Restaurant Finance Monitor
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As background, we refer our readers to our most recent previous writeups provided below:


The quarter ending 6/30/20, as with most restaurants and retailers, was severely impacted by the coronavirus pandemic. Almost all restaurant companies, other than Domino’s, Wingstop and Papa John’s have reported sharply reduced earnings and cash flow, with balance sheets affected as well. Noble Romans (NROM), small though it may be relative to other publicly held companies, was also an exception to the norm, reporting higher earnings and cash flow. Successful results from the current operating base, combined with a balance sheet that has been sharply improved over the last six months, seems to set the stage for future growth. The current Enterprise Value, with the stock at $0.35-$0.40 per share, is under $20M. Trailing EBITDA has been in the area of $3M annually for several years and should be higher if the new stores perform as expected. The potential for substantial growth for this 50 year old brand would then allow for a materially higher valuation.


Noble Romans reported $696k of net income in Q2, up from $441k a year earlier, with the receipt of a $715k forgivable PPP loan roughly offsetting the same amount of lost sales and incremental expenses. Adding back $323K of interest and $98k of D&A, EBITDA was over $1.1M in Q2 vs. $877k in ‘19. The nature of NROM’s mix of business, including royalty income, the steadily improving (through Q2)  four original Noble Roman’s Craft Pizza and Pub (NRCPP) locations, the addition of the highly successful Brownsburg, IN fifth NRCPP (which opened 3/25/20, and maintained record high volume through Q2), allowed for the performance, detailed further below. One of the most important aspects of this division’s quarter was the steady improvement of the four original locations throughout the quarter, culminating in a (post-quarter) July that was down only 1.99%.

The NRCPP division showed revenues of $1.407M, up from $1.329M. The increase was due to the addition of the Brownsburg location, which opened 3/25 with volume over $50k/week, sustaining a volume in the mid 30k area throughout Q2. The original four NRCPPs bottomed out down 30-33% in early April, improving steadily to single digit negative territory by the end of Q2. Emphasis on the Pizza Valet takeout service, introduced over a year ago, offset the loss of dining room seating. The margin contribution of this division was $602k (42.8%) of sales (subsidized by PPP) vs. $208k (15.7%) in 2019. The directly comparable Cost of Sales expense was 19.8% vs. 20.9%. Packaging Costs were 3.2% (vs. 2.7%) and Delivery fees were 5.2% (vs 1.6%), obviously affected by the recent dominance of takeout and delivery in the quarter.

The franchising division reported revenues of $1.088M, down from $1.62M. Royalties and Fees (from NRCPP franchisees and non-traditional locations) were $914k, down from $1,335k. Royalties and fees from grocery stores were $173k vs. $285k. The non-traditional locations were affected by reduced traffic at locations such as convenience stores and gas stations (which improved through the quarter) and locations such hospitals (with limited visitors and intra-hospital traffic) and entertainment centers that remain closed. Profitability of this division was $820k (75.4% of revenues) down from $1,075k (66.4%), with the PPP loan offsetting the lower volume by subsidizing salaries and wages.

The third division, relatively immaterial in size with one company operated non-traditional location, in a hospital, reported revenues of $111k vs. 160k, with a margin contribution of $34k vs $7k.

Most importantly, the balance sheet is the strongest it has been in many years. Cash was $1.6M vs. $218k at 12/31/19, as a result of the refinancing completed in Q1’20, the receipt of the PPP loan, and almost $1.8M of EBITDA for six months. It is worth noting that, in Q1, interest expense (below the EBITDA line) was abnormally high but about $700k of the $900k was a non-cash writeoff of unamortized loan costs of previous financings. As discussed below, the Company is planning to open several more company operated NRCPPs within the next twelve months.

As outlined in the formal release: the highlights of the quarter included:  the opening of the 5th NRCPP record breaking location in Brownsburg, the signing of a lease for the 6th NRCPP location, and the obtaining of the $715k PPP forgivable loan which helped in the “the avoidance of major financial catastrophe which could have resulted from the shutdown of the economy due to the COVID-19 pandemic.” It was pointed out that the NRCPPs were forced to close dining rooms completely on March 16th. 50% of capacity was allowed on May 11th, 75% on June 14th (with bars open to 50%). 100% was to be allowed on July 4th, but that has been delayed until at least August 27th. Capacity allowances aside, the six foot social distancing requirement holds seating capacity close to 50%, and is still largely dependent on consumer attitudes. The non-traditional venues are still affected by a variety of factors, including continued closures and travel restrictions. As detailed below, commentary on the conference call further described the sales trend.


Paul Mobley, CFO, pointed out that after sales bottomed at the NRCPPs, down 30-33%, there was steady improvement through the quarter to the point that comp sales at the four original NRCPPs were virtually the same in July as a year ago, down 1.99%. At the same time, the Brownsburg location now open over four months, continues to be the best performing company NRCPP location.

The sixth NRCPP location is expected to open, in Greenwood, IN (a suburb of Indianapolis) by the end of the third quarter. The new location in Greenwood will be 3,700 square feet, down from the previous 4,200 square foot model, and close to the new 3,600 square foot prototype. Greenwood will still seat about 160 plus 10 at the bar, will have a separate outdoor dining patio, as well as a separate Pizza Valet station.  A letter of intent has been signed for the 7th company operated NRCPP, and there is also a franchised NRCPP location under construction in Kokomo, IN, to open late in Q3.

Scott Mobley, President, described further how the social distancing requirement has been the primary limitation on seating. The masking requirement has provided a challenge in terms of crew staffing but the Company is managing it, and store management is 100% in place. There have been supply chain challenges, and cheese prices were temporarily at an all time high, but these factors have been overcome as well. Non-traditional franchising has been picking up again, with 14 new agreements signed since 3/31 and ten opened. The new chicken program for non-traditional locations “is making progress, but not as fast as we would like in normal times. We’re now nine units in the program with 10 more units committed and getting started.”

CONCLUSION – provided at the beginning of this update

Roger Lipton