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Small-company earnings roundup: Fat Brands, Diversified Restaurant Holdings, Ark Restaurants, Freshii

Photograph: Shutterstock

Conventional wisdom holds that smaller companies should be more agile and entrepreneurial than their segments’ behemoths, but size didn’t translate into advantage for these operations. Half reported a net loss for their most recent quarter, and positive comp sales were a rarity. Here’s a deeper look.

Fat Burger parent Fat Brands: Loss of $508K on revenues of $5.9M

Despite a 28% upswing in revenues, multi-concept operator Fat Brands posted a second-quarter net loss of $508,000, compared with a net profit of $373,000 for the year-ago period. No reason for the shortfall was provided by management, which stressed the “robust” increase in EBITDA. That figure nearly tripled, to $2.2 million. 

Same-store sales for the franchisor’s various brands were decidedly mixed. Domestic comps for its namesake concept, Fat Burger, slipped 0.6%, while Hurricane Wings generated a comparable sales gain of 4.9%. Fat’s Bonanza and Ponderosa sister brands saw domestic same-store sales slide 2.7%, and Buffalo’s Cafe generated an increase of 0.8%. 

Results were not broken out for Elevation Burger, the 44-unit chain acquired by Fat in June for $10 million. CEO Andy Wiederhorn reiterated the company’s plan to cross-franchise its brands.  

Buffalo Wild Wings franchisee Diversified Restaurant Holdings: 5.8% comps gain

The new leadership of Buffalo Wild Wings’ lone public franchisee posted a same-store sales gain for its 64 restaurants of 5.8%, which Chairman Michael Ansley attributed to a combination of increased delivery business, “favorable sports impact” and improvements in the brand by its franchisor, Inspire Brands. The increase came from gains in both traffic and sales, the company said.

But the gain wasn’t sufficient to restore the company’s profitability. Losses narrowed to $469,800, compared with a shortfall for the year-ago quarter of $1.2 million. Revenues rose 5.1%, to $38.9 million.

Ansley voiced optimism about Inspire’s fall plans for the brand. “Buffalo Wild Wings is getting back to its roots,” he said in the announcement of Diversified’s results. “There will be increased national advertising focused on football and the introduction this month of significant elements in support of the brand relaunch with the rollout of enhanced chicken products.”

The franchisor has already disclosed plans to add boneless wings, hand-breaded tenders and two new chicken sandwiches. It recently reverted to a signature offer of the chain, two-for-one chicken wings on Tuesday nights.

Ansley, who resumed day-to-day management of the company in July following the resignation of David Burke as CEO, reiterated the company’s plan to seek a sale or other strategic alternative. Ansley holds the title of"interim CEO," but the company said through a spokesperson that it is inaccurate to say Diversified is searching for a permanent replacement. 

Severe labor pains for multi-concept operator Ark Restaurants 

New York City-based Ark Restaurants, an operator of 20 full-service restaurants and 19 quick-service outlets nationwide, is holding off on further expansion within its hometown because of the high cost of labor there. “We’re not looking to do anything further in New York,” CEO and founder Mike Weinstein declared, noting that no one in the company’s restaurants there makes less than $15 an hour. 

The state still allows employers to count tips toward the wages due servers, but the minimum outright payment has climbed from $5.50 to $10 an hour. “I have people on average in New York making $40, $50 an hour,” Weinstein lamented. 

Instead, the multi-concept operator is looking at new sorts of business opportunities, including sports betting at the Meadowlands sports complex in New Jersey, where Ark is a contracted facilities manager. It anticipates making $800,000 annually from that endeavor and has already been advanced $7.5 million for the sports-betting rights. 

Ark has also presented a proposal to the operators of a mixed-retail complex in Easton, Ohio. The so-called lifestyle facility is aiming to upgrade its food and beverage offerings, which could involve the opening of 20 to 25 restaurants there over the next five years, Weinstein said. The establishments could either be Ark-owned and -operated, joint ventures or places managed for a fee.

Soaring labor costs held Ark’s net income for the third quarter ending in June to just less than $4 million, a 49% increase from the same quarter of the prior year, on revenues of $44.8 million, which were basically flat from a year go.

Freshii’s comps slip 4%, with a new CFO coming aboard

Same-store sales for the Freshii wellness-oriented limited-service brand slipped 4% for the second quarter, after a year-ago rise of 0.9%. Net income hit $433,000, a 45.3% increase over the year-ago profit, on revenues of $5.8 million, up 4.1%. After the closing of five namesake units during Q2, Freshii now sells its products through 454 restaurants and 278 retail outlets in 16 nations.

In disclosing Q2 results, the company announced that it has hired Daniel Haroun, a veteran of Burger King parent Restaurant Brands International, as CFO, effective Aug. 26.


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