All posts by Roger Lipton




There aren’t too many publicly held retail stocks that offer an attractive risk/reward relationship, especially since so many have rebounded from pandemic created low points. We would be happy to learn about any other retail companies, with no net debt, that were profitable with a high return on invested capital just a couple of years ago, whose Enterprise Value is about $.03 of the pre-pandemic annual sales dollar. While Francesca’s (FRAN) remains a “workout”, to be sure, and we can’t predict if, and to what extent, the current balance sheet will need to be strengthened (and what form it will take), we have been impressed with new CEO, Andrew Clarke, and his team, as they have navigated through recent challenges. As we describe below: The upside possibility, at some point in the next few years, provides a uniquely positioned chain of 6-700 retail boutiques doing something like $400M of annual sales, generating perhaps $6.00/share or more of annual earnings. It obviously wouldn’t take much of a P/E multiple to generate a handsome return from this starting point.



Francesca’s Holdings, Inc. (FRAN) reported an expectedly poor 2nd quarter, ending 8/1/20, obviously still coping with the effects of the coronavirus pandemic. Since just under 50% of their 700 stores are located in covered malls, the balance including 92 outlet malls,  unpredictable mall traffic remains the single largest impediment to renewed success.

Over the last two years, the stock performance mirrored the poor operating results, as described in our report dated 6/25/20…

FRAN, trading post the July’19 1:12 reverse split, now in single digits ($3.82/share) is down from the equivalent of over $400/share, providing investors with an enterprise value of under $12M. There are only about 3 million shares outstanding, and no “net debt”, so this unusual situation, with sales just three years ago well over $400M and very profitable (over $13.00/share on the current shares), becomes a bet on the Company’s ability to ride through the pandemic (combined with their own fundamental recovery) without the necessity of meaningful dilution of the current share base.

As described in our report in June, referenced above, new management is well qualified and there is a great deal of low hanging fruit. We summarize below the Positives and Negative points at the current juncture.


  • Nobody knows how long it will take (if ever) for mall traffic to come back. With 339 locations, out of 700 in covered malls, this obviously remains a major question mark.
  • While there is no net debt, it remains to be seen whether inventory, labor, rents and payables can be managed through the second half of ’20,  traditionally (especially Q4) the busiest time.
  • Margins have been under pressure for the last 2-3 years, especially the last six months, as management has promoted their way out of store level inventory that included merchandise frozen on the shelves during the pandemic closings. It is uncertain how much of a recovery in margins can be produced, and when.
  • Women’s apparel, especially that to be sold to young women, is an obviously fickle business.
  • Though vendors and landlords have been willing to work with the Company, the extent to which this will remain the case remains to be seen.
  • The 2nd quarter, ending 8/1/20, looks dismal on the surface, though progress (as described below) was also evident. The pretax loss was $13.2M, with a merchandise gross margin of 17.5% vs. 38.2% YTY. While the cash position was $20.2M, up from $14.3M at the end of Q1, this was largely a function of inventories being down about $12M (promotional clearance) and Accounts Payables being up by about $7M. As we indicated above, how far vendors will go in terms of supporting a new inventory build remains to be seen.
  • “Going Concern”, “Evaluating Strategic Alternatives”, “Restructuring Under Bankruptcy” are not terms that investors like to read about, and have again been provided in the Q2 release.


  • Comp sales, excluding stores that were closed for four days in a week during the pandemic, were down a modest 5% in Q2. Since covered malls are just under 50% of locations, and traffic was worst there, it seems likely to us that off-mall location comps were positive. Considering that the sales were highly promotional, and the Company indicated that conversion and Average Unit Retail Sales were higher, anything like positive comps would indicate that the Brand is still a draw, and we make that suggestion after watching young women continue to visit some of the mall stores even during the last few months. Furthermore, if 339 locations are in enclosed malls, many of those are no doubt in “A” malls, so far from all are at long term risk. We suggest that a maximum of perhaps 100 locations might be at risk over the next few years, still leaving 600 nationwide, and providing a unique localized boutique shopping experience. If sales can be rebuilt over time, with a higher online presence offsetting possibly lagging mall revenue progress, this can still be a chain with $400M of revenues or more. If margins rebound in the course of that to only half of those three years ago, and the shares outstanding are the same, that would be something like $6.00 per share.
  • Only time will tell to what extent management can successfully navigate the early stage of FRANs fundamental rebound. There are positive signs, though, which can encourage landlords, lenders, vendors and even equity investors. Ecommerce sales were up 27% in Q2. This continues to be a major long term opportunity, and new CEO, Andrew Clarke, has a strong background in this area. Considering that the major marketing focus in Q2 was  clearance of store level inventory (frozen in late March, April and May), a 27% increase is admirable and this is just the beginning of the effort in this area.
  • Relative to margins: Management indicated that customers are reacting well to fresh merchandise, which is selling closer to full price (with margins predicted to improve in H2), lounge wear and leggings and joggers are among new best sellers, new “tween” customers are newly targeted, and merchandise is being localized relative to climate and style preferences to a much greater degree than ever before. Moreover, management indicated that gross dollars and gross margin percentage improved in July, though sales were still impacted by restrained traffic trends.
  • Fickle though women’s apparel is, the Francesca’s brand was created based on a trend following, a “read and react” approach. Departure from that discipline created most of the problems, and management has returned to their merchandising roots. The localized nature of this national (small footprint) brand is a unique asset, and is further supported by a most impressive store level sales culture that we have described in our previous report.
  • The degree to which vendors, landlords and lenders will “stay the course” remains to be seen, but what is their choice? If the merchandise moves within reason, the product will be sold before the vendors need to be paid, so the “read and react” principle should keep the goods flowing. The landlords can’t find anybody more able to fill that 1,400 square foot box, so why not stick with Francesca’s? The current lenders don’t want to run 700 apparel boutiques, and will largely be paid back from the tax refund, in any event. New debt can likely be raised, the terms of which remain to be seen, since there are hundreds of billions of dollars searching for a yield.
  • We have already discussed above most of the initiatives that the Company is putting in place. The degree to which they will succeed remains to be seen, but management seems to have managed well through the last six months, negotiating with landlords and vendors, managing inventory liquidation to generate the cash for new merchandise, upgrading online sales and setting the stage for a new mobile app.
  • Most of the civilized world is in a “workout” mode, and more companies (and countries) than we can count are illiquid, insolvent, bankrupt or all three. The whole planet is living off the accommodations provided by central banks. “Going Concern” language, and the such are provided by lawyers on a routine basis, whether or not that concern is justified, all part of the CYA routine.

CONCLUSION: Provided at the beginning of this article



The general capital markets were strong in August, both equity and fixed income, as the Fed continues to keep interest rates close to zero and grow the money supply at a double digit rate, M2 running at +24% annualized.  Gold related assets gave back hardly any portion of the year’s gain, even though, with a very strong stock market,  there was no obvious short term need for gold as a presumed “safe haven”.  Gold bullion was down 0.3% in August, gold mining stocks down a touch more. For the year, gold bullion is up almost 30%. The gold mining stocks are up more than that as investors are beginning to allocate a  portion of their assets to the precious metal sector. Our update from two weeks ago describes the value based appeal of gold mining stocks, and how their value has substantially lagged the increase in the price of gold bullion.  As we have said before, this is the very early stage of the resumed bull market in gold related assets.

There has been a number of fiscal/monetary developments within just the last week, none larger than the enlarged role of the Fed Reserve, embedded in the commentary of Chairman Powell last Wednesday.


Chairman, Jerome Powell’s, speech last week summarized the country’s tenuous financial condition, the Federal Reserve’s approach to dealing with the situation, and, most importantly, a revised view of their long term role. Recall that the Federal Reserve was established in 1913, with the primary role of maintaining stable prices while managing the US money supply to alleviate or avoid the financial panics that precluded the Fed’s creation. In the late 1970s, during a period of high unemployment and high inflation (“stagflation”), Congress broadened the Fed’s responsibility, creating the “dual mandate” of (1) encouraging stable prices and  (2) maximum employment, at the same time promoting moderate interest rates. It is on this basis that the presumably apolitical Fed has become increasing important to the US capital markets and the economy as a whole over the last four decades.

Powell’s much anticipated speech expressly described how the previously described 2% annual inflation target (which destroys about 50% of your purchasing power over 30 years) is now to be considered an “average long term” target. This means that if the inflation rate has been running below 2% for a period of time, the Fed will be tolerant of a range above 2% for a similar time. This was presumably the BIG NEWS.  This should not be news to our followers. In August, 2019, we started writing about all Fed governors invariably using the word SYMMETRICAL when describing the 2% target, and we explained what that means. How much above 2% is tolerable, and for how long, is uncertain, and can the Fed even control these parameters once the inflation genie is out of the bottle ? Only time will tell !

THE REAL NEWS: A third mandate is coming. As Powell described it, for the first time publicly, a broad review of economic conditions was put in place, including events called FED LISTENS. Community groups, apparently something like “town halls” talked to Fed representatives around the country, involving “a wide range of participants—workforce development groups, union members, small business owners, residents of low and moderate income communities, retirees, and others—to hear about how our policies affect peoples’ lives and livelihoods”. YOU CAN SEE WHERE THIS IS GOING. “A clear takeaway from these events was the importance of achieving and sustaining a strong job market, particularly for people from low and moderate income communities.” Further along in Powell’s talk last week, as part of the New Statement on Longer Run Goals and Monetary Policy Strategy” – Powell specifically states: “With regard to the employment side of our mandate, our revised statement emphasizes that maximum employment is a broad-based and inclusive goal….particularly for many in low and moderate income communities”.

What this means is: MONEY, trillions of dollars of it, to be printed up by the Fed to purchase the government securities that will finance the huge debts that will increasingly be a drag on future productivity. The Wealth Gap must be addressed, without question, so the Fed is correct to that point. However, inflation, in and of itself. creates  a predictable Wealth Gap. This Wealth Gap has increasingly asserted itself after Richard Nixon eliminated the exchange of US Dollars into gold in August, 1971, and the Fed started managing the money supply more aggressively.  This “third mandate”, now clearly described by Chairman Powell, allows the “fox to continue to be in charge of the henhouse”.


Inflation is coming, and it will not be “controlled” at 2.25% or 2.5%. So far it has been limited to “Assets”, rather than groceries and apparel, but that will change, as it always has. The Fed is now embracing an effort to narrow the Wealth Gap, as described above, but their effort will not succeed.  The well to do have their stocks, bonds, art, real estate, and perhaps even gold, so can largely maintain their purchasing power. Lower and middle class consumers, on the other hand, never quite figure out why the higher nominal amount in their paycheck doesn’t ever catch up with their needs.  Inflation is the cruelest tax, predictably embraced by the politicians (because they don’t get blamed), and the Federal Reserve, which was established to control inflation becomes an accomplice.

It takes a sound currency to support a productive economy that can grow for the benefit of all, and there is no prospect of that any time soon.

Roger Lipton



We have been publishing OpenTable reservation numbers over the last few months, which have been showing a steady improvement, notwithstanding a lull in July. We pulled up the numbers, through yesterday, prepared to update our commentary. Sure enough, the numbers continued to improve over the last two weeks, since we last published on August 10th. Take a look at the table just below, but check out the shocker, last night’s number, August 24th  !! -64%, 12 points worse than last week, and “counter-trend”

What was going on last night ? There were no nationwide snowstorms or tornadoes. There was, however, the first night of the Republican National Convention !  Could this be ? This website has thousands of readers and the last thing we want to do is jump to conclusions, so we dug up the viewership numbers that have so far been released.

On the three major broadcast networks: The DNC drew 5.7M viewers on their first night. The RNC drew 14% fewer, at 4.9M. Compared to four years ago, both were down sharply. The DNC viewership was down as much as 42% on CBS, NBC and ABC. Including Fox and CNN the viewership was down 28% from opening night in 2016. Four years ago the RNC, on the networks, delivered “more than twice” that  of last time, so we assume something over 50%, more than the DNC.

It is not surprising that viewership is a lot less than four years ago, virtual and all. However, here’s the correlation with OpenTable’s materially lower reservations. ON C-SPAN, viewing virtual full coverage, 440,000 people tuned in for the RNC, vs. just 76,000 on the first night of the DNC.  

There are no doubt other numbers we could dig up, but our small staff,  :), doesn’t allow for too much overhead, so further numbers will have to wait.  It seems pretty clear, though, that politically interested viewers, if they are liberal, watched the DNC on the major networks last week, but have much less interest in the RNC. The conservative viewers had no interest in watching the NBC, CBS or ABC version of the DNC last week, or especially the RNC this week on the networks (so the numbers are fairly close).

The even bigger takeaway, however, is that C-SPAN viewership went through the roof for the RNC, six times the number for the DNC, reflecting conservative approval of C-SPAN (along with FOX) and no doubt also reflecting approval from independent voters. 

Just for the heck of it, we thought we would look at the OpenTable numbers, state by state, and see if last night’s dinner reservations seemed consistent with political inclinations. Here’s what we found, and we indicated which way each state went in 2016:

Monday to Monday, the 24th compared with Monday, the 17th: (“Down WTW” means conservative, prefers Domino’s and Wingstop this week to missing the RNC excitement.)

Alabama reservations were down 56% vs. 44%, Trump big in 2016

California was down 84% vs. 66%, Trump huge in 2016, but restaurants shut down again

Connecticut was down only 10% vs 17%: Clinton by 224k votes,  no interest in the RNC

Florida down 57% vs. 54%, Trump by only 113k votes in 2016, close again?

Georgia was down 64% vs. 56%, consistent with Trump by 211k votes in 2016

Illinois  down 65% vs 61%, Clinton by 944k votes, streets unsafe, possibly closer?

Indiana down 45% vs. 41%, Trump (and Pence) by 524k votes in 2016

Kansas down 54% vs. 48% Trump by 244k votes in 2016

Louisiana     down 81% vs 50% Trump by 398k  votes in 2016

Minnesota  down 50% vs 40%, Clinton by 44k votes, Trump in 2020?

Missouri down 53% vs 47%, Trump by 523k votes in 2016

Nebrasa down 59% vs 37%, Trump by 211k votes in 2016

Nevada down 78% vs 48%, Clinton by slim 27k votes in 2016, something going on here?

New Jersey down only 29% vs 35%, no interest in the RNC, Clinton by 546k Votes

New Mexico down 83% vs 68%, Clinton by 66k votes, leaning Trump now??

New York (liberal for sure) flat at down 71%, no way Clinton loses NY

North Carolina 50% vs 52%, Trump by fairly slim 173k votes in 2016, close call now?

Ohio flat at 47%, Trump by 446k votes in 2016, closer today?

Oklahoma down 54% vs 40%, Trump by 528k in 2016

Oregon down 78% vs 56%, Clinton by comfortable 220k votes in 2016, riots today ??

Pennsylvania  down 55% vs 56%, Trump by very close 44k votes, still close

South Carolina down 46% vs 53%, Trump by 300k votes in 2016

Tennessee down 57% vs 50%, Trump by big 652k vote

Texas down 64% vs 51%, Trump by comfortable 807k votes

Utah down 63% vs 39%, Trump by comfortable 204k votes

Virginia down 49% vs 56%, Clinton by 212k votes, could be closer

Washington State down 86% vs 65%, Clinton by big 520k votes, riots? could be closer

Wisconsin down 51% vs. 48%, Trump by close 22k votes, looks close again


We view these numbers as too consistent to ignore, but interpret them as you will, and we would be happy to discuss any or all of this with you, individually. Our conclusion is that the race is by no means a runaway for Biden. There are just not enough states, based on the above indications, that look close to flipping from Trump in 2016 to Biden in 2020. Our guess is that, if the election were held today, it would be a close call. It’s a short time, and a long time, until November 3rd.

Roger Lipton





The big news, after the market close last Friday evening was that Berkshire Hathaway Inc., in the quarter ended 6/30, added $565M of Barrick Gold Corp. (GOLD) to Berkshire’s portfolio. This is a very positive development, not only as a reversal of Buffet’s long held disdain for the “barbaric metal”, but as an endorsement for the ownership of gold mining equities. Buffet has been quoted many times as saying that gold “just sits there”, no dividend, no interest, no growth. With interest rates virtually at zero, gold’s lack of dividend or interest is no longer a drawback. The lack of growth can now be overcome by ownership of a well run mining company that is increasing production and will benefit, in a leveraged way, from an increasing price of their end product. This rationale leads to ownership of Barrick Gold (GOLD) and lots of other possibilities, all of which we continue to own.

EXPECT A DEBATE (got to fill the 24 hour news cycle)

On one hand: $565 Million is a rounding error for Berkshire’s $150B portfolio, far from a major purchase. Barrick is just a gold miner (not gold itself) and the purchase decision was possibly made by one of today’s day to day active portfolio managers at Berkshire, not Buffet himself.

On the other hand: $565M was likely not the end of the buying. It is six or seven weeks since the end of June, the portfolio managers know that Berkshire’s purchase will trigger a great deal of interest not only in GOLD but in the entire gold mining asset class. It is therefore highly likely that more Barrick, and perhaps other mining companies have been bought by now. It is possible also, that Berkshire’s further (perhaps even more substantial) buying contributed to the strong performance since June 30th of the gold mining stocks.  Furthermore, while Buffet himself might not have initiated the move toward gold mining, he was no doubt well aware of the decision and is prepared to defend it.

Parenthetically, it is worth noting that: While Berkshire has purchased a gold mining stock for the first time, sold were billions of dollars worth of JP Morgan Chase, Wells Fargo and Goldman Sachs. Seems like a parallel path to the “money management” activities of worldwide Central Banks, who have continued to buy gold bullion while they reduce (as a percentage of reserves) their holdings of US Treasuries.


We believe Berkshire’s purchase could provide a psychological inflection point. Though gold and the gold miners have performed well for the last eighteen months, and over the long term,  a money manager puts his professional life at risk (and possibly his marriage as well) by owning a controversial gold related security. An institutional money manager can buy any amount of Microsoft or Apple or even Tesla, and his stakeholders won’t be critical if it doesn’t work, especially since so many competing money managers will be suffering the same fate. On the other hand, everybody has an opinion about gold, well informed or not, so a mistake in this area could be fatal.

In essence, Buffet now provides “cover”.



The “cover” that Berkshire’s purchase provides has the potential of unleashing the upside in the gold related asset class, so let’s look at the upside.

The chart just below shows gold bullion as a percent of US Financial Assets. The chart goes only to 2014, and while it is true that gold has come back to over $1900/oz., up about 60%, the other asset classes are up about the same amount, so the relationship shown still exists. With gold bullion about 4% of assets versus a previous high around 16% there is obviously a great deal of catching up to do.

Compound the above chart with that just below which shows how the gold mining stocks have very substantially lagged the price of gold.  As you can see, the miners strongly correlated with bullion until late 2012. It would now take a triple to catch up.


All the reasons that gold bullion has maintained its purchasing power for 3,000 years, for 200 years, for 50 years, for 20 years, all but between 2012 and now, are very much in place. John Maynard Keynes is quoted as saying: “When the facts change, I change my views. What do you do, sir?” The facts are not only the same as eight years ago, but substantially magnified. Warren Buffet, and his portfolio managers, do not make a lot of long term mistakes, and we join them in the view that we are much closer to the beginning of a new bull market in gold related assets than the end.

Roger Lipton



FAT BRANDS INC (FAT), led by CEO, Andrew Wiederhorn, has assembled a group of internationally franchised brands, some better known than others but all of them challenged to varying degrees in recent years. The theory is to leverage operating expertise, marketing power, purchasing scale and administrative costs over independent brands, using an asset light franchising approach (zero company operated locations). Wiederhorn is the controlling shareholder of Fog Cutter Capital Group, Inc., which owns 81% of the common stock of FAT.

The liberal use of debt and preferred stock, as outlined just below, has allowed for the current ownership of:

Fatburger, a burger chain, founded in Los Angeles in 1947, now 168 locations, including 101 co-branded

Buffalo’s, casual dining, wings and classic American platters, GA founded in 1985, now 18 locations

Ponderosa & Bonanza steakhouse, founded in 1960s, now 83 locations

Hurricane Grill & Wings, casual dining, chicken wings, FL  founding in 1995, now 49 locations

Yalla, fast casual, healthy Mediterranean, now 7 locations

Elevation Burger, fast casual with grass fed and organic burgers, 2002 founding, now 41 locations

Systemwide sales in 2019 of these 366 locations (@ 6/30/20) was $395M.


As of 12/31/2019 shareholders’ equity was $5.4M (including goodwill and intangible assets of $55M). Preferred A stock obligation amounted to $15.3M. The current portion of long term debt was $24.5M and the remaining long term portion was $5.2M. Due from affiliates was $26M. The current ratio consisted of $10.5M of current assets and $45.6M of current liabilities.

By 6/30/2020, the balance sheet reflected shareholders’ equity of negative $3.5M (including goodwill and intangible assets of $37M). The Preferred A stock amounted to $15.5M. The current portion of long term debt was reduced to $661k, with the long term portion amounting to $43.9M. Due from affiliates was $34.7M. The current ratio had improved to reflect $10M of current assets against a much reduced $21M of current liabilities. The previous Long Term Debt had been replaced by a face amount of $40M of “Securitization Notes”, netting $37.3M after expenses and discounts, to be repaid from royalties as received. The blended average cash interest rate is 7.75%, which reduces the total weighted average cash cost of debt to 8.49%, decreasing annual interest expense by almost $2M per year.  There is also an “Accordion” feature, allowing for additional acquisition related borrowing.

Post the second quarter, on 7/13/20 FAT raised $8.2M from the sale of 8.25% Series B Preferred Shares and warrants exercisable at $5.00/share. Subsequent to this offering FAT entered into an Agreement to redeem and cancel the remaining Series A Preferred shares. The result was equity increased by $15M, with insiders converting $3M of Series A and accrued dividends into Series B Preferred. Also retired was warrants, exercisable at $7.20, to acquire 554,065 shares.


The first half of calendar ’20 is obviously distorted by the effects of the Coronavirus Pandemic, and the Adjusted EBITDA was a negative $361k. More importantly, the Adjusted EBITDA in calendar ’19 was $7.7M. The Company’s recent presentation talks about 41 additional Fatburger locations since acquisition, integration of Elevation Burger onto the the Fatburger operating platform, a turnaround in Hurricane Grill, from a negative 4.7% comp prior to acquisition to +6.4% in calendar ’19, including +8.3% in Q4’19. The overall portfolio store count has increased from 286 in calendar 2017 to 374 by 12/19 (including acquisitions). Most importantly, demonstrating the efficiency of the multi-brand platform, Total Costs and Expenses as a % of Revenues has come down from 97.7% in ’17 to 62.4% in ’19. It is on this basis that the Company raised $40M with their Securitization and, most recently in Q3, the additional $8.2M.


This “iconic brand”, as FAT management now terms it, has over 300 locations, spread over 129 individual franchise owners, which will bring the FAT portfolio to over 700 units in total. The new systemwide expectation of over $700M implies that the Johnny Rockets locations are expected to annualize at something like $1M per store. The purchase price is $25M, which will paid for by cash on hand plus the Accordion feature of the recent securitization. FAT management stated that they expect this acquisition to allow them to double their current (in calendar ’19) Adjusted EBITDA of $7.7M. The brief audio “conference call”, with no Q&A, described how FAT can leverage their operating platform with new purchasing power of $250M annually (about 30% or so of $700M), marketing (produced and booked internally at FAT), virtual restaurant offerings, dual branding and FAT’s knowledge of “the burger business”.


It is reasonable that Johnny Rockets, which is, indeed, a well known brand, could be reincarnated, even if reduced in size after the pandemic, under the right leadership. However, if it is so promising, why would Sun Capital let it go for $25M, especially when FAT management says it is capable of generating $7 or $8M of EBITDA.

Our guess is that Johnny Rockets is generating no more than a couple of million dollars for Sun Capital, perhaps not much more than breaking even. Sun bought it from RedZone Capital in 2013, who had bought it in 2007. After thirteen years in private equity hands, you can bet that the energy provided by early management is long gone. It is “just a name” to Sun Capital, to be bought and sold, and the $25M can be applied elsewhere. Private equity firms always have liquidity concerns as well, so that might come into play here. If Johnny Rockets is breaking even to earning perhaps $2M for Sun Capital, Fat Brands could probably “adjust” that to a current million or two, and believe they can leverage that over a couple of years to six or seven million of EBITDA. Even if it takes longer, and amounts to only $5M, it would be a worthwhile ROI for FAT. A lot more than their cost of capital. So…..the seller is tired…..and the buyer is optimistic….and liquid enough….and that’s how deals get done.

Let’s watch.

Roger Lipton



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



We continue to monitor closely the  change in dining customer behavior. The OpenTable numbers published daily give us a pretty good idea relative to full service casual dining trends. We are going to survey the reported results of the publicly held chains and the indications they have given us week to week, and we will publish those numbers in the next few days. In the meantime, the OpenTable numbers shown below (which we have lined up day to day), after stagnation from late June to mid July,  provide a clear indication of  improvement in the last three weeks. The trend is especially evident on Friday, Saturday and Sunday evenings (a substantial 9-10 points of improvement), which are the normal more active days of the week.

Furthermore, the chart below shows that more restaurants are taking reservations, but the increase in this statistic is perhaps 5-6 points of improvement.

Our interpretation, since the improvement in sales seems noticeably larger, 9-10 points, vs. perhaps 5-6% more seats available, is that customers are increasingly willing to dine out. We can all speculate on the reasons why: perhaps (1) getting bored with takeout and delivery alternatives (2) a generally more optimist attitude about the economy reopening, more stimulus checks to come?  (3) acceptance of the fact that masks could be a way of life for a while to come so we might as well get on with our lives.

This is not say that full service dining operators are minting money, or that there will not be a great number of restaurants to close. It will be many months before operating cash flow and profits approach the levels of just six months ago. The industry is, however, currently moving in the right direction.

Roger Lipton





The capital markets continued to be supported by the Federal Reserve Bank’s continued accommodation, in its effort to counter the pandemic related slowdown. The Fed’s policy, to do “whatever it takes”, not even “thinking about thinking about” higher interest rates or tighter money, supported most asset classes, including gold bullion (up 10.8% in July, and up 29.8% YTD) and the gold mining stocks (which did even better). Our Investment Partnership’s portfolio, virtually 100% invested in gold mining stocks, has performed in a similar fashion. While we are pleased with the progress, we expect gold miners to continue to outperform bullion on the upside and feel it is only the top of the second inning for the major move to come. While gold bullion is now at an all-time high, the gold miners are still down more than 50% from their highs. We expect bullion to at least triple from here over the next 3-5 years and the gold miners to increase by a multiple of that. All the financial factors that the pandemic has brought into focus and magnified are still in play.

Prominent investment strategists at Goldman Sachs and other investment firms, as well as legendary investors such as Ray Dalio are now recommending gold and gold mining stocks as productive portions of a diversified portfolio. Virtually every point they make we have been discussing every month for seven or eight years. Goldman says gold is the “currency of last resort and there is more downside to come with interest rates”. Dalio points out that “China is an adversary, the dollar’s reserve status is at risk, there is no true ‘price discovery’ as the Fed is buying everything in sight, the deficits and cumulative debt are a huge burden on future economic growth, central bank balance sheets are exploding as they purchase stocks and bonds and gold bullion as well, all of which support an important allocation to gold”. Does any of this sound familiar?

In addition to the debt burden, another factor that slows the growth path is the aging population. The increasing portion of the US population represented by older people, similar to trends in Japan, China, and Europe, is shown in the following charts.

Lastly, an important feature of government spending in the US is the increasing burden of entitlements, social security in particular. Entitlements and defense make up about 75% of government spending, and that’s a major reason why the total budget is mostly (‘baked in the cake”. With everything else going on in the world, it is often forgotten that the social security system was put in place in the 1930s when the average life span of an American male was about 65, which today is about 80. There were also A LOT MORE workers contributing than recipients. The chart just below shows the steady contraction of that ratio, from 3.7 down to the low 2s.

The above chart is impressive….but the following chart shows numbers closer to the 1930s when FDR put the program in place, with 159 workers/recipient in 1940, decreasing to “only” 42 workers by 1945.

Combine the above charts dealing with Social Security with the reality of an aging population. Add to that what might be considered “anecdotal” in terms of our impression of the work ethic of the younger working age population. If “America’s Greatest Generation” of workers is being replaced by today’s youth, perhaps less convinced of the morality of capitalism, it is difficult to picture government spending coming down or GDP and productivity accelerating.

All of this is to say that central banks, around the world, will have no alternative to aggressive monetary accommodation. Governments, similarly, will do likewise with fiscal  measures. We can watch this play out currently on almost a daily basis, and this is at a scale unprecedented in modern business history. Gold bullion, based on many parameters which we have described previously, is as cheap now as it was in 1971, before it went from $35 to $850. At $850 it was likely “ahead of itself” but $300-400 would have been a rational range at that point. Accordingly, 8-10 times the current level, which discounted by 50% would be $8-10,000 per oz., can be justified today. The gold mining companies, leveraged to the price of gold, could (and should) go up by somewhere between two and four times that gain. This is the basis by which we suggest  that the gold mining stocks could increase by 10-20x their current levels.

With gold hitting all-time highs, and the gold miners at seven or eight year highs, you will no doubt hear a number of financial commentators suggest that “the easy money has been made”. Some will suggest taking profits, with an objective of getting back in at a lower level. We suggest that if you owned a stock that had gone from $11 to $20, but you think it will be $80 or $90 or $100 in a few years, would you sell it at $20 to try to buy it back at $19 or $18? Probably not :).

Over the very long term, gold should be considered a “store of value” rather than an “investment”. There is, after all, no dividend or organic growth.  At the present time, however, the investment characteristics of this asset class, substantially lagging the increased nominal prices of almost all others, are too compelling to ignore. That is why our investment partnership is 100% invested by way of the above approach.

Roger Lipton



There is no doubt that traffic and comparable sales numbers have improved substantially from the depression like numbers of late March and April. The country started reopening in late April and May, continued into June, but has largely stalled in July. This generalization applies largely to the full service dining chains. The fast feeders, including so called “fast casual”, have generally continued to improve, especially those with strong off-premise capabilities, and quite a few of those chains are now comping positively.

We find that the Open Table statistics, which are available on a daily basis, provide a reasonably accurate commentary on the state of full service casual dining and retail sales in general. Lots of news organizations provide headlines, but we provide the numbers below, showing the daily declines (going back to the middle of May) in dining reservations, and our readers can interpret the trends for themselves.

It is apparent that reservations improved (the declines decreased) steadily from May through the end of June. The improvement stagnated, however, in July, as some states rolled back their opening plans and some consumers become concerned again by health risk.

It is interesting, and not surprising that, as the chart below shows, the number of dining rooms that are taking reservations has plateaued in July as well. The daily news that describes rollbacks of opening plans in some states, slowing in others, and concerns almost everywhere, leads us to believe that the pace of recovery will be slow, at best. Off the top of our head, now that professional baseball and baseball and golf are available on TV, even without crowds, diners might be happy to hang around the house, even invite a few quiet friends over.  A few fans might go to a local bar, but probably not to Buffalo Wild Wings or Dave & Buster’s. Domino’s still delivers, last I heard.

Lastly, for those readers that like to study numbers even more, we have provided a state by state listing, from Open Table, that shows dining reservations during July. We will continue to provide updates. Let’s watch together.

Roger Lipton