Two top executives are out at Diversified Restaurant Holdings amid a restructuring program designed to save costs as the big Buffalo Wild Wings franchisee works to avoid falling short of financial requirements in its lending agreements.
David Burke, who had been CEO of the company since 2016, resigned along with CFO Phyllis Knight, who had been in that position since 2016.
Michael Ansley, Diversified’s founder and executive chairman, has been named interim CEO. Toni Werner, the company’s controller, has been named interim CFO.
The 64-unit operator also announced a restructuring program designed to save $1.5 million in annual costs.
The changes come despite improving sales for the Southfield, Mich.-based company, which last month said that its quarter-to-date same-store sales are up 7.2% as its brand regains customers following a difficult 2018.
“We are excited about the changes and investments being made by (Buffalo Wild Wings owner) Inspire Brands,” Ansley said in a statement.
But the company also has a considerable amount of debt and is in danger of missing its loan covenants.
Diversified received a going concern warning from its auditors earlier this year because of its heavy debt load. The company is projecting falling short of covenants in its loan agreements by the fall of this year.
Diversified has been paying down its loans but still has nearly $100 million of debt that comes due in 2020. The company said in its first-quarter earnings report that it is in discussions with lenders on a refinancing, but it is also looking at other alternatives, including equity financing.
Diversified reported net income of $55,400 in the first quarter ended March 31, down 65% from the same period a year ago. Restaurant-level EBITDA margin, or earnings before interest, taxes, depreciation and amortization, declined to 15.7% of revenues from 17.4% a year ago.
EBITDA margin for the company thinned to 11.1%, from 12.8%.
Ansley said that the company’s priorities “continue to be the restructuring of our debt, growing sales and leveraging our infrastructure.”
Stock in Diversified Restaurant Holdings has been below $1 a share since last November, when it hit a 52-week high of $1.55. The company’s stock has lost half of its value since then.
Werner has been with Diversified since 2014. She began her career 20 years ago with Deloitte & Touche and has also worked with PulteGroup.
Burke had been with Diversified since 2010, when he was named CFO. He took over the CEO job from Ansley in 2016, when Diversified spun off its Bagger Dave’s burger concept and Ansley went with that company.
But Bagger Dave’s has struggled with losses of its own, and the chain, which at one point had 26 locations, is down to nine.