Two top executives at Diversified Restaurant Holdings—one of the largest Buffalo Wild Wings franchisees—resigned as part of a restructuring, the company announced July 3. Chief executive officer David G. Burke, who joined DRH in 2010 as CFO and held his current role since 2016, stepped down. So did CFO Phyllis Knight after a three-year stint. Burke also resigned his position as director. The moves took effect June 27.
DRH’s executive chairman of the board, Michael Ansley, is serving as interim CEO. He’s the company’s founder and largest shareholder and has operated Buffalo Wild Wings franchises for more than 20 years. Burke succeeded Ansley three years ago when DRH spun off Bagger Dave’s.
Controller Toni Werner, a DRH employee since 2014, will assume the role of interim CFO.
DRH, which runs 64 franchises in Florida, Illinois, Indiana, Michigan, and Missouri, said the upcoming restructuring would focus on cost-saving measures. The company expects to reduce annual costs by about $1.5 million, it said. Charges related to the restructuring, including about $400,000 in non-recurring expenses taken in the first quarter of 2019, will hover around $2 million through Q2.
“These changes and the dedication of the DRH team are a true testament to our belief in the opportunities for our business as we support Inspire Brands’ efforts to reignite Buffalo Wild Wings,” Ansley said in a statement. “We are excited about the changes and investments being made by Inspire Brands.”
He added that DRH’s efforts, in addition to the leadership changes, would turn to restructuring the company’s debt, growing sales, and leveraging its infrastructure.
On June 19, DRH reported preliminary second quarter results, including same-store sales gains of 7.2 percent, year-over-year. The Buffalo Wild Wings franchisee has posted three consecutive periods of comps growth and has also seen gains in traffic and average check.
However, DRH reported total debt of $99.5 million in the first quarter. The company received a “going concern warning” from auditors earlier in 2019. And it’s previously acknowledged being in danger of missing loan covenants.
Burke said in the company’s Q1 review that DRH continues to pay down debt—it was $3 million less for the year-to-date period at the time.
He added the company was reevaluating “various alternatives,” to refinance its existing debt after Buffalo Wild Wings exercised its right of first refusal when DRH tried to acquire nine sports bars in the Chicago market. The transaction was a part of DRH’s broader debt refinancing strategy, Burke said.
Knight added DRH used $4.7 million of cash from operations last quarter to reduce its debt level by $3 million. The company said it was discussing refinancing options with lenders and also considering equity financing.
DRH had net income of $55,400 in the first quarter, down 65 percent from the year-ago period. Restaurant-level EBITDA was 6.4 million or 15.7 percent of sales. Adjusted EBITDA came in at 4.5 million, or 11.1 percent of sales.
The company’s same-store sales climbed 4.2 percent in Q1, driven by a 4.9 percent boost in traffic. Before turning positive in Q4 2018, DRH hadn’t reported a green quarterly comp figure in three years.
DRH has lauded some of Inspire Brand’s changes since buying the chain for $2.9 billion in November 2018.
This includes menu and bar changes, a new store design, marketing platforms stressing the guest experience, and new branding elements, like fresh glassware and hipper server uniforms.
Burke said in June DRH was pleased with strong traffic levels “given reduced promotional activity and recent menu price increases to combat inflationary pressures,” he said. “While the Easter shift negatively impacted comparable sales in April, the latest BWW brand enhancing initiatives, a favorable sports calendar and our focus on guest experience, loyalty attachment and development of the delivery channel helped drive an accelerated rate of growth well into this year’s second quarter.”