Market Overview

Diversified Restaurant Holdings Reports 4.2% Increase in Same-Store Sales for First Quarter 2019

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Comparable sales continue to trend positive in the second quarter,
up 7.7% before Easter shift and 4.6% after, with both traffic and
average ticket up

Diversified
Restaurant Holdings, Inc.
(NASDAQ:SAUC) ("DRH" or the
"Company"), one of the largest franchisees for Buffalo Wild Wings®
("BWW") with 64 stores across five states, today announced results for
its first quarter ended March 31, 2019.

First Quarter Information (compared with prior-year period
unless otherwise noted)

  • Revenue totaled $40.6 million, up 2.6% despite one fewer restaurant
  • Same-store sales increased 4.2%
  • Net income was $0.1 million
  • Restaurant-level EBITDA(1) was $6.4 million or 15.7%
    of sales
  • Adjusted EBITDA(1) was $4.5 million or 11.1% of sales
  • Total debt of $99.5 million was down $3.0 million for the year-to-date
    period

(1) See attached table for a reconciliation of
GAAP net income to Restaurant-level EBITDA and Adjusted EBITDA

"The increase in our first quarter sales, particularly the strong trend
in March that has continued into the second quarter, is an exciting
indication of things to come for the BWW brand. Despite headwinds early
in the quarter due to severe winter weather hindering sales for two
entire football playoff weekends in each of our three core Midwest
markets, the quarter was our second consecutive positive result for
same-store sales. Our focus on perfecting the execution of the delivery
channel continues to pay-off, as delivery led the way for us early in
the quarter. However, as the new brand media and product launches began
in mid-March, we finally saw our dine-in traffic turn positive. In fact,
since those launches, our dine-in same-store sales through the end of
last week are up 3.0%," commented David G. Burke, President and CEO.

"While we are disappointed that the revenue increase didn't convert well
to earnings this quarter, we are much more optimistic about the future.
Cost of sales, labor and delivery expenses were all headwinds in the
quarter as traditional wing prices were higher than expected and labor
cost headwinds remain a concern. On the labor front, we made significant
investments in training during the quarter around new brand initiatives,
and while we don't expect these to be permanent costs, certain of these
initiatives will also impact our labor line in the second quarter.
Additionally, we implemented a menu price increase at the tail end of
the quarter that will help to alleviate these pressures, and we are
successfully and meaningfully driving down our delivery costs while
continuing to ramp up sales. We have also taken another hard look at our
G&A expenses, and will be executing reductions in the next several weeks
approaching $1 million on an annualized basis. We expect these
reductions to drive overhead expenses below 5% of sales for this year,
and closer to 4.5% in future years when we get the full benefit of the
reductions."

                             
First Quarter Results
(Unaudited, $ in thousands) Q1 2019 Q1 2018 Change % Change
Revenue $ 40,568.1 $ 39,533.0 $ 1,035.1 2.6 %
Operating profit $ 1,537.5 $ 1,471.9 $ 65.6 4.6 %
Operating margin 3.8 % 3.7 %
Net Income $ 55.4   $ 159.9   $ (104.5 ) (65.4 )%
Net income per share $   $ 0.01   $ (0.01 ) (100.0 )%
 
Same-store sales 4.2 % (8.5 )%
 
Restaurant-level EBITDA(1) $ 6,378.9 $ 6,898.1 $ (519.2 ) (7.5 )%
Restaurant-level EBITDA margin 15.7 % 17.4 %
Adjusted EBITDA(2) $
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