We have written a number of times about Fogo de Chao’, which has been in registration for about eighteen months, waiting for the “window to open” for restaurant IPOs. Over that period the general market has been weak, and the poor performance of a number of restaurant IPOs just before Fogo’s filing has clearly cooled the appetite for new growth names within the restaurant space.
Our previous articles, which can be accessed by way of the SEARCH function on our HOME PAGE detail the important points of the FOGO story, which, in every material aspect, are still in place.
As presented in the most recent updated SEC filing:
As provided within the financials that run through Q1’23, FOGO’s performance over the last several years is a testimonial as to how well positioned the Company is on a going forward basis. The chart just below describes the dramatic improvement in unit level economics from pre-COVIC calendar ’19 until today. The second chart shows the changes in operating income over the same period.
Cash on Cash returns at the store level improved from an adequately impressive 43% in ’19 to well over 50% currently. Moreover, the continued strong performance in Q1’23 vs. Q1’22 gives every indication that this performance can be sustained.
The operating history just below shows Operating Income moving from $34M in calendar ’19, to a COVID driven loss of $48M, then a rebound to $56M in ‘21, a further gain to $63M in ’22, and (after adding back a $1.1M loss from extinguishment of debt), an increase of 27% in Q1’23.
TAKEAWAY FROM UPDATED RESULTS
There is no magic in the restaurant industry. There are lots of fundamental reasons, many of which we have previously described (and will again), that this “experiential”, “value driven” concept seems well positioned to sustain the exceptional performance of the last several years. Putting it simplisticly, when cash on cash returns in excess of 50% are available, with experienced dedicated management in place and lots of room for expansion, strong financial results tend to be the result.
CONCLUSION
We are not suggesting that operating income or EBITDA will more than double again in three years, more likely in five. We will update the details within our previous FOGO articles when the timing of the IPO is clarified. For the moment, we reiterate that, depending on valuation, FOGO could be one of the more interesting restaurant industry investment opportunities that we have observed in recent years.
Roger Lipton