WINMARK (WINA)
https://www.liptonfinancialservices.com/2023/03/winmark-corporation-wina/
CRACKER BARREL (CBRL)
https://www.liptonfinancialservices.com/2023/03/cracker-barrell-cbrl-write-up/
JACK IN THE BOX (JACK)
https://www.liptonfinancialservices.com/2023/03/jack-in-the-box-updated-write-up/
DINE BRANDS (DIN)
https://www.liptonfinancialservices.com/2023/03/dine-brands-global-din/
INCLUDED IN YOUR ANNUAL SUBSCRIPTION:
INCLUDED IN YOUR ANNUAL SUBSCRIPTION:
INCLUDED IN YOUR ANNUAL SUBSCRIPTION:
INCLUDED IN YOUR ANNUAL SUBSCRIPTION:
Regarding companies previously reporting:
Two rating changes, Portillo’s and Cracker Barrel upgraded from Hold to Buy
Analysts remain positive on Red Robin, BurgerFi, McDonald’s and European Wax Center.
REPORTED IN PAST WEEK – ONLY BURGERFI – announced on 3/20, reported on 3/22
Conference call transcripts are below for all companies reporting in prior weeks with ratings changes (Portillo’s and Cracker Barrel), or initiations (None) and companies reporting in THE WEEK THAT WAS (BurgerFi).
Portillo’s
https://seekingalpha.com/article/4584031-portillos-inc-ptlo-q4-2022-earnings-call-transcript
https://seekingalpha.com/article/4583801-portillos-inc-2022-q4-results-earnings-call-presentation
Cracker Barrel
BurgerFi
THE WEEK TO COME
Fogo de Chao’ filed an updated S-1 last Friday, bringing their financials up to date through calendar ’22. It is problematic whether an IPO is in their short term future, considering the turmoil in capital markets, but they obviously hope to rejoin the public marketplace as soon as it is practical.
We have written about Fogo regularly since their initial filing in mid-2021, which readers can access with the SEARCH function on our HOME PAGE.
CONCLUSION
This report, bringing up to date the developments at Fogo de Chao’ based on the newly filed S-1, is an interim step prior to the possibility of an IPO. The first S-1 was filed about eighteen months ago, and we have provided a series of commentaries since then. The Company and their owner, the Rhone Group, obviously would like to bring Fogo public when the marketplace allows. Our previous commentaries still apply.
In November, ’21 we said:
“We cannot know how enthusiastic we should be relative to FOGO stock because we don’t know what the IPO pricing will be or where it will begin to trade. In the real world, however, this well positioned and differentiated restaurant chain, with unit level economics leading to an impressive return on capital investment, should fundamentally perform “better than most”. The unique concept provides a great price/value to customers, and is complex and demanding enough to be defensible against potential competition. The unit level and corporate economics speak for themselves and management seems capable as stewards of the business and the capital. We look forward to the IPO offering and hope the stock doesn’t run up too far when it first starts trading.”
After updating the numbers in March, ‘22, we said:
“if and when it becomes publicly held, and if the valuation is not too extreme, FOGO represents an attractive long term investment opportunity.”
Our view remains the same. Stay tuned.
OVERVIEW
Fogo de Chao’, while not immune from factors that are affecting all retailers, is performing very well. Store level operations continue to produce “best of breed” cash on cash returns, with positive same store sales in Q4 and all of ’22, as well as dramatic improvements in traffic and sales since 2019. Cost of Goods increased from 27% to 29% for the year and Labor expense increased from 24% to 25%. It should be emphasized that 27.7% store level EBITDA margin in ‘22 is as good as it gets in the restaurant industry, though down from the peak of 30.3% in ‘21. AUVs are still north of $10M and the 27.7% store level EBITDA generated a cash on cash return in ’22 (57%) far more than the stated 40% target. Pre-opening expenses which, typical of virtually all publicly held chains, is not included in the quoted $3.5M up front cash investment, ran upwards of $900.000 per unit opened in ’22. However, against a standing start post-Covid, some of that was likely incurred in preparation for ’23 openings, and could (should?) be less in the future. Moreover, the cash on cash return remains impressive, even inclusive of the pre-opening expense, not so much the case at other publicly held chains. Especially considering that the new 9100 square foot prototypes, down from 10,600 square feet, are generating $8-9M per location, maintenance of the impressive return on investment seems likely.
The following charts, excerpted from the updated S-1 filing, provide annual and quarterly comparisons of Unit Count, Same Store Sales (by month), Revenues, Income from Operations, Restaurant EBITDA contribution and Adjusted Corporate EBITDA. All of this leads to trailing twelve month corporate Adjusted EBITDA of $98M as of Dec’22.
SUCCESS HAS BEEN BROADLY BASED
The following chart documents the consistent performance across regions. Note the relatively narrow spread of AUVs, with a low of $9.0M and high of $11.6M in calendar ’22, and store level margins between 27 and 29%.
THE GROWTH PLAN.
Against a current base of only 71 locations, the operating leverage as they move to the potential of several hundred domestic stores.should be increasingly evident. Included within the 550 worldwide buildout potential are 250 internationally franchised locations, which should help to raise overall corporate margins. Management targets a long term domestic annual unit growth rate of 15%, which should be efficient enough to produce some margin leverage at the corporate level.. Calendar ’23 calls for 10-12 domestic company operated stores plus 5-7 international franchised locations.
POTENTIAL UPSIDE FOR OPERATING MARGINS
Management describes in the S-1 filing their efforts in this regard.
“Based on strong average weekly sales of our new development model restaurants during Fiscal 2021 and Fiscal 2022 and our reduced targeted average cash investment of $3.5 million per new restaurant, we have confidence that we will achieve our targeted 40% cash on cash returns with our new restaurant development strategy.
“To better support our future growth and improve our operations and management team, we have invested in and fine-tuned our SG&A cost structure. We created new management positions in key functional areas to drive future growth initiatives including new restaurant site selection and analysis, new restaurant design, group dining, product innovation, procurement, international franchise development and in-restaurant employee training. We concurrently promoted several of our top performing managers to elevated positions in the organization. In addition, we have repurposed costs and implemented initiatives in our restaurants to improve quality, labor productivity and lower waste, which are designed to further enhance restaurant profitability and the guest experience. We have made substantial investments in our IT systems, which we expect to drive operational efficiency and greater margins through the use of labor productivity and training tools and improved guest frequency through the development of our loyalty and media platforms. We believe that improving our restaurant contribution and Adjusted EBITDA margins through both IT and restaurant infrastructure as well as human capital investments is a key driver of our future profitability growth, and these investments will drive operating leverage as our revenue grows.”
THE BALANCE SHEET
CONCLUSION
This report, bringing up to date the developments at Fogo de Chao’ based on the newly filed S-1, is an interim step prior to the possibility of an IPO. The first S-1 was filed about eighteen months ago, and we have provided a series of commentaries since then. The Company and their owner, the Rhone Group, obviously would like to bring Fogo public when the marketplace allows. Our previous commentaries still apply.
In November, ’21 we said:
“We cannot know how enthusiastic we should be relative to FOGO stock because we don’t know what the IPO pricing will be or where it will begin to trade. In the real world, however, this well positioned and differentiated restaurant chain, with unit level economics leading to an impressive return on capital investment, should fundamentally perform “better than most”. The unique concept provides a great price/value to customers, and is complex and demanding enough to be defensible against potential competition. The unit level and corporate economics speak for themselves and management seems capable as stewards of the business and the capital. We look forward to the IPO offering and hope the stock doesn’t run up too far when it first starts trading.”
After updating the numbers in March, ‘22, we said:
“if and when it becomes publicly held, and if the valuation is not too extreme, FOGO represents an attractive long term investment opportunity.”
Our view remains the same. Stay tuned.
Roger Lipton
Prologue: This column was submitted to Restaurant Finance Monitor on December 10th, and the financial world has changed dramatically in the intervening 10 days. We’ve predicted that the Fed would back off from their tightening routine, but could not forecast that a crisis in the banking industry would be the catalyst. We have repeatedly quoted Warren Buffet: “When the tide goes out you find out who is swimming naked”. After twenty years of money printing and over a decade of interest rates suppressed to near zero, the tide has just begun to go out. We can’t tell you what the capital markets are going to do because lots of unpredictable distortions can take place in the short run. We can, however, predict with certainty than the current fiscal/monetary volatility will be a fact of life. There cannot be a sound economy without a sound currency, and that prospect is a very long way off. In the meantime: the sun will rise in the east and set in the west and people have to eat. 🙂
Regarding companies previously reporting: All but one rating “maintained”. One Upgade.
Xponential Fitness, Wendy’s, Starbucks and Chipotle all maintained POSITIVE.
European Wax Center maintained with Equal Weight.
The Joint Upgraded from Under-Perform to Neutral.
REPORTED IN PAST WEEK
For Companies Reporting During Week: Arcos Dorados (ARCO) and BRC Corp (BRCC-Black RIfle Coffee Company) –
Re: Arcos Dorados, no change in rating
Re: BRC Corp (Black Rifle Coffee), maintained: One Neutal,One Outperform
Conference call transcripts are below for all companies reporting in prior weeks with ratings changes (The Joint), or initiations (None) and companies reporting in THE WEEK THAT WAS (Arcos Dorados and BRC Corp).
The Joint (JYNT)
https://seekingalpha.com/article/4586275-joint-corp-jynt-q4-2022-earnings-call-transcript
https://seekingalpha.com/article/4586237-joint-corp-2022-q4-results-earnings-call-presentation
Arcos Dorados (ARCO)
BRC Corp (BRCC – Black Rifle Coffee Company)
https://seekingalpha.com/article/4587768-brc-inc-brcc-q4-2022-earnings-call-transcript
THE WEEK TO COME – nobody scheduled for sure,
BT Brands might report
Roger Lipton
CARROLS
https://www.liptonfinancialservices.com/2023/03/carrols-restaurant-group-tast/
FRANCHISE GROUP
https://www.liptonfinancialservices.com/2023/03/franchise-group-inc-frg/
RED ROBIN GOURMET BURGERS
FIESTA RESTAURANT GROUP
https://www.liptonfinancialservices.com/2023/03/fiesta-restaurant-group/
FIRST WATCH
https://www.liptonfinancialservices.com/2023/03/first-watch-fwrg-in-process/
NOODLES