inn unit count decreased by seven to 51 as of September 23, 2018.
  • Pie Five unit count decreased by two to end the first quarter of fiscal 2019 at 71.

RAVE Restaurant Group, Inc. (NASDAQ: RAVE) today announced results for its first quarter of fiscal 2019 ended September 23, 2018. RAVE total comparable store retail sales increased 1.1% in the first quarter of fiscal 2019 compared to the same period of the prior year.

The Company's net income in the first quarter of fiscal 2019 of $0.1 million, or $0.01 per diluted share, was an increase of $0.5 million, or $0.04 per diluted share, compared to the same period of the prior year.

EBITDA of $0.3 million for the first quarter of fiscal 2019 was a $0.3 million increase from the same period of the prior year.

Adjusted EBITDA of $0.5 million for the first quarter of fiscal 2019 was a $0.2 million decrease from the same period of the prior year primarily driven by the prior year's $0.7 million in revenue for franchise and development fees, including defaulted area development agreements, partially offset by savings in Corporate general and administrative expenses and income improvement in Company-owned stores.

"We are very pleased with the positive momentum at all Rave brands," said Scott Crane, Chief Executive Officer for RAVE Restaurant Group, Inc.  "Our leadership team is seeing progress with new initiatives and positive trends in overall comparable store retail sales. We are confident that Pizza Inn, Pie Five, and PIE are now poised for accelerated growth."

First Quarter Fiscal 2019 Operating Results 

Pizza Inn comparable store and total domestic retail sales increased by 2.3% and 0.4%, respectively, during the first quarter of fiscal 2019 compared to the same period of the prior year.

"Despite negative impacts from Hurricane Florence, Pizza Inn had its seventh consecutive quarter of growth in comparable store retail sales. We can firmly say that we are on the right track," said Bob Bafundo, President of RAVE Restaurant Group, Inc.  "Previous momentum from all-day buffet, online ordering, and remodeled franchise locations continued through the first quarter. This positive traction has reinvigorated our franchise base, providing tailwinds for higher sales. In addition, we've seen a strong adoption by franchisees of our new point-of-sale system which is giving us meaningful consumer data and analytics to further refine our strategy."

The Company continued its growth of the Pizza Inn Express concept, or PIE, that it debuted in the last quarter with three additional units.

"Enthusiasm for the PIE concept continued this quarter," said Bafundo. "Feedback from operators has been very optimistic and we have a pipeline of potential new licensees that should fuel growth.  We also see the key opportunity for increased expansion with multi-unit licensees."

Pie Five comparable store and system-wide retail sales decreased by 1.8% and 6.4%, respectively, for the first quarter of fiscal 2019 compared to the same period of the prior year.

"We believe that Pie Five is turning a corner," said Crane.  "The response to our low-carb cauliflower crust, online ordering, delivery, and 14" large shareable pizzas has exceeded our expectations. We are not slowing down and are already testing additional new products such as an innovative calzone concept that we hope to deliver to the system in the near future."

Consolidated revenues decreased $2.4 million, or 44.9%, for the first quarter of 2019. The decrease in total revenues was driven by the reduction in the number of Company-owned stores and revenue recognized from defaulted area development agreements in the prior year, partially offset by advertising fund contributions and convention fund contributions that were previously recorded as an offset to franchise expenses prior to the adoption of ASU 2014-09 and Topic 606. See "Revenue Recognition and Income Statement Presentation" section below for more details.

The improved net income in the quarter ended September 23, 2018 over the prior year of $0.5 million was primarily due to improvements in the Company-owned restaurants segment and reduced general and administrative expenses.

"Our first location of the new 'Goldilocks' prototype opened last week," said Bafundo. "Our long-term plan is to continue to evolve this new model which we believe has tremendous potential for lowering start-up and operating costs.  We are pushing the accelerator on this business model to take full advantage of the store-level economics and uptick in off-premise dining in the restaurant industry. We believe that speed and simplicity with a limited menu and an emphasis on carry-out, online ordering and third-party delivery will be a win for Pie Five."

Revenue Recognition and Income Statement Presentation

On June 25, 2018, the Company adopted ASU 2014-09 and Topic 606 using the modified retrospective transition method. Results for reporting periods beginning after June 25, 2018 are presented in accordance with Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting under Topic 605, Revenue Recognition.

A cumulative effect adjustment of $1.6 million was recorded as a reduction to retained earnings as of June 25, 2018 to reflect the impact of adopting Topic 606. The impact of applying Topic 606 for the quarter ended September 23, 2018, was an increase in revenues of $450 thousand and an increase in pre-tax income of $31 thousand.

Additional detail on the adoption and fiscal 2019 impact of the new revenue recognition standard can be found in the Company's Form 10-Q for the quarterly period ended September 23, 2018 filed with the SEC.

Development Review

During the first quarter of fiscal 2019, the number of Pizza Inn domestic units remained constant at 153, while international units decreased by seven to 51 units.

"It's exciting to see a strong development pipeline for Pizza Inn," said Bafundo.  "Our newest Pizza Inn prototype recently debuted in our home market and we have an additional location with the new design slated to open next month.  We also have data indicating that remodeled locations are seeing increased traffic and sales, which is spurring interest from existing franchisees."

In the first quarter of fiscal 2019, Pie Five domestic unit count declined by a net of two units, closing the quarter with 71 restaurants.

"Pie Five has a third international commitment in an airport." said Bafundo.  "The new location will be our fourth airport installation and will also include a PIE kiosk.  We are optimistic about non-traditional growth opportunities for both Pie Five and PIE."

About RAVE Restaurant Group, Inc.

Founded in 1958, Dallas-based RAVE Restaurant Group [NASDAQ: RAVE] owns, operates, franchises and/or licenses approximately 275 Pie Five Pizza Co. and Pizza Inn restaurants and kiosks 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)

(Unaudited)

     
     
     
     

Three Months Ended

     

September 23,

 

September 24,

     

2018

 

2017

           
           

REVENUES:

$             2,991

 

$            5,433

           

COSTS AND EXPENSES:

     
 

Cost of sales

159

 

2,086

 

General and administrative expenses

1,414

 

2,055

 

Franchise expenses

1,061

 

640

 

Pre-opening expenses

-

 

115

 

Loss/(Gain) on sale of assets

(4)

 

2

 

Impairment of long-lived assets and other lease charges

15

 

148

 

Bad debt

24

 

124

 

Interest expense

25

 

68

 

Depreciation and amortization expense

139

 

314

   

Total costs and expenses

2,833

 

5,552

           

INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES

158

 

(119)

 

Income tax expense

50

 

12

INCOME/(LOSS) FROM CONTINUING OPERATIONS

108

 

(131)

           
 

Loss from discontinued operations, net of taxes

-

 

(225)

NET INCOME / (LOSS)

$                108

 

$              (356)

           

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

     
 

Income / (loss) from continuing operations

$               0.01

 

$             (0.01)

 

Loss from discontinued operations

-

 

(0.02)

 

Net income / (loss)

$               0.01

 

$             (0.03)

           

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

     
           
 

Income / (loss) from continuing operations

$               0.01

 

$             (0.01)

 

Loss from discontinued operations

-

 

(0.02)

 

Net income / (loss)

$               0.01

 

$             (0.03)

           

Weighted average common shares outstanding - basic

15,064

 

11,159

           

Weighted average common and potential dilutive common shares outstanding

15,897

 

11,159

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

 
   

September 23,

 

June 24, 

   

2018 (Unaudited)

 

2018

         

ASSETS

       
         

CURRENT ASSETS

       

   Cash and cash equivalents

 

$                     2,006

 

$       1,386

   Accounts receivable, less allowance for bad debts of $179 and $158, respectively

 

1,357

 

1,518

   Other receivable 

 

-

 

300

   Notes receivable

 

939

 

712

   Inventories

 

6

 

6

   Income tax receivable

 

4

 

5

   Property held for sale

 

467

 

539

   Deferred contract charges

 

15

 

-

   Prepaid expenses and other

 

351

 

273

        Total current assets

 

5,145

 

4,739

         

LONG-TERM ASSETS

       

   Property, plant and equipment, net

 

1,391

 

1,510

   Intangible assets definite-lived, net

 

202

 

212

   Long-term notes receivable

 

791

 

803

   Deferred tax asset, net

 

3,462

 

3,479

   Long-term deferred contract charges

 

221

 

-

   Deposits and other

 

243

 

243

        Total assets

 

$                   11,455

 

$     10,986

         

LIABILITIES AND SHAREHOLDERS' EQUITY

       

CURRENT LIABILITIES

       

   Accounts payable - trade

 

$                        797

 

$          774

   Accrued expenses

 

836

 

1,109

   Deferred rent

 

34

 

32

   Deferred revenues

 

428

 

65

Total current liabilities

 

2,095

 

1,980

         

LONG-TERM LIABILITIES

       

   Convertible notes

 

1,567

 

1,562

   Deferred rent, net of current portion

 

424

 

433

   Deferred revenues, net of current portion

 

2,399

 

670

   Other long-term liabilities

 

48

 

42

        Total liabilities

 

6,533

 

4,687

         
         

SHAREHOLDERS' EQUITY

       

   Common stock, $.01 par value; authorized 26,000,000 shares; issued 22,190,515 and 22,166,674 shares, respectively; outstanding 15,071,311 and 15,047,470 shares, respectively

 

222

 

222

   Additional paid-in capital

 

33,343

 

33,206

   Accumulated deficit

 

(4,007)

 

(2,493)

   Treasury stock at cost

       

     Shares in treasury: 7,119,204 

 

(24,636)

 

(24,636)

        Total shareholders' equity

 

4,922

 

6,299

         

        Total liabilities and shareholders' equity

 

$                   11,455

 

$     10,986

       

RAVE RESTAURANT GROUP, INC.

ADJUSTED EBITDA

(In thousands)

       
       
 

Three Months Ended

 

September 23,

 

September 24,

 

2018

 

2017

 Net income (loss) 

$                108

 

$               (356)

 Interest expense 

25

 

68

 Income taxes 

50

 

12

 Depreciation and amortization 

139

 

314

 EBITDA 

$                322

 

$                  38

 Stock compensation expense 

101

 

10

 Pre-opening costs 

-

 

115

 (Gain)/Loss on sale/disposal of assets 

(4)

 

2

 Impairment of long-lived assets and other lease charges

15

 

148

 Discontinued operations, excluding taxes 

-

 

227

 Closed and non-operating store costs 

22

 

136

 Adjusted EBITDA 

$                456

 

$                676

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

           

Three Months Ended

           

September 23,

 

September 24,

           

2018

 

2017

                 

CASH FLOWS FROM OPERATING ACTIVITIES:

     
 

Net income/(loss)

$                108

 

$               (356)

 

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

     
 
   

Impairment of fixed assets and other assets

-

 

148

   

Stock compensation expense

101

 

10

   

Depreciation and amortization

129

 

304

   

Amortization of intangible assets definite-lived

10

 

10

   

Amortization of debt issue costs

5

 

11

   

Gain/loss on the sale of assets

(4)

 

2

   

Provision for bad debt

24

 

124

 

Changes in operating assets and liabilities:

     
   

Accounts receivable

296

 

529

   

Inventories

-

 

(12)

   

Prepaid expenses, deposits and other, net

(79)

 

(194)

   

Deferred revenue

234

 

(534)

   

Accounts payable - trade

23

 

(907)

   

Deferred tax assets

17

 

-

   

Accrued expenses, deferred rent and other

(274)

 

(183)

   

   Cash provided by (used in) operating activities

590

 

(1,048)

                 
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

     
 

Proceeds from sale of assets

4

 

-

 

Purchase of intangible assets definite-lived

-

 

(7)

 

Capital expenditures

(10)

 

(363)

   

Cash used in investing activities

(6)

 

(370)

                 
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

     
 

Proceeds from sale of stock

36

 

4,943

   

Cash provided by financing activities

36

 

4,943

                 

Net increase in cash and cash equivalents

620

 

3,525

Cash and cash equivalents, beginning of period

1,386

 

451

Cash and cash equivalents, end of period

$             2,006

 

$             3,976

                 
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

     
                 

CASH PAID FOR:

     
   

Interest

$                    2

 

$                     -

   

Income taxes

$                    4

 

$                     -

                 
 

Non-cash activities:

     
   

Capital expenditures included in accounts payable

$                   -

 

$                164

   

Conversion of notes to equity

$                   -

 

$                     -

SOURCE RAVE Restaurant Group, Inc.



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