CARROL’S RESTAURANT GROUP (TAST)
RAVE RESTAURANT GROUP (RAVE)
DUTCH BROS. (BROS)
UPDATED CORPORATE DESCRIPTIONS: TEXAS ROADHOUSE (TXRH), SHAKE SHACK (SHAK), SWEETGREEN (SG), PORTILLO’S (PTLO), PAPA JOHN’S (PZZA) with transcripts
UPDATED CORPORATE DESCRIPTIONS: WENDY’S, DUTCH BROS, DINE BRANDS, POTBELLY, SWEETGREEN AND RED ROBIN with conference call transcripts
Dutch Bros (BROS)
Dine Brands (DIN)
Red Robin (RRGB)
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!
THE WEEK THAT WAS – SWEETGREEN (SG) COMES OUT OF QUIET PERIOD, JUST A COUPLE OF OTHER RATINGS CHANGES
David Tarantino upgrades Portillo’s to Outperform, EVERYBODY (after the quiet period) Initiates Sweetgreen with positive ratings, Jeffrey Bernstein Downgrades Domino’s to Underweight, Jim Sanderson Downgrades Jack in the Box to Neutral, David Tarantino Downgrades Starbucks to Neutral.
NO CONFERENCE CALL TRANSCRIPT AVAILABLE YET FOR SWEETGREEN
PORTILLO’S MOST RECENT CONFERENCE CALL TRANSCRIPT
DOMINO’S MOST RECENT CONFERENCE CALL TRANSCRIPT
JACK IN THE BOX MOST RECENT CONFERENCE CALL TRANSCRIPT
STARBUCKS MOST RECENT CONFERENCE CALL TRANSCRIPT
NEXT TWO WEEKS: BETWEEN NOW AND YEAR END THE ONLY RESTAURANT COMPANY SCHEDULED TO REPORT IS ARK RESTAURANTS, ON DECEMBER 17th.
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.
A month ago, we asked whether Sweetgreen, sweet as it is, is worth $1.8B, which was the contemplated IPO price. Now trading at $50, up from the $28 issue price, the valuation is about $4 billion. That’s what it’s worth, today!