Del Frisco’s to Slow Growth in 2019 as Integration Ramps Up | Food Newsfeed
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Del Frisco Restaurant Group
Is Del Frisco's positioned for an impressive 2019? Executives think so.

Del Frisco’s to Slow Growth in 2019 as Integration Ramps Up

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This past year was an eventful one for the multi-brand company.
By Danny Klein March 2019 Chain Restaurants

Del Frisco’s Restaurant Group entered 2019 a far different company than it began 2018. From just an asset standpoint, the company’s restaurant base upped 20 percent. Even with the purchase of Barteca Restaurant Group (bartaco and Barcelona Wine Bar) on June 27 for $325 million, DFRG still is a relatively small company in the publicly traded restaurant space, with 75 restaurants across 16 states. And last year also included the $32 million sale of Sullivan’s Steakhouse to Romano’s Macaroni Grill on September 24. Those would be company-shaking moves for even the largest multi-brand operator.

Not to mention, 2018 was also defined by activist pressure and the announcement DFRG was conducting “a comprehensive review of strategic alternatives,” a process that could include a possible sale of the company or any of its dining concepts— Del Frisco's Double Eagle Steakhouse, Del Frisco's Grille, and the two Barteca brands.

Needless to say, it was an eventful few months.

During the company’s fourth-quarter review Tuesday afternoon, CEO Norman Abdallah said DFRG was working hard on the review process, but didn’t have an update at this time. Here’s what’s happening currently, though. He said 2019 promises to be a “great year at DFRG.” It will be one focused on driving sustained growth and integrating new assets. It will also slow down from an expansion standpoint.

DFRG said it would open seven to eight restaurants in 2019, down form the 11–13 units it forecasted back in November. That consists of one Double Eagle, two to three Barcelona Wine Bars, and three to four bartacos. A Double Eagle in Century City, California; a Barcelona Wine Bar in Charlotte, North Carolina; and a bartaco in Madison, Wisconsin, have already opened to date.

The company also revealed that it closed three Grilles, two bartacos, and a Chicago Double Eagle in 2018. An additional closure is under consideration, Abdallah said, but, beyond that, no other shutterings are being contemplated. DFRG is hitting the pause button on the Grille concept, where traffic fell north of 7 percent in Q4, in particular. It doesn’t plan to open a unit in 2019 or 2020 “as we seek to optimize our current portfolio and absorb the learnings from a market research conducted in 2017,” Abdallah said.

In the fourth quarter, DFRG saw customer counts drop at three of its four brands, and same-store sales decline at the two legacy concepts and rise slightly at the new ones.

  • Double Eagle: Same-store sales: –0.1 percent; customer counts: –2.6 percent; average check: 2.5 percent
  • Del Frisco’s Grille: Same-store sales: –0.9 percent; customer counts: –7.6 percent; average check: 6.7 percent
  • Barcelona: Same-store sales: 1.9 percent; customer counts: 1.1 percent; average check: 0.8 percent
  • Bartaco: Same-store sales: 1.6 percent; customer counts: –0.1 percent; average check: 1.7 percent

Although still red, year-over-year, the Grille’s 0.9 percent mark was the best for all of 2018 as DFRG sees initial signs of a turnaround that began with a fresh strategy in Q4 2017. At the Grille and Double Eagle brands, private dining sales rose 13.8 percent and 8.9 percent, respectively, year-over-year, “which in our estimation reflected the strength of the business consumer, despite volatile capital markets during the fourth quarter, coupled with effective marketing of our improved banquet menu offerings and our focus on flawless execution,” Abdallah said.

Abdallah added the results at bartaco and Barcelona are “indicative of their smooth integration to DFRG.” Bartaco’s Q4 results were up 7.8 percent in the two months lapping a 2017 incident where hepatitis A exposure temporarily shut down the chain’s Port Chester, New York, location.

For the year, DFRG’s revenues increased 28.7 percent to $378.2 million from $293.8 million as blended same-store sales fell 0.9 percent. The company also reported an adjusted net loss of $1.5 million in Q4, or 4 cents per diluted share, compared to net income of $6.3 million, or 30 cents per share, in the prior-year period.

Returning to the growth, DFRG opened five restaurants in Q4 alone (one Double Eagle, two Grilles, and two bartacos). And, as noted before, the company has debuted three restaurants in Q1 of 2019. Last year’s nine new restaurants (three Double Eagles and Grilles, and three bartacos post acquisition) represented a record run for DFRG. Eight of those took place in the second half of the year as well. The previous year, only one restaurant opened in the entire second half of 2017, and none in the fourth quarter.

Abdallah said it typically takes at least six months for new restaurants to achieve EBITDA margins similar to more mature units, and sales can take 18–36 months to reach maturity. Additionally, DFRG historically does not produce significant upfront buzz around openings “in an effort to generate record sales in the early weeks and months.”

In fact, DFRG limits the number of reservations it takes early on, opens with limited dayparts, and promotes a soft-opening strategy over a grand one. “This enables our teams to better acclimate to their new roles and deliver the high standards of service and attention to detail that differentiates our brands and fosters the building of long-term relationship with our guest,” Abdallah said.

This is why DFRG believes 2019 could be a much brighter year performance wise.

The company expects to complete its integration process of the new brands midway through the year. “Across all four of our brands, we seek to create an environment where our guests can celebrate life through cuisine that is bold and innovative, award-winning wine list, handcrafted specialty cocktails and superior hospitality with each dining occasion,” Abdallah said.

The process includes moving the entire system to DFRG’s HR platform—something that should happen by the end of March. Barcelona and bartaco also need to go live on the company’s accounting system, something Double Eagle and the Grille concept transitioned to at the start of 2019.

One benefit of bringing Barcelona and bartaco into the fold was cost-saving opportunities in G&A and purchasing thanks to greater scale, “combined know-how, and capabilities for best-in-class supply chain,” Abdallah said. They were first projected to sit in the $3–$5 million range. DFRG lifted that guidance to integration benefits of $10 million to be fully realized by 2020 or 2021. About half of that will be G&A related.

“The balance of the integration benefits are anticipated through purchasing savings, new labor management systems and other operating expense efficiencies. We intend to use the benefit of these cost reductions to offset anticipated cost inflation,” he said.