RAVE Restaurant Group Results

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

RAVE reports growth in comparable store retail sales and net income

RAVE Restaurant Group

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

Second Quarter Highlights:

  • RAVE total comparable store domestic retail sales increased 0.8% in the second quarter of fiscal 2019 compared to the same period of the prior year.
  • Pizza Inn domestic comparable store retail sales increased 2.7% in the second quarter of fiscal 2019 compared to the same period of the prior year, while total Pizza Inn domestic retail sales increased 1.8%.
  • Pie Five comparable store retail sales decreased 3.6% in the second quarter of fiscal 2019 compared to the same period of the prior year, while total system-wide Pie Five retail sales decreased 11.5% primarily due to a decrease in average units open during the quarter.
  • Total revenue decreased by $1.0 million to $3.2 million for the second quarter of fiscal 2019 compared to $4.2 million for the same period of the prior year primarily driven by reduced Company-owned restaurant count and retail sales.
  • Net income improved by $0.8 million to $0.2 million for the second quarter of fiscal 2019 compared to a net loss of $0.6 million for the same period of the prior year.
  • On a fully diluted basis, the Company had net income of $0.02 per share for the second quarter of fiscal 2019 compared to a net loss of $0.04 per share for the same period of the prior year.
  • Adjusted EBITDA of $0.6 million for the second quarter of fiscal 2019 increased $0.7 million from the same period of the prior year.
  • Pizza Inn domestic unit count finished at 148.
  • Pizza Inn international unit count finished at 48.
  • PIE domestic unit count finished at 7.
  • Pie Five domestic unit count finished at 65.

"We're proud to deliver our third consecutive quarter of growth in comparable store sales and profitability," said Scott Crane, Chief Executive Officer for RAVE Restaurant Group, Inc. "Our second quarter results demonstrate that our strategic plan is firmly on track. With the recent promotions of Bob Bafundo to President and Andrea Allen to Chief Accounting and Administrative Officer at Rave, we feel we have a talented team in place to build success.  Bob has been instrumental in shoring up our franchise base at Pizza Inn and has already made great strides with Pie Five franchisees. Investments in new menu offerings, updated technologies, and operational processes give us confidence in our ability to continue to deliver results for our consumers, franchisees, and shareholders. Our teams continue to focus on sales growth for all of our brands and we are adding franchise development resources to continue expansion of Pizza Inn, Pie Five, and our newest concept, PIE."

Second Quarter and Year to Date Fiscal 2019 Operating Results 

Pizza Inn comparable store and total domestic retail sales increased by 2.7% and 1.8%, respectively, during the second quarter of fiscal 2019 compared to the same period of the prior year. Year to date, Pizza Inn comparable store and total domestic retail sales increased by 2.5% and 1.1%, respectively, compared to the same period of the prior year.

"Pizza Inn had its eighth consecutive quarter of growth in comparable store retail sales," said Bob Bafundo, President of RAVE Restaurant Group, Inc.  "This momentum continues to be driven by the key initiatives in our strategy including all-day buffet, online ordering, Rewards program, and recently remodeled franchise locations.  All day buffet, now more than 14 months beyond rollout, continues to drive transactions, especially in off-peak periods such as afternoons and late evenings. We are in our third consecutive year of double digit growth in online ordering sales and recent investments in new technology should continue to build on this trend.  Pizza Inn's Rewards program continues to build membership while improving frequency and average check.  In addition, many of our legacy franchisees are investing in the future of the brand by remodeling their restaurants. Since releasing our new design and décor packages last year, we've completed five remodels averaging 19% sales growth year over year and have seven more in the pipeline."

The Company continued its rollout of Pizza Inn Express, or PIE, that debuted in 2018 with two additional units in the second quarter of fiscal 2019 bringing the unit count to seven at the end of the quarter.

"As the country learns more about PIE, our pipeline of potential multi-unit licensees is growing," said Bafundo. "PIE is opening us up to opportunities to design food service solutions that will work for licensees in their unique, non-traditional settings including travel centers, convenience stores, airports, and universities. We see endless possibilities and applications for the PIE model. In fact, we've already been approached by retail prospects interested in adding PIE as an enhancement to their existing menus. We're proud of the progress to date, but we're still in the early stages of expanding the brand."

Pie Five comparable store and system-wide retail sales decreased by 3.6% and 11.5%, respectively, for the second quarter of fiscal 2019 compared to the same period of the prior year. Year to date, Pie Five comparable store and system-wide retail sales decreased by 2.7% and 8.8%, respectively, compared to the same period of the prior year.

"With consumer research showing changing consumer preferences, Pie Five is shifting towards a business model focused on delivery, online ordering, carry-out and drive thru initiatives," said Bafundo.  "Our menu mix data validates that this strategy is working and led us to create the 'Goldilocks' prototype that delivers a more efficient model that highlights off-premise dining options.  As expansion continues for this new model and we build on improved unit economics, the Pie Five system will only get stronger."

Consolidated revenues of $3.2 million and $6.2 million for the second quarter and year to date fiscal 2019 were 23.9% and 35.8% lower, respectively, than the same periods of the prior year. The decrease in total revenues was primarily driven by the reduction in the number of Company-owned restaurants partially offset by changes in revenue recognition as a result of adoption of ASU 2014-09 and Topic 606. 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 December 23, 2018 filed with the SEC.

For the three and six month periods ended December 23, 2018, the Company reported net income of $0.2 million and $0.3 million, respectively, compared to a loss of $0.6 million and $0.9 million for the same periods of the prior year. On a fully diluted basis, net income was $0.02 per share for both the second quarter and year to date fiscal 2019, compared to a net loss of $0.04 per share and $0.07 per share for the same periods of the prior year.  The increase for both periods was primarily due to improvements in the Company-owned restaurants segment and reduced general and administrative expenses.

"Our second quarter and year to date results demonstrate the capabilities of our strengthened corporate structure and the strides that we've made over the past two years," said Crane. "Efforts to consolidate operations, including closing underperforming restaurants and upgrading technologies, have made our performance less volatile and more predictable. We've shored up the balance sheet, improved our cash position, and are generating positive cash flows from operations."

Development Review

During the second quarter of fiscal 2019, the Pizza Inn domestic unit count increased by two to 155 units, including 7 PIE units, while international units decreased by three to 48 units.

"Due to strong average unit volumes and legacy franchisee development, we are on track to deliver budgeted openings for Pizza Inn restaurants," said Bafundo. "We will be announcing new commitments later this quarter and also additional plans for remodeling existing locations."

In the second quarter of fiscal 2019, Pie Five opened two new domestic units.  Eight Pie Five domestic units closed during the quarter, bringing the domestic unit count to 65 restaurants at the end of the quarter.

"At Pie Five, we're addressing restaurant-level challenges and stabilizing the system for future growth," said Bafundo. "We are confident that Pie Five is starting to gain positive traction with these initiatives. Although we anticipate additional consolidation from first generation restaurants, we continue to have strong interest in the 'Goldilocks' model including several development opportunities in the pipeline."

About RAVE Restaurant Group, Inc.

Founded in 1958, Dallas-based RAVE Restaurant Group [NASDAQ: RAVE] owns, operates, franchises and/or licenses approximately 268 Pie Five Pizza Co. and Pizza Inn restaurants and Pizza Inn Express 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. Pizza Inn Express, or PIE, is developing unique opportunities to provide freshly made pizza from non-traditional outlets. 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

Six Months Ended

December 23,

December 24,

December 23,

December 24,

2018

2017

2018

2017

REVENUES:

$            3,195

$            4,197

$            6,186

$            9,629

COSTS AND EXPENSES:

Cost of sales

174

1,055

333

3,142

General and administrative expenses

1,640

2,017

3,054

4,111

Franchise expenses

892

743

1,953

1,344

Pre-opening expenses

-

(1)

-

114

Gain on sale of assets

(350)

(166)

(354)

(165)

Impairment of long-lived assets and other lease charges

155

533

170

681

Bad debt

171

89

195

213

Interest expense

26

63

51

131

Depreciation and amortization expense

126

288

265

600

Total costs and expenses

2,834

4,621

5,667

10,171

INCOME/(LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES

361

(424)

519

(542)

Income tax expense/(benefit)

129

(27)

179

(14)

INCOME/(LOSS) FROM CONTINUING OPERATIONS

232

(397)

340

(528)

Loss from discontinued operations, net of taxes

-

(180)

-

(405)

NET INCOME / (LOSS)

$               232

$              (577)

$               340

$              (933)

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

Income / (loss) from continuing operations

$              0.02

$             (0.03)

$              0.02

$             (0.04)

Loss from discontinued operations

-

(0.01)

-

(0.03)

Net income / (loss)

$              0.02

$             (0.04)

$              0.02

$             (0.07)

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

Income / (loss) from continuing operations

$              0.02

$             (0.03)

$              0.02

$             (0.04)

Loss from discontinued operations

-

(0.01)

-

(0.03)

Net income / (loss)

$              0.02

$             (0.04)

$              0.02

$             (0.07)

Weighted average common shares outstanding - basic

15,071

14,344

15,068

12,742

Weighted average common and potential dilutive common shares outstanding

15,904

14,344

15,901

12,742

See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

December 23,

June 24, 

2018 (Unaudited)

2018

ASSETS

CURRENT ASSETS

   Cash and cash equivalents

$                   1,906

$    1,386

   Accounts receivable, less allowance for bad debts of $164 and $158, respectively

1,520

1,518

   Other receivable 

-

300

   Notes receivable, less allowance of bad debt of $186 and $0, respectively

798

712

   Inventories

6

6

   Income tax receivable

-

5

   Property held for sale

496

539

   Deferred contract charges

28

-

   Prepaid expenses and other

410

273

        Total current assets

5,164

4,739

LONG-TERM ASSETS

   Property, plant and equipment, net

1,300

1,510

   Intangible assets definite-lived, net

203

212

   Long-term notes receivable

1,017

803

   Deferred tax asset, net

3,334

3,479

   Long-term deferred contract charges

189

-

   Deposits and other

243

243

     Total assets

$                 11,450

$  10,986

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

   Accounts payable - trade

$                      285

$       421

   Accounts payable - lease termination impairments

488

353

   Accrued expenses

914

1,109

   Deferred rent

37

32

   Deferred revenues

267

65

     Total current liabilities

1,991

1,980

LONG-TERM LIABILITIES

   Convertible notes

1,574

1,562

   Deferred rent, net of current portion

415

433

   Deferred revenues, net of current portion

2,088

670

   Other long-term liabilities

51

42

     Total liabilities

6,119

4,687

COMMITMENTS AND CONTINGENCIES (SEE NOTE 3 in Form 10-Q)

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

33,520

33,206

   Accumulated deficit

(3,775)

(2,493)

   Treasury stock at cost

     Shares in treasury: 7,119,204 

(24,636)

(24,636)

        Total shareholders' equity

5,331

6,299

        Total liabilities and shareholders' equity

$                 11,450

$  10,986

See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

RAVE RESTAURANT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Six Months Ended

December 23,

December 24,

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income/(loss)

$               340

$              (933)

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

Impairment of fixed assets and other assets

170

681

Stock compensation expense

281

19

Depreciation and amortization

245

581

Amortization of intangible assets definite-lived

20

19

Amortization of debt issue costs

12

23

Gain/loss on the sale of assets

(354)

(165)

Provision for bad debt (accounts receivable)

6

213

Provision for bad debt (notes receivable)

186

-

Changes in operating assets and liabilities:

Accounts receivable

268

1,376

Operating notes receivable

(200)

-

Inventories

-

60

Prepaid expenses, deposits and other, net

(137)

(150)

Deferred revenue

(219)

(690)

Accounts payable - trade

(136)

(2,770)

Accounts payable - lease termination impairments

(35)

(897)

Deferred tax assets

145

-

Accrued expenses, deferred rent and other

(199)

(841)

   Cash provided by (used in) operating activities

393

(3,474)

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of assets

140

939

Purchase of intangible assets definite-lived

-

(9)

Capital expenditures

(46)

(421)

Cash provided by investing activities

94

509

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from sale of stock

36

4,942

Expenses from sale of stock

(3)

-

Net change in other debt

-

(1,000)

Cash provided by financing activities

33

3,942

Net increase in cash and cash equivalents

520

977

Cash and cash equivalents, beginning of period

1,386

451

Cash and cash equivalents, end of period

$            1,906

$            1,428

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

CASH PAID FOR:

Interest

$                   3

$               115

Income taxes

$               145

$                 48

Non-cash activities:

Capital expenditures included in accounts payable

$                  -

$               125

See Notes to Unaudited Condensed Consolidated Financial Statements within Form 10-Q.

RAVE RESTAURANT GROUP, INC.

ADJUSTED EBITDA

(In thousands)

Three Months Ended

Six Months Ended

December 23,

December 24,

December 23,

December 24,

2018

2017

2018

2017

Net income (loss) 

$               232

$              (577)

$               340

$              (933)

Interest expense 

26

63

51

131

Income taxes 

129

(27)

179

(14)

Depreciation and amortization 

126

288

265

600

EBITDA 

$               513

$              (253)

$               835

$              (216)

Stock compensation expense 

180

10

281

19

Pre-opening costs 

-

(1)

-

114

Gain on sale/disposal of assets 

(350)

(166)

(354)

(165)

Impairment of long-lived assets and other lease charges

155

533

170

681

Discontinued operations, excluding taxes 

-

180

-

408

Closed and non-operating store costs 

59

(471)

81

(336)

Adjusted EBITDA 

$               557

$              (168)

$            1,013

$               505

SOURCE RAVE Restaurant Group, Inc.



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