Del Frisco’s Restaurant stock drops to 7-year low

Del Frisco’s Restaurant Group (DFRG) stock plunged to a 7-year low of $5.18 on Tuesday as investors remained unsatisfied with the restaurant operator’s earnings results for the first quarter of 2019. Traders were concerned that the company could face more costs and expenses in the near future related to the new store opening and marketing campaigns.

The company has been continuing the evaluation of strategic alternatives, which was announced in late December 2018, in a diligent manner with Piper Jaffray and Kirkland & Ellis. The market analysts believed that the stock had been fairly valued during the December time-frame.

Also, the sale process is likely to not create value due to poor capital allocation and inability to drive traffic at their restaurants during December quarter. However, the company expects the year 2019 to remain fairly balanced in terms of risks and opportunities.

For the first quarter of 2019, Del Frisco’s Restaurant slipped to a loss from a profit last year, due to higher costs and expenses. However, consolidated revenues jumped by 64% helped by the contributions from Barcelona Wine Bar and from bartaco. Total comparable restaurant sales increased by 1.3%.

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Along with 2018 restaurant openings, the latest four openings in the first quarter helped the company to create unforgettable dining experiences for the guests while positioning these restaurants to hit their three-year return on invested capital targets of 35% to 40%. In contrast, new restaurant inefficiencies weighed heavily on the results at Double Eagle and bartaco.

For fiscal 2019, the company expects total comparable restaurant sales in the range of 0% to 1.5%. Del Frisco’s predicts seven to eight restaurant openings, consisting of one Del Frisco’s Double Eagle Steakhouse, two to three Barcelona Wine Bars, and three to four bartaco restaurants. Adjusted EBITDA is projected to be $58 million to $66 million.

By the end of fiscal 2023, the company targets generation on an annual basis of at least $800 million in consolidated revenues and $130 million in adjusted EBITDA. For achieving long-term targets, the company has set key annual goals that are required to be satisfied. Those include consolidated revenue growth of at least 10%, total comparable restaurant sales growth of 0% to 2%, net restaurant growth of 10% to 12% annually, and adjusted EBITDA growth of at least 15%.

For the first quarter, the company’s results were driven by a combination of positive underlying momentum in core developed markets enhanced by a recovery in emerging markets and a favorable comparison base. The company remained confident in delivering a positive performance across all key underlying business indicators in 2019.

Shares of Del Frisco’s Restaurant opened flat with the previous day’s close but changed course to the red territory on Tuesday. The stock has fallen over 64% in the past year and over 38% in the past three months.

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