KURA SUSHI (KRUS)
BRC (BLACK RIFLE COFFEE) (BRCC)
ARCOS DORADOS (ARCO)
BT BRANDS (BTBD)
JACK IN THE BOX (JACK)
YOSHIHARU GLOBAL (YOSH)
REBORN COFFEE (REBN)
KURA SUSHI (KRUS)
BRC (BLACK RIFLE COFFEE) (BRCC)
ARCOS DORADOS (ARCO)
BT BRANDS (BTBD)
JACK IN THE BOX (JACK)
YOSHIHARU GLOBAL (YOSH)
REBORN COFFEE (REBN)
Per the Q3’22 earnings release:
The Company acknowledges the challenges many in the industry are facing related to sales trends, labor and food cost pressures, along with elevated economic uncertainty from a consumer perspective. Management’s outlook for the full year 2022 is as follows:.
MOST RECENT CONFERENCE CALL TRANSCRIPT
MOST RECENT SLIDE PRESENTATION
Articles we have written, over the last eighteen months, regarding Burger Fi can be found by way of the SEARCH function on our Home Page. The reported financials are obviously short term in nature and not necessarily indicative of future expectations.
UPDATED CORPORATE DESCRIPTIONS: with relevant transcripts – NOBLE ROMAN’S, FIESTA RESTAURANT GROUP, BURGERFI, BRC (BLACK RIFLE COFFEE), ARK RESTAURANTS
FIESTA RESTAURANT GROUP
BRC, INC (BLACK RIFLE COFFEE COMPANY)
UPDATED CORPORATE DESCRIPTIONS – KRISPY KREME (DNUT), ARK RESTAURANTS (ARKR), BURGERFI (BFI), ARCO DORADOS (ARCO) and RED ROBIN (RRGB) with transcripts
KRISPY KREME (DNUT)
ARK RESTAURANTS (ARKR)
ARCO DORADOS (ARCO)
RED ROBIN GOURMET BURGERS (RRGB)
UPDATED CORPORATE DESCRIPTIONS: BURGERFI (BFI), MERITAGE HOSPITALITY (MHGU@OTCQX), BJ’S RESTAURANTS (BJRI)
MERITAGE HOSPITALITY (MHGU@OTCQX)
BJ’S RESTAURANTS (BJRI)
ICR CONFERENCE APPEARANCES STIMULATE PUBLIC UPDATES, AND INTRA-DAY VOLATILITY IN A SKITTISH STOCK MARKET
Publicly held restaurant, franchising and retailing companies appear today, again tomorrow and Wednesday morning at ICR’s “must attend” conference, usually in Orlando but held virtually again this year.
Announcements have often preceded the public appearances and the news has sometimes been unsettling, stock prices reacted accordingly. We provide below links to the news releases that have triggered the largest price changes.
BURGERFI (BFI – consolidating after acquiring Anthony’s Coal Fired Pizza – up 0.35%)
DUTCH BROS INC. (BROS – got hit early, closed up 2.88%)
CARROL’S RESTAURANT GROUP ((TAST – already at a multi-year low – up 0.34%)
NOODLES (NDLS – announces major multi-unit franchise agreement – up 6.33%)
FIRST WATCH RESTAURANTS, Inc. (FWRG – finding its footing after IPO – up 2.33%)
RCI Hospitality (RICK – presentation fine, just profit taking after recent run – down 3.58%)
REFLECTION ON ’21, WEBSITE IMPROVEMENTS SET THE STAGE FOR ’22, CAN’T WAIT FOR TOMORROW BECAUSE WE GET BETTER LOOKING EVER DAY!
Happy New Year!
Our objective is to provide some food for thought (no pun intended). We try to write about topics and provide editorial commentary that you won’t find elsewhere. Looking back over our more than 100 topical articles in the last twelve months, we enjoyed studying and discussing quite a few of the most newsworthy developments. Use the SEARCH function on our Home Page if you would like to review our (unfiltered) commentary regarding:
THEMES such as :
SPACs, the appeal (as suggested by the “players”), and the dangers (hardly ever discussed) of this type of financing.
The economics of third party delivery.
Individual analytical reports on the newest public restaurant companies, namely BurgerFi, Krispy Kreme, Dutch Bros., Sweetgreen, Portillo’s First Watch and Fogo de Chao (pending).
Tilman Fertitta’s attempt to come public through the FAST Acquisition (FST) SPAC
Inflation, past, current and future.
We don’t get paid for this, except in our own account, but our readers seem to value our opinion so we sometimes provide it. We hope to help our readers avoid predictable mistakes. We continue to be negatively inclined toward the SPAC space and BItcoin. Among the newly public restaurant companies, we might have helped you sidestep BurgerFi (BFI) as well as the Krispy Kreme (DNUT) and First Watch (FWRG) IPOs. Sweetgreen (SG) and Portillo’s (PTLO) were (and are) too rich for our blood, though we are admirers of Dutch Bros (BROS), closer to the IPO price than here in the 50s. As an update, and in full disclosure, we personally took a small position recently in Krispy Kreme, far more interesting in the mid-teens (with JAB buying it back) than it was at the $17 IPO (reduced from the originally contemplated $21-23).
Fundamentals, in a world of FOMO (Fear of Missing Out) and TINA (There is no Alternative), still matter. In terms of documenting that the equity market has not altogether given up on common sense, we look back at our published analysis of the restaurant stock universe on 11/11/20, after the pandemic psychology had killed the stocks. We’ve provided the link just below to that report, where we pinpointed Papa John’s as an especially undervalued stock, considering the stock and the fundamentals at the bottom of the pandemic. Papa John’s (PZZA) was $77/share on 11/12/19 and today it is at $133 (up 73%). Every situation did not play out as expected, but we also pinpointed Wingstop (WING) at $129 and today it is at $172 (up 33%). The two stocks we suggested as most overvalued at that point (BJ’s and Shake Shack) have gone down, 15% and 10%, respectively, during the same time frame. “Paired trades” are difficult, especially over the short term, so it is gratifying that all four favorite positions (long and short) were profitable.
THE SITUATION TODAY
We are looking at a far different calendar ’22 than we anticipated a year ago, even six months ago. We expected ’21 to be the transition year, with a return to normalcy in calendar ’22, but now “not quite”. The staffing challenge in restaurants is worse than ever, even with a higher wage scale, and the timing of relief continues to be uncertain. Normal volatility in cost of goods has been exacerbated with supply chain distortions, with some products (just as with labor) sometimes unavailable at any cost. However, while a great deal of uncertainty still exists, there is far more clarity than 12-21 months ago. The country is more open for business, vaccines and treatments are now available and generally effective in avoiding the worst possible health consequences. Restaurant operators have learned to manage labor more efficiently, have simplified menus, and have enhanced their off-premise revenue base (with to-go, delivery, curbside pickup and/or ghost brands). While operational challenges accompany the new potential, because labor must be allocated among these new business segments and managed to avoid hampering the dine-in activities, in the best of circumstances operational margins could exceed pre-pandemic levels.
Publicly held equities have cooled off from the inflated values of early 2021, a number of well established companies trading in the lower half of their historical valuation ranges. Among the restaurant IPOs of 2021, Krispy Kreme (DNUT)($18.58), after declining from the $17 IPO price to under $13, has recovered, not in small part due to parent, JAB, buying back millions of shares of stock. Sweetgreen (SG)($31.48) is just above its $28 IPO price, after peaking the first day above $50. First Watch (FWRG)($17.43) came public at $18, traded just briefly to about $22, then bottomed below $16. Portillo’s (PTLO)($40.27) spiked to over $50, collapsed to the low 30s before recovering to the current level. Dutch Bros (BROS)($53.24) ran from its IPO price of $23 to about $75, fell back into the 40s before stabilizing here. The cooling process is also in evidence by the fact that there is no restaurant related SPAC that is trading at a material premium to its IPO price. Especially symbolic is the lack of premium for Danny Meyer’s USHG Acquisition Corp. (HUGS)($10.36), which has announced they will become a “cornerstone partner” with JAB controlled Panera. The uncertainty here is apparently the not yet disclosed relationship between HUGS’ capital and Panera’s valuation but the “smart money” is obviously not willing to bet that HUGS common stock will be compelling after the fact.
Our analysis going forward
For our investment purposes and yours we have updated our website. The “Corporate Descriptions” section now provides, at a glance, for every publicly held restaurant company, the most important parameters relative to current valuation. For example:
From that starting point, our investment process consists of evaluating the current operating fundamentals, whether or not the “on the ground” developments will materially change the financial picture. As part of that summary, we provide a link to the most recent conference call transcript. We are in essence looking for operational inflection points that are not yet reflected in the stock market valuation.
These Corporate Descriptions will be kept current on a quarterly basis.
Further “bookkeeping” improvements
This website will also keep all of us posted, on a weekly basis, which companies are about to report earnings. In conjunction with this weekly update, we will also publish changes in analyst ratings, and a link to the most recent publicly disclosed “data point”, the relevant conference call transcript.
We thank all of you for your past support and are looking forward to sharing with you a great 2022!
UPDATED CORPORATE DESCRIPTIONS – THE ONE GROUP HOSPITALITY (STKS), FIESTA RESTAURANT GROUP (FRG), BURGERFI (BFI), KRISPY KREME (DNUT), PORTILLO’S (PTLO), DUTCH BROS (BROS)
UPDATED CORPORATE DESCRIPTIONS – SHORTLY WILL INCLUDE VIRTUALLY EVERY PUBLICLY HELD RESTAURANT COMPANY – to be updated each quarter
The summaries we show, while not complete in detail and involve a number of approximations, provide a good starting point for our own investment banking activities and will hopefully do the same for our readers.
RESTAURANT SPAC UPDATE – A QUICK ROAD TO RICHES IT IS NOT
The excitement in the marketplace relative to SPACs (Special Purpose Acquisition Corporations), as evidenced by the chart shown just below, has clearly abated (as we have repeatedly suggested over the last six months).
Readers can find more extensive discussions about the individual situations discussed below by using the SEARCH function on our Home Page.
Of the restaurant related SPACs:
The only completed deal, BurgerFi (BFI), is trading almost 50% down from its high and below the $10 IPO price of the original SPAC.
Fast Acquisition Corp II (FZT), (USHG), Tastemaker (TMKR) and Bite (BITE), are sitting on a total of almost one billion dollars (which can be leveraged), are looking for deals at an acceptable price, and one that will excite the shareholder base that has to approve the transaction. However, with the stock price below the $10 IPO level, the opportunity must be compelling, or the shareholders will choose to redeem their ($10/share) funding.
Do It Again (DOITU) and Sizzle (SZZLU) have yet to be funded.
Only Fast Acquisition Corp (FST) is trading above the IPO price, about 20% higher, with the Fertitta deal pending. Even here a great deal can happen in the marketplace by the time the SEC approves the proxy material and the shareholders vote.
Bottom Line: SPACs have been very productive for some, but, as usual, the “early adopters” will have been most fortunate. Later participants are finding that the process is riskier (because Sponsors have to fund the SPACs organizational expenses), the IPO process takes longer, the search process is tedious (especially when competing with many other bidders), and the business combination may or may not be approved by shareholders. Even then, long term success is not assured and the liquidity process for Sponsors is not always easy. Some Sponsors and SPAC investors will do just fine, and they likely will have earned it.
RESTAURANT RELATED SPACS – EIGHT SITUATIONS – PROGRESS REPORT
We have written periodically about this previously very hot segment, and our readers can use the SEARCH function on our Home Page to review our commentary. Suffice to say that great care should be employed while investing within this segment, not only when acquisitions have already been consummated but while the transaction is pending and even at the original IPO. At this point, the bloom is definitely coming off the SPAC rose. The SPAC index, after rising from just over 500 in early November ’20 to almost 950 by mid-February ’21, has declined to 720 as this has written.
Fortunately, there has not been too much money lost (yet) for investors in the restaurant related SPAC space. There are eight SPAC transactions that have been in play over the last two years, only one of which (OPES/BurgerFi) has consummated a transaction. This means that shareholders who invested in the IPOs still have the opportunity to get their funds back if they don’t like the suggested transaction, and that could yet happen. Should that be the case, the Sponsors would lose their organizational investment, anywhere from a few hundred thousand to a few million dollars, but at least the public will not have been burned.
Of the seven SPACs that have not yet consummated a business combination, one (FST) has proposed an acquisition. Four sponsorship groups have raised their funds and are screening potential acquisitions, and two are trying to complete their IPOS. The following is a brief summary of each current situation, with an equally concise description of the Sponsors and management teams. This discussion is not designed to be exhaustive but rather to remind us who is involved in each situation. I say to the principals of the SPACs described below: please forgive me if I have not, in my attempt to be concise, completely described your professional credentials. Each of you has accomplished far more than I have, too briefly, referenced below.
It is interesting that two of the six restaurant related SPACs that have been funded, and one of the two yet to be funded, have been spawned by entrepreneurs affiliated with &vest, a brand building group which, among other things, created Washington, DC based &Pizza. Doug Jacob, Steve Salis, Sandy Beall, Michael Lastoria, et.al., seem to have a good instinct for knowing how a great deal of money can be made.
😊 That said, I suspect that all of the Sponsors, as described below, will find that it takes a lot longer to cash out than they might have hoped. It’s one thing to ride the wave. It’s another to get to the beach, put your feet up and enjoy a beer.
The One Consummated Transaction
BurgerFi (BFI) is the only publicly held restaurant company that has been spawned by a SPAC, OPES Acquisition Corp., when $115M was raised in March ’18 by a Sponsorship group out of Canada. After an acquisition search over two years, the Canadian group passed part of their sponsorship stake and the remaining process to a new Sponsorship group led by Florida based real estate entrepreneur, Ophir Sternberg. By that time, in the course of several time extensions, over half of the originally raised funds had been redeemed. More funds were raised, and the BurgerFi transaction was completed in December, 2020. We have described BFI on this website before, including operational details so far reported by the new Company. Our reports can be accessed with the SEARCH function on this website. BFI has traded above $16/share several times since the closing in December, but is now trading between $10-$11/share. Since there has been little news of note, other than management additions and first quarter, ’21 results, still inhibited in the waning days of Covid-19, we attribute the lackluster price action largely to reduced interest in SPACs in general.
The One Proposed Business Combination that is Pending
FAST Acquisition Corp (FST) raised $200M in August, 2020, with the sale of units consisting of one share and one-half a warrant . The Co-Chief Executive Officers were originally Sandy Beall (of Ruby Tuesday fame) and Doug Jacob (a brand builder and co-founder of &Pizza). Kevin Reddy, a restaurant veteran whose career has included executive positions at McDonald’s & Noodles, among many others, was Chairman. The transaction proposed, with a preliminary proxy in process with the SEC, is the acquisition of Tilman Fertitta’s hospitality (restaurants, hotels & gaming) empire. This is a very large transaction ($6B of revenues) relative to the original ($200M) IPO, so $1.25B was raised privately (PIPE) to reduce Fertitta’s existing debt. The original Sponsor, Doug Jacob, along with his proposed executive team, have stepped aside in favor of Fertitta’s group. Fertitta will own 59% of the surviving Company, the PIPE shareholders will own 34.6%, the IPO shareholders 5.6% and Doug Jacob a little less than 1%. Jacob has obviously decided that he would rather own a very small sliver of a much bigger situation, handing over the corporate keys to an experienced entrepreneur, rather than having to manage the process himself. The good news is that the restaurant and hospitality industry is opening up as the pandemic runs its course, and the rebound in Las Vegas is especially apparent. Based on Fertitta’s empire returning to 2019 revenue levels, the case is made that profit margins will be improved as a result of efficiencies implemented during the Covid-19 pandemic. FST, post the merger, looks to have substantial upside if EBITDA and profits are generated as suggested. Since the deal was rumored in mid-January, FST has traded from about $10.25 to $12-13/share where it has fluctuated the last couple of months as presentations are made and papers are filed. Though the proxy material is no doubt complex, and the closing could yet take a few months, with FST trading at better than a 20% premium to the IPO price, it appears that shareholders will bless the deal. Considering Fertitta’s deal driven agenda, as demonstrated over thirty years in the public eye, FST will be an interesting situation to follow.
Four SPACs with Funds Raised
Tastemaker Acquisition Corp. (TMKRU) raised $276M on 1/8/21 with the sale of units consisting of one share and one-half a warrant. Tastemaker Sponsor LLC is owned by Pace, Phorzheimer and Golkin, further described as follows. The management team is led by Co-CEOs, Dave Pace and Andy Phorzheimer. Greg Golkin is President and Chris Bradley is CFO. Pace has been Board Chairman of Red Robin (RRGB), CEO of Jamba, Inc.(JMBA) as well as with Bloomin’ Brands (BLMN), Starbucks (SBUX), Yum Brands (YUM) and Pepsico (PEP). Phorzheimer was co-founder of Barteca Holdings (operator of Bartaco Barcelona Wine Bar), which was sold to Del Frisco’s For $325M in June, 2018. He is currently an independent Board member at brands owned by L. Catterton, Brentwood Associates and Rosser Capital. Golkin has been Managing Partner at Kitchen Fund, an investor in growth restaurant brands, and an investor for many years in a variety of industries. Bradley has been a Managing Director at Mistral Equity Partners since 2008, previously an investment banker at Banc of America Securities. He is also CFO of Haymaker II (HYAC), a SPAC intending to acquire ARKO Holdings, Ltd., a convenience store operator, and previously served as CFO of Haymaker I, which combined with OneSpaWorld Holdings (OSW) in March, 2019. Hal Rosser, Founder and Managing Partner of Rosser Capital Partners, will serve as non-executive Chairman. There are highly qualified Directors, including Rick Federico, Starlette Johnson, and Andy Heyer. There has been no proposed business combination yet. The units trade at $10.00, the same as the issue price.
Bite Acquisition Corp (BITE) raised $200M on 2/12/21 with the sale of units consisting of one share of common stock and one-half a warrant. Bite’s Sponsor is Smart Dine, LLC, which is owned by various executives and directors of BITE, including Gomez, A.A. Gonzalez, Warschawski and J.M. Bernal, described further below. Rafael Felipe de Jesus Aguirre Gomez is Chairman, with over 35 years in food and beverage operations as Chairman of Mexican based Mesa Corporation. Alberto Ardura Gonzalez, CEO, has more than 35 years of experience in finance, with Merrill Lynch Mexico, Deutsche Bank in NYC as head of Latin America Capital Markets and Nomura Securities. CFO of BITE, Axel Warschawski has been in finance and private equity for over 15 years, as a VP for Mesa since 2013. Director nominees include Julia Stewart, Randall Hiatt, Joseph Essa and Juan M. Gonzalez Bernal, all with impressive credentials. No business combination has yet been proposed. BITEU currently trades at $9.88 per unit
USHG Acquisition Corp. (HUGS/U) raised $287M on 2/24/21 with the sale of units consisting of one share and one-third of a warrant. HUGS’ Sponsor is USHG Investments, LLC, an affiliate of Union Square Hospitality Group, LLC, which was founded and is still led by the legendary Danny Meyer. Within HUGS, certain of the directors, officers, and their affiliates own a portion of the Sponsor. The management team is led by Chairman, Danny Meyer. The CEO is Adam Sokoloff, who since 2019 has been the Managing Partner of merchant banking firm, Asgard Capital Partners. Prior to that, he spent several decades in investment banking activities, with firms including Bear Stearns, Drexel Burnham, Kidder Peabody and Leonard Green. Tiffany Daniel, CFO at HUGS, was a VP at Cole Haan, before that a VP at Tapestry, before that with other fashion brands as well as with private equity firm, Bruckmann, Rosser, Sherrill & CO. Directors include J. Kristopher Galashan, Lisa Skeete Tatum, Mark Leavitt, Walter Robb, Randy Garutti, Heidi Messer, and Robert K. Steele, all highly credentialed. No business combination has yet been proposed. HUGS/U currently trades at $10.09 per unit.
FAST Acquisition Corp. II (FZT/U) raised $230M on 3/15/21. Doug Jacob had so much fun taking FAST I public, he followed it up with another, in fact a couple of others. While Jacob is the founder of FAST II, Garrett Schreiber is the Sponsor and CFO of FAST II. We note that Mr. Schreiber, at the ripe old age of thirty, was CFO of FST (above), is also CFO of Velocity Acquisition Corp (referred to below), joined RBC Capital Markets as an investment banking analyst in 2014 (obviously at the age of about 23), so is obviously very talented. Jacob and Schreiber are joined once again by Sandy Beall (as CEO), Eugene Remm (as Chief Brand Officer), Michael Lastoria (CEO of &Pizza) and Steve Kassin, all principals of &vest, which is referred to as a “hybrid investment fund sponsor/creative agency”. Separately, we note that this group has a third SPAC, selling $230M in February, 2021 in technology oriented Velocity Acquisition Corp. In addition, Kevin Reddy follows his involvement at FAST by being Chairman of the Board for FAST II. There are quite a few other individuals brought in by Jacob, all proven Brand builders in their previous affiliations. The acquisition search is aimed at hospitality in general (i.e. restaurants, hotels, entertainment, consumer brands) and associated technology, differentiated products and/or services with high revenue growth and at least $40 million of EBITDA. Again, the above description of the people and the strategy is just scratching the surface. We will all learn more over time. The IPO units (FZT/U) is trading at $9.98.
Two SPACS Not Yet Funded
Sizzle Acquisition Corp (SZZLU) – Filed on March 11, 2021 a registration statement to raise $143M, by way of the sale of units, consisting of one share of common stock and one-half a warrant. The Sponsor is VO Sponsor, LLC, owned by Steve Salis and Jamie Karson, described further below. Chairman and CEO is Steve Salis, with extensive experience in restaurants and hospitality in Washington, DC. Among other things, Salis was co-founder of &pizza in July 2011 and was CEO from 7/11 to 3/15. Jamie Karson is Non-Executive Vice Chairman and has worked closely with Salis in recent years. From ’01 to ’08 he was CEO and Chairman of the Board of Steve Madden, prior to that CEO and COO of Think Pink, which operated 5 Pinkberry restaurants in Connecticut. Grace Park, CFO, joined Salis Holdings in July 2020, having been Corporate Controller at Five Guys from 2016 to 2020. Prior to that she was with KPMG and Nestle. Once SZZLU is funded, Daniel Lee will become Head of Business and Corporate Development. Mr. Lee has worked with Steve Salis, since 2018, before that in business planning and finance at a variety of firms. Also following the SZZLU funding, Karen Kelley, Warren Thompson, and David Perlin will become directors, all with high quality credentials. In addition: Carolyn Trabuco, Geovannie Concepcion, and Rick Camac will serve as strategic advisors. We have no knowledge of the currently anticipated funding date.
Do It Again Corp (DOITU) – Filed on March 2, 2021 a registration statement to raise $143M, by way of the sale of units, consisting of one share of common tock and one-third of a warrant. The Sponsor is Do It Again Sponsor LLC, of which Clifford Hudson is currently the sole owner. CEO and Chairman is Hudson, with Kathy Taylor as President and Scott McKinney as CFO. Cliff Hudson spent 35 years building Sonic Corp., selling SONC to Inspire Brands for $2.3B in December, 2018. Kathy Taylor was EVP and General Counsel at Thrifty Car Rental, leading to its sale to Chrysler Corporation. At that point, she and others purchased National Car Rental from General Motors, which was sold to Auto Nation. She has been involved in ownership and operation of a variety of other successful business, and is the former mayor of Tulsa, Oklahoma. Scott McKinney began his career as an investment banking analyst at AG Edwards & Sons and has completed over $20B of transactions in the retail space, working within firms including Barclays Capital and Lehman Brothers. Director Nominees include Sid Feltenstein, a very highly regarded veteran of restaurant operations and franchising, Kate Lavelle, also with extensive restaurant experience, and Scott McLain, with over 25 years of restaurant experience, including his stint as CFO at Sonic Corp.
CONCLUSION: Provided at the beginning of this article