Did Ignite Buy A Lemon In Macaroni Grill?


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Ignite Restaurant Group said late yesterday that comp sales at its two “legacy” brands, Joe’s Crab Shack and Brick House Tavern, grew 1.3 percent last quarter. So why is its stock down 13 percent today? Macaroni Grill. The concept’s same-store sales sales fell 7.4 percent during the period, and that’s not even the worst of it.

The worst? The company said in its release, a pre-release of second quarter earnings, that its earnings would be well under estimates because of efforts Ignite has had to make to get that chain back on its feet. The release said that it would record a net loss per share of between 10 and 12 cents. Its EPS for the quarter will be between 2 and 4 cents per share, well below estimates of 35 cents.

The reason has everything to do with Macaroni Grill. The company had to spend big to improve staffing and marketing to get customers back in the door.

Ignite’s CEO, Ray Blanchette, said that getting Macaroni Grill to “appropriate staffing levels” and increasing media spending “required a greater initial spend than originally expected.”  Ignite spent $2 million on marketing and $4 million to $5 million to increase staff levels 22-24 percent.

Ignite bought Macaroni Grill in February for the seemingly low price of $55 million. And at the time it was considered a turnaround situation: its volumes had fallen from $3 million before the recession to $2.1 million last year.

The good news is that the efforts Ignite made to boost sales appear to be working. Comps fell 11.5 percent in March, but by the first four weeks of the third quarter that decline was just 1 percent. Nevertheless, the release indicates that the task Ignite has in turning around Macaroni Grill will take longer than it thought.

 

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