Del Frisco's earnings reveal that its own brands are the real concern, not the Barteca deal investors were worried about.
— Isaac Carey
Del Frisco’s is having trouble attracting customers to its restaurants, bringing to light concerns over the restaurant group’s decision to rapidly grow its recently acquired Barteca brands, Bartaco and Barcelona Wine Bar.
Same-store sales marginally grew 0.1 percent in the fourth quarter compared to last year, according to company earnings released Tuesday. Sales were impacted by a decrease in the number of guests, as the group’s long-time brands Double Eagle and Del Frisco’s Grille reported a significant decline of 2.6 percent and 7.6 percent, respectively. Foot traffic growth at Bartaco and Barcelona Wine Bar remained relatively flat.
“We are particularly excited by the performance of our Barcelona and Bartaco brands and what the growing private dining business can do for the Double Eagle and Del Frisco’s Grille,” said Del Frisco’s CEO Norman Abdallah on an earnings call with analysts. He added that he hoped to “bring in more guests to our restaurants, including those that may have never dined with us in the past.”
Del Frisco’s is pushing ahead on its plan to aggressively open new Barteca brand restaurants, even as investors remain skeptical. Bartaco currently has 19 locations, but plans to open about 11 new units by the end of 2020. Long term, the restaurant group hopes to turn Bartaco into a nationwide chain with as many as 300 units, Abdallah said at Stephen’s investor conference in New York in November. The company will also open two or three Barcelona Wine Bars this year. Meanwhile, Del Frisco’s will continue shuttering underperforming stores, it says. That included two Bartaco locations in 2018.
Maintaining Brand Integrity
In the midst of this ambitious plan, the restaurant group has been struggling with pressure from investors, who are displeased with Del Frisco’s history of underperformance. In a December letter, activist investor Engaged Capital LLC pushed for the company to “explore strategic alternatives,” including selling all or part of the company, and called the Barteca acquisition a mistake.
During the call Tuesday, Abdallah alluded to a new strategy to maximize shareholder value, but would not comment further.
The logistics and onboarding of the newly-acquired Barteca brands will be complete by the middle of 2019, according to Del Frisco’s. But the restaurant group promises to preserve what makes each brand unique, minus some minor alterations to Bartaco. For one, Sabato Sagaria has kept his role as president of Barteca, continuing to run restaurants while reporting to Abdallah.
“I’ll give you one example. We have kept the process that [Barcelona Wine Bar] has in place on food and development, with 60 percent of their menu being driven by executive chefs every day,” Abdallah said, adding that since the restaurant prides itself on locally purchased food, “that’s something we’re not going to touch.”
Company revenue increased 23.3 percent in the fourth quarter, to $123.8 million from $100.4 million a year prior, slightly missing analyst expectations. Comparable-store sales at Bartaco and Barcelona increased 1.9 percent and 1.6 percent respectively.