Tag Archives: fwrg

THE WEEK THAT WAS – KRISPY KREME AND FIRST WATCH PICK UP SPONSORSHIP AT ICR CONFERENCE

THE WEEK THAT WAS – KRISPY KREME AND FIRST WATCH PICK UP SPONSORSHIP AT ICR CONFERENCE

Brett Levy Upgrades Texas Roadhouse to Buy, Brian Bittner Uprades Chipotle to Outperform. Christopher Carril joins Bittner in downgrading  Starbucks.  Sara Senatore Initiated Krispy Kreme with a Buy. Brian Vaccaro Initiated  First Watch with an Outperform.

None of the companies above had earnings reports lately but we have provided below a link for First Watch’s update this week and Krispy Kreme’s slide presentation

FIrst Watch

https://investors.firstwatch.com/news-releases/news-release-details/first-watch-restaurant-group-inc-announces-preliminary

Krispy Kreme

https://investors.krispykreme.com/static-files/433bf0b5-c725-44ae-a03d-c64e7bab1a31

EARNINGS REPORTS TO COME

A quiet time. No reports scheduled until the last week of January. We will keep you posted.

ICR CONFERENCE APPEARANCES STIMULATE PUBLIC UPDATES, AND INTRA-DAY VOLATILITY IN A SKITTISH STOCK MARKET (BFI, BROS, TAST, NDLS, FWRG, RICK)

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%)

https://seekingalpha.com/pr/18623816-burgerfi-provides-fiscal-year-2021-business-update-sets-initial-guidance-for-fiscal-year-2022

DUTCH BROS INC. (BROS – got hit early, closed up 2.88%)

https://seekingalpha.com/pr/18623655-dutch-bros-inc-announces-preliminary-fourth-quarter-and-fiscal-year-2021-development-and-shop

CARROL’S RESTAURANT GROUP ((TAST – already at a multi-year low – up 0.34%)

https://finance.yahoo.com/news/carrols-restaurant-group-inc-reports-120000517.html

NOODLES (NDLS – announces major multi-unit franchise agreement – up 6.33%)

https://seekingalpha.com/pr/18624041-noodles-and-company-announces-signing-of-55-restaurant-franchise-deal-in-california-warner

FIRST WATCH RESTAURANTS, Inc. (FWRG – finding its footing after IPO – up 2.33%)

https://finance.yahoo.com/news/first-watch-restaurant-group-inc-120000876.html

RCI Hospitality (RICK – presentation fine, just profit taking after recent run – down  3.58%)

https://seekingalpha.com/pr/18624132-rci-reports-club-and-restaurant-sales-of-61_1-million-in-1q22

 

REFLECTION ON ’21, WEBSITE IMPROVEMENTS SET THE STAGE FOR ’22

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

Bitcoin

Inflation, past, current and future.

STOCK PICKING

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.

https://www.liptonfinancialservices.com/2020/11/restaurant-company-stock-higher-than-pre-pandemic-is-it-worth-it/

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.

The stocks

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:

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

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.

In Summary

We thank all of you for your past support and are looking forward to sharing with you a great 2022!

Roger Lipton

UPDATED CORPORATE DESCRIPTIONS – YUM CHINA, KURA SUSHI, WINGSTOP, SWEETGREEN, FIRST WATCH, POTBELLY

UPDATED CORPORATE DESCRIPTIONS – YUM CHINA (YUMC), KURA SUSHI (KRUS),  WINGSTOP (WING), SWEETGREEN (SG), FIRST WATCH (FWRG), POTBELLY (PBPB)

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.

https://www.liptonfinancialservices.com/2021/11/yum-china-holdings-yumc-in-process/

https://www.liptonfinancialservices.com/2021/11/kura-sushi-krus-write-up/

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

https://www.liptonfinancialservices.com/2021/11/sweetgreen-sg-in-process/

https://www.liptonfinancialservices.com/2021/11/first-watch-fwrg-in-process/

https://www.liptonfinancialservices.com/2021/11/potbelly-pbpb-in-process/

 

RESTAURANT COMPANIES TO REPORT THIS WEEK: FWRG, DNUT, TAST, RRGB, ARCO,WEN, BROS, FRGI, KRUS

RESTAURANT COMPANIES TO REPORT THIS WEEK: FWRG, DNUT, TAST, RRGB, ARCO,WEN, BROS, FRGI, KRUS

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The following are transcripts from the conference calls following release of earnings:

https://seekingalpha.com/pr/18550394-first-watch-restaurant-group-inc-reports-third-quarter-financial-results

DNUT PRESENTATION- SLIDES

https://seekingalpha.com/article/4468529-krispy-kreme-inc-2021-q3-results-earnings-call-presentation

DNUT CALL

https://seekingalpha.com/article/4467854-krispy-kreme-doughnuts-inc-dnut-ceo-michael-tattersfield-on-q3-2021-results-earnings-call

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

https://seekingalpha.com/article/4468136-red-robin-gourmet-burgers-rrgb-ceo-paul-murphy-on-q3-2021-results-earnings-call-transcript

ARCOS SLIDE PRESENTATION

https://seekingalpha.com/article/4468542-arcos-dorados-holdings-inc-2021-q3-results-earnings-call-presentation

ARCOS CALL

https://seekingalpha.com/article/4468067-arcos-dorados-holdings-inc-arco-ceo-marcelo-rabach-on-q3-2021-results-earnings-call

https://seekingalpha.com/article/4467967-wendys-company-wen-ceo-todd-penegor-on-q3-2021-results-earnings-call-transcript

https://seekingalpha.com/article/4468191-dutch-bros-inc-bros-ceo-joth-ricci-on-q3-2021-results-earnings-call-transcript

tps://seekingalpha.com/article/4468744-fiesta-restaurant-group-inc-frgi-ceo-rich-stockinger-on-q3-2021-results-earnings-call

https://seekingalpha.com/article/4468944-kura-sushi-usa-inc-krus-ceo-hajime-uba-on-q4-2021-results-earnings-call-transcript

FIRST WATCH (FWRG) COMES PUBLIC, TOWARD THE BOTTOM OF ITS FILING RANGE, TRADES UP OVER 20%, WHAT TO DO?

FIRST WATCH (FWRG) COMES PUBLIC, TOWARD THE BOTTOM OF ITS FILING RANGE, TRADES UP OVER 20%, WHAT TO DO?

First Watch sold 9.5M shares today, at $18/share, raising $170M, and valuing the Company at about $1 billion.

There are currently 423 locations, 335 Company owned (which is the growing segment) and 88 franchised. The restaurants are open for business from 7am to 2:30pm. The current 335 company owned stores are heaviest in FL (98), TX (40), OH (35), AZ (25), CO (18), VA (16, PA (15), MO (15), GA (14), TN (12), and KS (10). Most recently, 42 locations were opened in calendar 20 and 18 in the first six months of ’21. In the six years pre-Covid, ending in calendar ’19, SSS averaged 6.3% annually, traffic averaged 1.4%, AUV’s moved from $1.3M to $1.6M, and company operated restaurants averaged C/C returns of 50.8%. Same store sales increased for 28 consecutive quarters. In the most recent six months, ending June ’21, versus Q2’19, same store sales was up 16.3% with traffic growth of 1.0%.

As shown above, franchised stores have not grown. It appears that 34 franchised stores were bought by company in 2019, and 17 company stores were built in’19 as well. Growth via company locations has been steady since 2015 when there were 277 locations systemwide.

UNIT LEVEL ECONOMICS

Restaurants are 3,400-4,000 square feet, seating 120-140 indoors, some with patio seating as well as bar/counter space and to-go areas.  New and planned restaurants are 4,000-5,000 square feet. Average net build out costs are $900k. Projected sales are $1.8M in year 1, $1.9M in year 2, $2.0M in year 3. Third year restaurant level profit margin (EBITDA) is projected at 19%, generating an approximate 40% Cash on Cash return.

 

RESULTS FROM CALENDAR 2019 THROUGH SIX MONTHS OF ‘21

More important to understanding the state of the business today versus 2019: In the first six months of 2021 vs calendar 2019: CGS ran 170 bp better at 21.8%. Labor ran 360 bp better at 31.0%. Other Operating Expenses ran 310 bp WORSE at 16.9%. Occupancy was 80 bp better at 10.0%. Store level EBITDA, in the first six months of 2021, has been 20.2% vs 17.4% in calendar 2019. Below the store expense line, G&A ran 9.7% of sales in the first six months of ’21 vs 12.8% in calendar ’19. After deducting Depreciation of 5.6% (vs. 6.4% in ’19) and adding in franchise royalties (only 1.4% of total revenues) Income from Operations in the first six months has been a profit of $16.1M (5.7% of sales) vs. a (loss) in calendar ’19 of $37.6M (8.6% of sales).

CURRENT EBITDA RUN RATE

Adjusted EBITDA is the name of the game these days, so we will play along, though it’s never as simple as it sounds. Adjusted EBITDA in the first six months of ’21 has been $35.2M vs a loss of $11.8M in ’20 and a positive $38.1M in calendar 2019 (negative $5.7M in calendar ’20). The table shows, though, that there were material non-recurring additions in calendar ’19. We therefore consider “EBITDA” before the Adjustments to be the most relevant comparison, which is $32.2M vs a loss of $9.8M. Bottom line: the first six months of ’21 has generated $32M or so of cash flow from operations, annualizing to a current run rate of about $70M, which the Company plans to build on. This material improvement from calendar 2019 is a result of materially higher sales per location, dramatically so in Q2’21, combined with 280 bp improvement in store level profit.

THE VALUATION and our CONCLUSION

With approximately 57.6M shares outstanding, FWRG, is currently trading at $22.54 (up from the $18.00 offering price), therefore valued at about $1.3 billion, just under 20x the apparent current EBITDA run rate. We will fill in more of the operating details in the near future, but for the moment we consider FWRG fairly valued. While trading up over 20% from its IPO price, it doesn’t have the excitement of Dutch Bros (BROS), for example. This may have something to do with the fact that BROS generates almost as much revenues per store, with higher margins, in a space half the size. Also, First Watch guides to a store level EBITDA of 40%, but not until year three. This is admirable but also not as compelling as BROS. Of course, the valuation of FWRG, as a multiple of the Adjusted EBITDA run rate, is about one third that of BROS. There is sometimes a method to the market’s madness😊

Stay tuned.

Roger Lipton