XPONENTIAL FITNESS (XPOF)
https://www.liptonfinancialservices.com/2023/05/xponential-fitness-inc-xpof/
POTBELLY CORPORATION (PBPB)
https://www.liptonfinancialservices.com/2023/05/potbelly-pbpb-in-process/
RUTH’S HOSPITALITY (RUTH)
https://www.liptonfinancialservices.com/2023/05/ruth/
FAT BRANDS (FAT)
https://www.liptonfinancialservices.com/2023/05/fat-brands-inc-fat/
GOOD TIMES RESTAURANTS (GTIM)
https://www.liptonfinancialservices.com/2023/05/good-times-restaurants-inc-gtim/
INCLUDED IN YOUR ANNUAL SUBSCRIPTION:
This website was established seven years ago, to help my family office in our investment activities. Since then, the “coverage” has expanded to include every publicly held restaurant company and nine dynamic non-restaurant franchisors. The “COMPANY DETAILED ANALYSIS SECTION”, the yellow box on our Home Page, leads readers to over 60 descriptive summaries. This information is available elsewhere, but nowhere else as succinctly at a “one stop shop”. Providing this information to our readers provides a discipline to keep ourselves current, in the course of which our readers receive the benefit (for an immaterial expense). In particular, the section on Enterprise Value compared to Trailing Twelve Month Adjusted EBITDA gives all of us a “heads up” on inexpensive situations.
We provide a link just below to our most recent update, about two months ago, on RUTH, which showed that it was trading at 7.3x trailing twelve month EBITDA. Also easily noted was that “net long term debt” (excluding lease obligations, which are not an “obligation” for profitable restaurants) was only about $7M. Casual observers (within which we include ourselves) of RUTH have been aware that an activist or two have been circling RUTH for some time now. There was even a reasonably secure 3% dividend while we wait. Since we all know that sound franchising companies usually trade with with an Enterprise Value anywhere from 10-20x TTM EBITDA, this was a transaction waiting to happen.
https://www.liptonfinancialservices.com/2023/03/ruth/
On this basis, by doing our homework, provided to you within these pages, we have been long RUTH a couple of times in the last year or so, most recently going into today’s announcement.
We make our share of mistakes, and we have had larger gains (and losses) but some situations are easier than others to anticipate. For those of you that are subscribers: please flip through our COMPANY DETAILED ANALYSIS section. Aside from our editorial commentary and “THE WEEK THAT WAS” updates, this is the area that can really pay off for you in terms of reward for a modest use of your time.
Roger
MISTER CARWASH
https://www.liptonfinancialservices.com/2023/03/mister-car-wash-mcw/
SWEETGREEN
https://www.liptonfinancialservices.com/2023/03/sweetgreen-sg-in-process/
RUTH’S HOSPITALITY
https://www.liptonfinancialservices.com/2023/03/ruth/
PAPA JOHN’S
https://www.liptonfinancialservices.com/2023/03/papa-johns-pzza-corporate-description/
DOMINO’S
https://www.liptonfinancialservices.com/2023/03/dominos-pizza-dpz-updated-writeup-and-conclusion/
SWEETGREEN
https://www.liptonfinancialservices.com/2023/03/sweetgreen-sg-in-process/
DOMINO’S
https://www.liptonfinancialservices.com/2023/03/dominos-pizza-dpz-updated-writeup-and-conclusion/
PAPA JOHN’S
https://www.liptonfinancialservices.com/2023/03/papa-johns-pzza-corporate-description/
RUTH’S HOSPITALITY
https://www.liptonfinancialservices.com/2023/03/ruth/
MISTER CARWASH
https://www.liptonfinancialservices.com/2023/03/mister-car-wash-mcw/
UPDATED CORPORATE DESCRIPTIONS: POTBELLY (PBPB), GOOD TIMES RESTAURANTS (GTIM), CHUY’S (CHUY), RUTH’S HOSPITALITY (RUTH), RCI HOLDINGS (RICK), FIRST WATCH (FWRG) – with transcripts
POTBELLY (PBPB)
https://www.liptonfinancialservices.com/2022/01/potbelly-pbpb-in-process/
GOOD TIMES RESTAURANTS (GTIM)
https://www.liptonfinancialservices.com/2021/12/good-times-restaurants-inc-gtim/
CHUY’S (CHUY)
https://www.liptonfinancialservices.com/2022/03/chuys-holdings-updated-write-up/
RUTH’S HOSPITALITY (RUTH)
https://www.liptonfinancialservices.com/2022/03/ruth/
RCI HOSPITALITY (RICK)
https://www.liptonfinancialservices.com/2022/02/rci-hospitality-rick-in-process/
FIRST WATCH (FWRG)
https://www.liptonfinancialservices.com/2022/03/first-watch-fwrg-in-process/
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/
UPDATED CORPORATE DESCRIPTIONS – PAPA JOHN’S, RESTAURANT BRANDS, RUTH’S CHRIS, TEXAS ROADHOUSE, WENDY’S, YUM BRANDS
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/papa-johns-pzza-corporate-description/
RESTAURANT BRANDS – https://www.liptonfinancialservices.com/2021/11/red-robin-gourmet-burgers-inc-rrgb-updated-writeup-inflection-point-could-be-at-hand/
https://www.liptonfinancialservices.com/2021/11/ruth/
https://www.liptonfinancialservices.com/2021/11/texas-roadhouse-updated-write-up/
https://www.liptonfinancialservices.com/2021/11/wendys-updated-write-up/
https://www.liptonfinancialservices.com/2021/11/yum-brands/
SHAKE SHACK (SHAK) – NEWS AGAIN, PRODUCTIVE FOR INDUSTRY, DECISION FOR SOME !
THE NEWS, THE OUTCRY, AND THE RESPONSE
Shake Shack is returning the $10M they had been granted by the PPP program. Turned out their their potential sale of $75M of equity was expanded to raise $136M (before underwriting expenses on Friday. The public outcry, which these days is almost instantaneous, arose over the weekend, with observers complaining that the PPP was not intended to help companies such as SHAK, who can raise capital in other ways. Legendary founder Danny Meyer and CEO, Randy Garutti, published a letter outlining their desire to support employees every way they can. They therefore applied immediately when the program was established because SHAK qualified according to the guidelines. They are returning the $10M now because they have otherwise accessed the capital market, with less than 10% equity dilution it turns out, and they want the $10M to be given to more needy restaurant operators. Shake Shack has always been very good at public relations and the brand remains a cult in some quarters. Meyer and Garutti emphasized their dedication to their employees, and Garutti (on CNBC this morning) indicated that employees are going to get a raise in pay and bonuses in this current quarter, regardless of store sales.
THE BROADER POSITIVE, FOR THE INDUSTRY
Meyer and Garutti, with this very public situation, have indicated, appropriately, that the hastily prepared PPP has some problems. One of the most serious problems, which we described here last week, is that the funds have to be spent within eight weeks if the loan is to be forgiven. The restaurants aren’t fully opened, if at all, and business will not return to previous levels for months, at least. Operators will therefore be torn between their desire to “keep their (government) powder dry” and the requirement to spend 75% of the money on payroll, rent and utilities within eight weeks. Meyer and Garutti suggested a simple fix, which we hope will be adopted. The period in which the funds must be applied should be extended from eight weeks to six months. Meyer and Garutti have a high enough profile that maybe Kudlow, Mnuchin, et.al. will take this to heart.
A REMAINING ISSUE: WHO IS “DESERVING” ?? PICKING WINNERS AND LOSERS
The guidelines for PPP, and all government “entitlement” programs always leave room for questioning as to who is needy enough to deserve the money. Shake Shack (SHAK) “qualifies” but is not “needy” enough. Ruth’s Chris (RUTH) received $20M, Fogo De Chao (Privately held) received $20M and J.Alexanders (JAX) received $15.4M. All are profitable companies and have access to various forms of capital (at a price). Should they also return the government money? Everybody can use more capital. Some are more needy than others. Should a Jimmy John’s franchisee or a franchisee of McDonald’s, Burger King, Wendy’s or Dunkin’ get help. All are operating within successful systems that can presumably keep them going. At another level, perhaps a McDonald’s franchisee in Utah doesn’t need help as much as a McDonald’s on Long Island, NY.
There will always be questions, potential inconsistencies and outcomes that can be considered unfair. You can count on the fact that when trillions of dollars are distributed quickly there will be unintended consequences. We are all in a situation that is uncomfortable at many levels, in some cases desperately uncomfortable. Our advice, relative to this discussion is that we would take the capital we have qualified for, publicize it as little as possible while doing our best for various stakeholders. We would then hope for the best in terms of public reaction, if any, and react reasonably, knowing that you can’t please every observer. Shake Shack has reacted appropriately and productively under the circumstances, as we would expect from this highly respected company.
Roger Lipton
RESTAURANT Q4’19 – SALES, TRAFFIC, MARGINS @ TXRH, CAKE, RUTH, BJRI, BLMN – A LOT TO LEARN !!
In the last few days, five prominent restaurant companies, with company operated locations, have reported fourth quarter results. These data points give us a reasonably accurate view into current trends, and allows us a best guess as to what 2020 might look like. While franchising companies such as Wingstop and Domino’s have also reported, with excellent results it so happens, precise store level margins are not reported and we are not commenting here on those results. We have also not included Chipotle, which has become very much of a “special situation”, still recovering from the problems of several years ago, at the same time establishing themselves as a leader with off-premise sales, and it’s the four wall economics that primarily concerns us here.
The table just below shows the five companies listed above, with their Q4 results at the store level. We will fill in the other blanks later, with full updated writeups on these companies, but a quick look at four wall economics can tell us a lot quickly.
We’ve been saying for some time that a couple of points of comp sales is not enough to overcome higher store level expenses, wage inflation most notably but also higher occupancy and other store expenses. That conclusion is pretty clearly demonstrated by these results.
Only Texas Roadhouse (TXRH) improved same store sales materially (+4.4%), and that was accompanied by the best traffic trend among the five companies (+1.5%). That allowed TXRH to leverage the sales trend into a 117 bps increase in their store level margin. The other four companies , even with slightly better comp sales, suffered material deterioration of store level EBITDA margin. Labor Expense was higher by varying degrees, most notably at BJ’s, with Texas Roadhouse, again, being the only company to hold the line in this regard. Cost of Goods was not much changed across the board, except at RUTH with their heavy dependence on beef costs.
We have indicated also, at the bottom of the table, the indication as far as Q1’20 sales to date, or guidance for 2020. Once again, Texas Roadhouse leads the pack with a 6.4% comp sales increase in Q1 to date. BJ’s gave us a 1.7% number for Q1 to date. The others provided guidance for 2020 as a whole, very much in line with the modest recent increases. It is worth noting that the weather this winter so far has been fairly good on a comparative basis, and each of us can make our own judgements as to what effect this is having on Q1 results to date and management’s guidance for 2020.
In summary, there is no tangible reason to expect a material change in operating trends at company operated restaurant chains. Outliers can exist at special situations, but the overriding factors that have challenged the industry are still in place.
Roger Lipton