We wrote in November, when Fogo De Chao first filed their IPO prospectus, and refreshed our analysis in March when they updated their filing. Links to those articles are provided below.
The November filing covered operating results through September ’21 with sales comparisons through October. The update in March showed calendar year ’21 results with a sales update through February. The most recently filed updated S-1 shows operating results through March ’22 with sales through April.
Suffice to say: During this “holding period”, due to the volatility in the equity marketplace, the fundamental news at Fogo De Chao has only improved. The two most concise indications of progress are (1) the comp sales shown in the chart just below and (2) TTM AUVs have moved from $7.9M at 10/3/21 to $9.4M at 12/31 and $10.1M at 3/31/22, as a combined result of SSS and the performance of new stores.
The details can be accessed by way of the links below, and based upon (1) a differentiated dining experience (2) very high TTM AUV, $7.9M at 10/3/21, higher now (3) industry leading cash on cash returns, running well over “3rd year target” of 40%, (4) new units performing substantially above historical levels (5) a very long runway for growth (550+ vs. current 64)and (6) far from least, management’s demonstrated long term ability, highlighted by exceptional performance during and subsequent to the pandemic, we concluded in November that :
“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, 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.”
Aside from the impressive (and accelerating) sales comparisons shown in the chart above, the latest S-1 update indicates that:
Adjusted EBITDA in Q1’22 was $20M vs. $11M in ’21. Since Adjusted EBITDA for calendar ’21 was $86M, and TTM Adjusted EBITDA was $95M as of 3/31/22, we can reasonably assume that calendar ’22 will produce over $100M of Adjusted EBITDA.
As you might expect from the sales performance shown above, virtually all the operating results were improved substantially in calendar ’21, predictably against the height of the Covid in ’20 but also against pre-Covid ’19.
Restaurant EBITDA margin %, annually and quarterly, and Adjusted EBITDA
CONCLUSION: We continue to feel that Fogo Hospitality is one of the best situated full service dining chains of which we are aware. While the numbers are obviously telling a compelling story, several recent dining occasions we have had at FOGO have reminded us of the importance of a hospitality driven operating “culture”. It is clearly in place here and does not happen by accident. In addition, the restaurants seem to be in first class physical condition, obviously enhancing the customer’s price/value dining equation.
The timing and valuation of the IPO remain uncertain due to the extreme equity market volatility, so we will report to our readers accordingly.
Roger Lipton
LINKS TO PREVIOUS ARTICLES REGARDING FOGO HOSPITALITY, INC. ARE BELOW: