Del Frisco’s Restaurant Group Inc. (NASDAQ:DFRG) on May 7 announced that it has entered into a definitive agreement to acquire Barteca Restaurant Group for $325 million in cash.
The restaurant group also announced first quarter 2018 results.
Consolidated revenues increased 6.5 percent to $89.3 million from $83.9 million primarily due to the additional calendar week in 2018 compared to 2017, the company said. It also announced that total comparable restaurant sales decreased 3.6 percent, consisting of a 9.3 percent decrease in customer counts, partially offset by a 5.7 percent increase in average check.
Barteca consists of two concepts, Barcelona Wine Bar and bartaco, and has 31 restaurants operating across 10 states and Washington, D.C. Bartaco will make its Texas debut at Fort Worth’s WestBend in 2018, offering tacos and cocktails in a 4,853-square-foot space overlooking the Trinity River.
The announcement said that Barcelona, the largest Spanish restaurant concept in the U.S., has 15 restaurants and three under development, and estimates the market potential of Barcelona is between 50 and 100 restaurants domestically. Bartaco has 16 locations and four under development with an estimated market potential of bartaco is between 200 and 300 restaurants domestically.
“We believe Barteca’s innovative and ‘best in class’ concepts are highly complementary and will provide Del Frisco’s portfolio with significant growth and development opportunities. They will provide opportunities to enable us to capture market share in the experiential dining segments, while mitigating the risk of seasonality and economic downturns to our current restaurant portfolio,” said Norman Abdallah, CEO at Irving-based Del Frisco’s Restaurant Group Inc.
The transaction is expected to be completed by the end of Del Frisco’s second quarter, subject to receipt of U.S. antitrust clearance and other customary closing conditions. The proposed transaction does not require approval by Del Frisco’s shareholders.
Del Frisco’s Restaurant Group Inc. owns and operated Del Frisco’s Double Eagle Steakhouse, Del Frisco’s Grille, and Sullivan’s Steakhouse restaurant concepts.
“The first quarter was greatly hindered by severe winter weather in January and March affecting some of our highest volume locations in the Northeast along with one-off events in 2017 such as rolling over the Presidential Inauguration in Washington, D.C., and the Super Bowl in Houston. These factors resulted in approximately $3 million in decreased revenues along with associated cost deleveraging that we estimate negatively impacted net income and adjusted net income by approximately $0.08 each per diluted share,” Abdallah said.
Abdallah said in the news release that cost of sales rose due to menu enhancements and beef price inflation.
“Without the severe weather impact and event timing rollovers, and different timing of marketing costs, we would have posted net income of $0.13 per diluted share and adjusted net income of $0.21 per diluted share,” he said.
Abdallah sales trends have improved in all three Del Frisco’s brands during the first five weeks of the second quarter.
“We believe that this improving momentum, coupled with the timing of the marketing expenses that weighed down the first quarter, positions us within our 2018 guidance range for adjusted net income, exclusive of the impact of the potential divestiture of Sullivan’s and the proposed acquisition of Barteca,” he said.
“While 2017 was a year of transition as we made significant investments, put brand infrastructure in place, and implemented major menu enhancements and cost saving initiatives, 2018 is shaping up to be a year of growth, portfolio optimization, and value creation,” Abdallah said.
Del Frisco’s opened two new grille restaurants in the second half of 2018 and is also pursuing the divestiture of Sullivan’s and closing underperforming grille locations.
“Barteca is highly-complementary to our own vision of celebrating life in restaurants through our multi-brand ‘best in class’ concept strategy and will mitigate the risk of seasonality and economic downturns to our current restaurant portfolio,” he said.