Diversified Restaurant Holdings, Inc., the largest franchisee for Buffalo Wild Wings and creator and operator of Bagger Dave's Burger Tavern, reported results for the fourth quarter and year ended December 27, and confirmed guidance for fiscal year 2016.

Michael Ansley, president and CEO of Diversified Restaurant Holdings, says, “For 2015, we generated top-line growth of over 34 percent, achieved our fifth year of positive comparable-store sales with a 2.9 percent gain, and met our most recent guidance. We also opened eight restaurants, acquired and began integrating 18 BWW in the St. Louis market, and rationalized our Bagger Dave’s portfolio by closing 11 underperforming locations. All in all, it was a year in which we realized opportunities but also took the necessary steps to position ourselves for a better future.”

Ansley continues, “2016 is a transitional period that we believe will pay long-term benefits for our business and shareholders. Given the overwhelming importance of BWW to our revenue and adjusted EBITDA, it will be our primary focus going forward. Specifically, we will be opening two BWW restaurants this year with 15 additional commitments for BWW development through 2020. We will also be remodeling eight BWW restaurants to the Stadia design this year with plans for all BWW to feature this updated stadium-like look and feel by the end of 2020. Lastly, we will open one Bagger Dave’s restaurant but there is no additional development being considered for this brand. Instead, we will be working to increase sales volumes through our recently deployed menu and improve operations at existing Bagger Dave’s locations.”

Ansley concludes, “We have also identified at least $4 million in savings through recent store closures and associated overhead, vendor consolidation, and other initiatives at both the restaurant and support levels. These cost reduction efforts are expected to bolster margins and will help drive our $36 to $38 million 2016 Adjusted Restaurant EBITDA guidance, a 24 percent to 31 percent increase over 2015. They will also enable us to build cash and strengthen our balance sheet as we grow our top-line.”

Fourth Quarter 2015 Review

For the three months ended December 27, revenue increased 39.7 percent to $49.1 million compared to $35.1 million in the fourth quarter 2014, reflecting a 0.2 percent increase in consolidated comparable-store sales, the acquisition of 18 BWW restaurants, and the opening of eight new restaurants since the end of last year's fourth quarter—three BWW and five Bagger Dave's.

As previously disclosed, comparable-store sales increased 0.8 percent for BWW and decreased 7.8 percent for Bagger Dave’s. BWW achieved its 20th consecutive quarter of positive comparable-store sales despite fewer meaningful sporting events in the MLB, NFL, and NCAA, relevant to our core customer base, compared to the previous year, along with unfavorable calendar shifts related to Halloween and Christmas. Bagger’s Dave’s was similarly affected by these factors in addition to an estimated 4 percent reduction in average ticket due to the full rollout of our plattered menu in September 2015.

Food, beverage, and packaging costs increased 35.5 percent to $13.9 million. As a percentage of revenue, food, beverage, and packaging costs decreased to 28.4 percent of revenue for the fourth quarter 2015 compared to 29.2 percent for the fourth quarter 2014 primarily due to an increase in overall menu price for both concepts and a 4.8 percent decrease in bone-in chicken wing prices to $1.79 per pound compared to $1.88 in the fourth quarter 2014.

Compensation costs increased 45.9 percent to $13.4 million, or 27.2 percent of revenue, compared to 26.1 percent for the year-ago period. On a pro forma basis, excluding the nine restaurants closed during the fourth quarter 2015 and compensation costs including severances, compensation costs were flat year over year. Additionally, investments in labor standards at the remaining 18 Bagger Dave's to ensure guest satisfaction and higher minimum wages were offset by menu price increases taken in September 2015.

Occupancy costs increased 87.8 percent to $4 million, or 8.2 percent of revenue, compared to 6.1 percent for the same quarter last year. Approximately an increase of 110 basis points was primarily due to one-time expense relating to the early lease terminations for the nine restaurants closed during the fourth quarter 2015. Additionally, the nine closed restaurants increased occupancy costs by approximately 40 basis points, these elevated expenses will no longer be a part of DRH's on-going operations.

Other operating costs increased 51.2 percent to $11.5 million, or 23.4 percent of revenue, compared to 21.6 percent a year earlier. The increase as a percentage of revenue reflected one-time investments in the 18 BWW restaurants acquired on June 29, 2015 including several repair and maintenance and supplies expenses in order to elevate them to the Company's operating standards.

General and administrative expenses increased 29.2 percent to $3.2 million, however, as a percentage of revenue, General and administrative expenses decreased to 6.4 percent for the fourth quarter 2015 compared to 6.9 percent for the fourth quarter 2014. This was a result of sales leverage from the 18 BWW restaurant acquisitions in addition to bringing accounting in-house during the fourth quarter 2015. General and administrative expenses adjusted for one-time expenses as a percentage of revenue were 5.7 percent.

Pre-opening costs decreased 34.7 percent to $0.9 million from $1.4 million due to timing of restaurant openings. As a percentage of revenue, pre-opening costs decreased to 1.9 percent compared to 4 percent last year.

Depreciation and amortization increased 71.1 percent to $5.7 million, or 11.7 percent of revenue compared to 9.5% for the same quarter last year. The increase as a percentage of revenue is primarily due to the 18 BWW restaurant acquisitions and underperforming Bagger Dave's which have since been closed or impaired directly impacting approximately 1.2 percent of revenue.

Loss on disposal of property and equipment was $11.2 million for the fourth quarter 2015, of which $10.7 million pertained to the restaurant closures and asset impairment, compared to $0.7 million for the fourth quarter 2014 resulting from disposals from loss on our sale leaseback transaction completed in late 2014.