Tag Archives: DPZ

UPDATED CORPORATE DESCRIPTIONS: WINMARK (WINA), ROCKY MOUNTAIN CHOCOLATE (RMCF), DOMINO’S (DPZ), FAT Brands (FAT), BJ’s RESTAURANTS (BJRI) – with relevant transcripts

WINMARK CORPORATION (franchisor of ‘second hand’ concepts)  (WINA)

https://www.liptonfinancialservices.com/2022/10/winmark-corporation-wina/

ROCKY MOUNTAIN CHOCOLATE FACTORY (RMCF)

https://www.liptonfinancialservices.com/2022/08/rocky-mountain-chocolate-rmcf-in-process/

DOMINO’S (DPZ)

https://www.liptonfinancialservices.com/2022/08/dominos-pizza-dpz-updated-writeup-and-conclusion/

Fat BRANDS (FAT)

https://www.liptonfinancialservices.com/2022/10/fat-brands-inc-fat/

BJ’s RESTAURANTS (BJRI)

https://www.liptonfinancialservices.com/2022/03/bjs-restaurants-2/

UPDATED CORPORATE DESCRIPTIONS: ROCKY MOUNTAIN CHOCOLATE (RMCF), DOMINO’S (DPZ), CHIPOTLE (CMG) & CHEESECAKE FACTORY(CAKE)

UPDATED CORPORATE DESCRIPTIONS: ROCKY MOUNTAIN CHOCOLATE (RMCF), DOMINO’S (DPZ), CHIPOTLE (CMG) & CHEESECAKE FACTORY(CAKE)

ROCKY MOUNTAIN CHOCOLATE FACTORY

https://www.liptonfinancialservices.com/2022/06/rocky-mountain-chocolate-rmcf-in-process/

DOMINO’S

https://www.liptonfinancialservices.com/2022/03/dominos-pizza-dpz-updated-writeup-and-conclusion/

CHIPOTLE

https://www.liptonfinancialservices.com/2022/02/chipotle-mexican-grill-cmg-updated-writeup/

CHEESECAKE FACTORY

https://www.liptonfinancialservices.com/2022/03/cheesecake-factory-updated-write-up/

 

UPDATED CORPORATE DESCRIPTIONS: CHIPOTLE (CMG), CHEESECAKE FACTORY (CAKE), McDONALD’S (MCD), DOMINO’S (DPZ) – with transcripts

UPDATED CORPORATE DESCRIPTIONS: CHIPOTLE (CMG), CHEESECAKE FACTORY (CAKE), McDONALD’S (MCD), DOMINO’S (DPZ) – with transcripts

CHIPOTLE

https://www.liptonfinancialservices.com/2022/02/chipotle-mexican-grill-cmg-updated-writeup/

CHEESECAKE FACTORY

https://www.liptonfinancialservices.com/2022/03/cheesecake-factory-updated-write-up/

McDONALD’S

https://www.liptonfinancialservices.com/2022/01/mcdonalds/

DOMINO’S

https://www.liptonfinancialservices.com/2022/03/dominos-pizza-dpz-updated-writeup-and-conclusion/

UPDATED CORPORATE DESCRIPTIONS: JACK IN THE BOX, PAPA JOHN’S, RUTH’S CHRIS AND DOMINO’S

UPDATED CORPORATE DESCRIPTIONS: FOR JACK IN THE BOX, PAPA JOHN’S, RUTH’S CHRIS AND DOMINO’S – with conference call transcripts

JACK IN THE BOX (JACK)

https://www.liptonfinancialservices.com/2022/01/jack-in-the-box-updated-write-up/

PAPA JOHN’S (PZZA)

https://www.liptonfinancialservices.com/2021/11/papa-johns-pzza-corporate-description/

RUTH’S CHRIS (RUTH)

https://www.liptonfinancialservices.com/2021/11/ruth/

DOMINO’S (DPZ)

https://www.liptonfinancialservices.com/2022/01/dominos-pizza-dpz-updated-writeup-and-conclusion/

THE WEEK THAT WAS, ENDING 1/28 – A FEW RATINGS CHANGES, EARNINGS REPORTS ABOUT TO BEGIN

THE WEEK THAT WAS, ENDING 1/28 – A FEW RATINGS CHANGES, EARNINGS REPORTS ABOUT TO BEGIN

ERIC GONZALEZ maintains DIN, CMG and MCD at Overweight – OTR Global downgrades  YUMC – Brian Vaccaro maintains DIN, CMG, CAKE, EAT at Outperform, BLMN at Strong Buy -G0RDON HASKETT upgrades CMG to Buy -ANDREW CHARLES maintains DPZ at Outperform – Jeff Bernstein maintains MCD at Overweight.

No new transcripts on above companies.

EARNINGS SEASON ABOUT TO BEGIN

2022-02-01 After Market Close Starbucks

2022-02-02 Before Market Open Brinker International

2022-02-08 Before Market Open Portillos – unconfirmed

2022-02-08 Before Market Open Nathan’s Famous – estimated

2022-02-08 After Market Close Luby’s – estimated
2022-02-08 After Market Close Yum China Holdings 
2022-02-08 After Market Close Chipotle Mexican Grill – 

2022-02-09 After Market Close RCI Hospitality Holdings – estimated

2022-02-09 Before Market Open Yum Brands  – estimated

2022-02-10 Wendy’s – Estimated

2022-02-11 Krispy Kreme – Estimated

 

 

 

 

 

 

THE WEEK THAT WAS – ANALYSTS RETHINK RATINGS AHEAD OF ICR CONFERENCE NEXT WEEK

THE WEEK THAT WAS – QUIET SEASON,  ANALYSTS RETHINK A FEW RATINGS AHEAD OF ICR (USUALLY IN ORLANDO, NOW VIRTUAL) CONFERENCE NEXT WEEK

Todd Brooks Initiates WING at Hold. Nicole Regan Upgrades MCD to OverWeight and Downgrades CAKE and QSR to  Neutral. James Rutherford Upgrades CAKE to OverWeight and Downgrades DPZ and TAST to UnderWeight and EqualWeight respectively. Nick Setyan Initiates STKS at Outperform. Dennis Geiger Upgrades TXRH to Buy.

MOST RECENT COMPANY TRANSCRIPTS WHERE RATINGS WERE CHANGED

WINGSTOP

https://seekingalpha.com/article/4465125-wingstop-inc-wing-ceo-charlie-morrison-on-q3-2021-results-earnings-call-transcript

MCDONALD’S

https://seekingalpha.com/article/4462502-mcdonalds-corporations-mcd-ceo-chris-kempczinski-on-q3-2021-results-earnings-call-transcript

CHEESECAKE FACTORY

https://seekingalpha.com/article/4465199-cheesecake-factory-incorporated-cake-ceo-david-overton-on-q3-2021-results-earnings-call

RESTAURANT BRANDS

https://seekingalpha.com/article/4461822-restaurant-brands-international-inc-qsr-ceo-jose-cil-on-q3-2021-results-earnings-call

DOMINO’S

https://seekingalpha.com/article/4459963-dominos-pizza-inc-dpz-ceo-rich-allison-on-q3-2021-results-earnings-call-transcript

CARROLS

https://seekingalpha.com/article/4468048-carrols-restaurant-group-inc-tast-ceo-dan-accordino-on-q3-2021-results-earnings-call

THE ONE GROUP HOSPITALITY

https://seekingalpha.com/article/4466483-one-group-hospitality-inc-stks-ceo-manny-hilario-on-q3-2021-results-earnings-call-transcript

TEXAS ROADHOUSE

https://seekingalpha.com/article/4463310-texas-roadhouse-inc-s-txrh-ceo-jerry-morgan-on-q3-2021-results-earnings-call-transcript

NEXT WEEK: No restaurant companies scheduled to report. Major event is ICR Conference, which we will attend, and report on.

Roger Lipton

 

 

DOMINO’S REPORTS Q2 – STOCK DOWN 10, THEN UP 10, WHAT’S GOING ON??

DOMINO’S REPORTS Q2 – STOCK DOWN 10, THEN UP 10, WHAT’S GOING ON??

Domino’s Pizza (DPZ) reported second quarter earnings this morning, missed same store sales expectations slightly, lowered comp guidance by about 1 point, as well as expectations for earnings growth. The stock sold off by about 10 points early on Tuesday, then recovered to be up by the same amount by early afternoon.

The reason for the decline is obvious: analysts and investors don’t like it when companies lower expectations. The rationale for the quick rebound in price is of more interest to us, as well as the commentary about the delivery market in general.

DOMINO’s IS NOT ABOUT DELIVERY (ALONE)

Domino’s has, in the past, only described the carryout business as “significant” and “growing”. Especially in light of the following comments regarding the delivery segment, DPZ management felt it desirable to assure investors that Domino’s is not (only) about delivery, and we suspect that is why the stock has so quickly recovered. In fact, within an interview on CNBC, management mentioned “carryout” seventeen times and disclosed (perhaps for the first time) that carryout orders (no doubt with a lower ticket) are approaching forty five percent of the total orders within the US, obviously VERY SIGNIFICANT. This is an outgrowth of their expansion of the “Modern Pizza Theater” format introduced in 2013, as well as the attendant focus on ease of use for carryout customers. We’ve noticed that, just in the last day or so, an advertisement offered a “large two topping pie for $5.99 for carryout customers this week”, an offer too good to refuse. Domino’s is obviously willing to be very aggressive pricewise if the customer doesn’t hang out (by dining) on their real estate, and there is no delivery expense.

IT’S “HITTING THE FAN” IN THE DELIVERY BUSINESS

Management’s conservative guidance over the next several years is largely the result of competition on the delivery side of the business. According to DPZ management: “we are starting to see some QSR competition receiving deals that are very favorable to the restaurant…whether or not the third party providers can sustain that level is a theoretical question…..we don’t have visibility into exactly how long these new entrants…are going to benefit from the financial support of aggregators who are seeking to buy market share…pricing below the cost to serve, offering free delivery or other deep discounts that are currently enabled by investor subsidies”. We can add that time is running out for the 30% type fees charged by Doordash and the others, already at 20% and coming down, we hear. Grubhub reported “adjusted EBITDA of $54.7M in the June quarter, down from $67.4M a year earlier. Anecdotally we’ve been told that Grubhub/Uber/Doordash drivers are increasingly dissatisfied with their net pay after expenses. It all amounts to a predictable shakeout in the third party delivery space which will amount to somewhat better news for restaurant operators. Of course, one way or another, the customer is paying for the delivery service, and no doubt that is no doubt contributing to the growth of Domino’s carryout business.

OTHER NEWS OF NOTE FROM DOMINO’S

Domino’s is offering, for the first time, 20% off orders after 9pm. We can call it “surge pricing in reverse”, and it stands to reason that incremental business at slow day parts is worthwhile. The store is sitting there, the lights are on and the oven is fired up. The business is incrementally profitable even at 20% off. In between innings or at half time I can run down to Domino’s and pick up a large pizza for under $5.00: makes a lot of sense.

There are now twenty three million active users in the loyalty program, and eighty five million active users of the Domino’s brand. It would be a mistake for operators within the pizza segment to not pay close attention to what is happening at DPZ.

Roger Lipton

ASSET LIGHT FRANCHISING – COMPLAINTS FROM FRANCHISEES – LET’S CLEAR THE AIR!!

 

ASSET LIGHT FRANCHISING – COMPLAINTS FROM FRANCHISEES – LET’S CLEAR THE AIR!!

The long term investment appeal of well established franchising companies is accepted by the investment community. Most of the prominent franchisors’ equities sell at price to trailing twelve month EBITDA multiples in the mid to high teens (Denny’s (DENN), Dine Brands (DIN), Dunkin’ Brands (DNKN), Pollo Loco (LOCO), McDonald’s (MCD), Restaurant Brands (QSR), Wendy’s (WEN), even higher in a couple of instances Domino’s (DPZ), Shake Shack (SHAK), Wingstop (WING), lower in a number of “challenged” situations like Jack in the Box (JACK), Red Robin (RRGB), Brinker (EAT), Fiesta Rest. (FRGI).

The attraction of asset light franchisors revolves around the presumably free cash flow for franchisors, a steady stream of royalty income unburdened by capital expenditures to build stores. The operating leverage is at the store level.  Franchisees are responsible for building the stores, then controlling food costs, labor, rent and all the other operating line items. Franchisors receive the royalty stream and have the obligation of supporting the system with brand development, site selection advice, marketing support, and operating supervision. These supporting functions, it should be noted, are optional to a degree, and we have written extensively about system support sometimes being short changed by corporate priorities such as major stock buybacks.

THE CURRENT WORD, IN THE FIELD, AS WE HEAR IT

We acknowledge that in every franchise system there will be some operators less satisfied than others. In the same way, customer reviews on Yelp or Facebook are more frequently written by critics. Bad news is more noteworthy and more customers are inclined to criticize than applaud, so we have to listen to the complaints but dig further for the reality. With that in mind, we hear the following from franchisees of various restaurant systems:

“I’ve been in this business for thirty years, and I’ve never seen it this bad. Everyone is making money but me; the landlords, the franchisor, the banks. My margins have been killed, and I’m up against my lending convenants”.

“All the franchisors want to do is build sales to build their royalties. The dollar deals are trading people down. My franchisor doesn’t care about my margins. I can’t maintain my margins, especially with the increasing cost of labor, let alone build it”.

“The franchisor is putting pressure on me to sell, even though I’ve always been considered a good operator, with high performance scores. I’m up to date on my development agreement, but they want somebody else to take me out, and the new buyer will agree to what I consider to be a ridiculously aggressive development contract”.

“The franchisor has replaced experienced long term field support with lower priced (and inexperienced) younger people. They’re cutting corporate overhead, but these kids, who never ran a store, are telling me to how to control costs.””

“I’m doing my best with the development objectives, but it is almost impossible to build stores with today’s economics. Rents are too high, labor costs are killing me, and I can’t raise prices in this promotional environment”.

“As if things aren’t tough enough, I’m being nickeled and dimed with demand for higher advertising contributions and fees on services (including software) that I thought would be provided”.

The valuations provided to the publicly held companies do not reflect the situation as described by the admittedly anonymous franchisees. The commentators quoted above don’t want to aggravate their franchisor, and we don’t want to be unfair or misleading to particular companies by relying on just a few conversations, though they do support one another. For the most part, franchisees are strongly discouraged from talking to the press or investment community. The companies will say that “competitive” issues require some secrecy, but there are few secrets in this industry.

The optimistic view, as represented by the valuations in the marketplace, is that the comments above are not typical or representative of the health of the subject franchise systems. Allow me to provide a short story which leads to a suggestion.

A SHORT STORY

Twenty six years ago, in 1992, IHOP had just come public. I was a sell side analyst, thought the numbers were interesting and the stock was reasonably priced. The company, led by the now deceased CEO Kim Herzer, invited me to attend their franchisee convention, which I did. I obviously had the opportunity to interface with many franchisees and it was clear that, while all was not perfect, the franchisor was providing a great deal of support that was embraced by an enthusiastic franchise community. IHOP stock tripled over several years for me and my clients who owned millions of shares. I attended several more of their annual conventions and maintain some of those relationships to this day. Obviously, the conviction I gained from their open attitude was critical to the success of the investment. I should add, that many of those buyers in 1992 owned the stock for many years, not living and dying on quarterly reports.

THE SUGGESTION

As you are no doubt by now anticipating, my suggestion to publicly held franchising companies: open up your franchisee conventions to the investment community. The companies may quickly respond that lenders are already invited to franchise conventions, but franchisees are unlikely to express their system oriented concerns when they are making a pitch to a potential lender. Companies may also respond that their lawyers think it would be a bad idea, not consistent with full disclosure and analysts would be getting “inside information”. Let’s not allow the lawyers to provide “cover”. A good lawyer will provide a solution to the problem, not just provide the pitfalls. Analysts attending a franchise convention are not being told what sales or profits are going to be. Attending a franchise convention is  a “channel check”, no more than talking to a supplier or customer of a manufacturing company, which any decent analyst will do.

The anecdotal critical comments, as described above, have likely been heard by others, but may be atypical of most restaurant franchising companies. There are no secrets in this business. One of the investment appeals of this industry is its transparency. Notable news is going to leak out anyway. The objective of any publicly held company is to build stock ownership by well informed investors. Investment analysts pride themselves on their ability to “build a mosaic”, enhance the information provided in quarterly reports, SEC filings, and conference calls, with “channel checks”. What channel check would be more pertinent than meeting the franchisees of a company that is dependent on franchisee success? Putting it another way, and taking the highest valuation relative to EBITDA as an example: Wingstop (WING) is a company I have the highest regard for. However, you could call it irresponsible to pay almost fifty times trailing EBITDA for Wingstop stock (and I haven’t) if I couldn’t talk to franchisees of my own choosing?

There’s no particular need to invite this writer if I’m not considered influential enough. I have not spoken to these analysts on this subject, but qualified industry followers such as David Palmer, Nicole Reagan, Matt DiFrisco, David Tarantino, Jeff Bernstein, Andy Barish, Bob Derrington, Mark Kalinowski, Michal Halen, Gary Occhiogrosso, Howard Penney, Jonathan Maze, Nicholas Upton, John Hamburger and John Gordon provide the beginning of an invitation list.  I rest my case.

Roger Lipton