DavCo 3rd-Q earnings flat; same-store sales off

Nation's Restaurant News, August 28, 1995 by Richard L. Papiernik

CROFTON, Md. -- Wendy's largest franchisee, DavCo Restaurants Inc., cited the damaging effects of fast-food price wars for a decrease in same-store sales and a flat earnings performance in its third quarter.

DavCo reported its same-stores figure down 3.2 percent from the year-ago-quarter figure, producing relatively flat earnings of $2.45 million vs. $2.44 million. Revenue was up 21.7 percent, to $53.7 million from $44.13 million, including the performance of Southern Hospitality Corp., a Nashville, Tenn.-based Wendy's franchisee acquired in September 1994. Earnings per share remained at 34 cents.

"The third quarter was a difficult one for us, as our major competitors continued to draw traffic by heavily discounting their premium sandwiches," said Ronald D. Kirstien, chairman and chief executive of DavCo. In his statement Kirstien said the "continued price discounting and other promotional activities of the company's competitors" hit particularly hard in its Mid-Atlantic market.

Despite the aggressive competitive situation, the 216-unit DavCo said it expects to open 20 to 25 new restaurants during the next 18 months. It opened one new restaurant in the Nashville area during the third quarter. DavCo operates Wendy's restaurants in the Washington, D.C., Nashville and St. Louis metropolitan areas as well as Virginia, Maryland and Illinois.

For the nine-month performance ended July 1 -- including Southern Hospitality results -- DavCo reported an earnings increase of 26 percent, to $5.98 million, on sales up 30 percent, to $155.74 million. In year-to-year comparisons for the nine-month period, comparable-store sales were off 0.3 percent.

According to Kirstien, the company is seeing an improvement in average sales trends during the fourth quarter, "especially when compared to the third quarter."