LionEye Capital Still Bullish on Dave’s of America Inc. (DAVE) and Further Raises Stake

According to a recently-amended 13D filing with the U.S. Securities and Exchange Commission, Stephen Raneri’s LionEye Capital Management currently owns 1.24 million shares in Famous Dave’s of America Inc. (NASDAQ:DAVE), which represent 17.7% of the company’s common stock. The position was raised by around 195,600 shares compared to a previous filing.

Famous Dave's Of America

LionEye Capital Management is a New York-based event-driven hedge fund co-founded by Stephen Raneri and Arthur Rosen in 2008. The investment firm primarily seeks out to invest in event-driven, risk arbitrage, and special situation opportunities. Moreover, LionEye Capital is not entirely concerned about the size of the companies it invests in and conducts both external and in-house research when looking for investment opportunities, and employs fundamental and technical analysis when evaluating potential investments. According to its most recent 13F filing, LionEye Capital manages an equity portfolio worth $2.46 billion, whereas its top ten holdings represent 74.26% of its entire portfolio.

Stephen V. Raneri
Stephen V. Raneri
LionEye Capital Management

Professional investors like Stephen Raneri spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap ideas, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 123% and beaten the market by more than 66 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see more details).

Famous Dave’s of America Inc. (NASDAQ:DAVE) is a chain of barbecue restaurants that currently owns 49 locations and franchises 135 additional units in 34 states all around the United States, the Commonwealth of Puerto Rico, and Canada. The company’s stock has dropped by over 42% since the beginning of the year, as the company has been having a hard time living up to its growth potential.

Back in 1997, the founder of Famous Dave’s of America expected that the restaurant chain would own and operate as much as 500 outlets, but it currently has only 184. Analysts believe that the company has failed to live up to its potential because it has been mismanaged for the last decade. Famous Dave’s of America is now on its fourth CEO in three years, which does not show any sign of stability and strong future potential. The company is currently looking for a replacement of Ed Rensi, who stepped down as CEO in June this year. Just a little over a year ago, Ed Rensi stepped in as CEO and intended to inject some dynamism so as to revitalize the struggling barbecue restaurant chain. Rensi has put an end to Famous Dave’s policy of discounting menu items, which is believed to have dragged the company’s profits down. However, this move has hit company’s sales quite hard, partly owning to the departure of some discount-driven customers. Rensi also started to refresh and modernize the restaurants, but all the changes promoted by the already ex-CEO have not gone so well. Meanwhile, Adam Wright, a founder of Blue Clay Capital Management, has recently stepped in as interim CEO of Famous Dave’s.

As already mentioned, the significant changes made by the company’s prior management were not received very well by the company’s customers, which is one of the main reasons Famous Dave’s of America delivered very disappointing second quarter financial results. The barbecue restaurant chain posted a revenue of $37.4 million for the quarter, compared to $41.9 million reported a year ago. At the same time, the company’s net income came at $654,000 last quarter, compared to $2.9 million a year earlier, while earnings per share amounted to $0.09, significantly lower than the $0.39 figure reported a year ago.

Famous Dave’s of America might hold great potential for the future, but it needs the right management that would inject new dynamism and growth into the company’s business. And it seems that LionEye Capital believes that the barbecue restaurant chain will be able to unlock more shareholder value in the upcoming years. Another shareholder that raised its stake in the company a couple of months ago is Charles Davidson’s Wexford Capital, which disclosed holding 1.33 million shares in June.

Disclosure: None