MOST RECENT CONFERENCE CALL TRANSCRIPT
MOST RECENT SLIDE PRESENTATION
MOST RECENT CONFERENCE CALL TRANSCRIPT
MOST RECENT SLIDE PRESENTATION
UPDATED CORPORATE DESCRIPTIONS: THE ONE GROUP (STKS), WENDY’S (WEN), DUTCH BROS (BROS), BLACK RIFLE COFFEE (BRCC), CARROL’S (TAST), FIESTA RESTAURANT (FRGI), BBQ HOLDINGS (BBQ) – with transcripts
THE ONE GROUP HIOSPITALITY
BRC – BLACK RIFLE COMPANY
UPDATED CORPORATE DESCRIPTIONS: WINGSTOP, DARDEN RESTAURANTS, FIRST WATCH, ARCOS DORADOS AND WENDY’S WITH CONFERENCE CALL TRANSCRIPTS.
DARDEN RESTAURANTS (DRI)
FIRST WATCH (FWRG)
ARCOS DORADOS (ARCO)
THE WEEK THAT WAS, ENDING 3-25 – ANALYSTS ALREADY LIKED WINGSTOP, WENDY’S, FIRST WATCH, DARDEN, ONE COMPANY UPGRADED, WHICH WE WROTE UP A MONTH AGO
FIRST WATCH (FWRG) AND DARDEN (DRI) PROVIDE GOOD REPORTS, HARD NOT TO LIKE THEM. ARCO DORADOS (ARCO) GETS UPGRADED
RE: First Watch (FWRG), ANDY BARISH, JEFFREY BERNSTEIN, GOLDMAN SACHS, continue to like it. ANDREW CHARLES wants to see more (I guess).
RE: Darden (DRI), BRIAN VACCARO, LAUREN SILBERMAN, JAMES RUTHERFORD, JEFFREY BERNSTEIN, analysts at Morgan Stanley all continue to like it. NICK SETYAN wants to see more (I guess).
RE: Wingstop (WING), NICK SETYAN likes it, in spite of Charlie Morrison leaving.
RE: Wendy’s (WEN), IVAN FEINSETH likes it.
RE: Arcos Dorados (ARCO), ROBERT FORD upgrades to BUY.
RELEVANT TRANSCRIPTS FROM MOST RECENT CONFERENCE CALLS.
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)
UPDATED CORPORATE DESCRIPTIONS POSTED FOR: WEN, WING, SHAK, RUTH & QSR
We are in the process of bringing up to date the corporate descriptions for virtually all the publicly held restaurant companies. Our intent is to provide our readership with a one stop shop at which to find a substantial starting point to study a company. You will find here (as of the most recent quarterly report) the essence of the business, the valuation relative to earnings, EPS (reported and future consensus) and trailing EBITDA, and a thumbnail Balance Sheet. This is our starting point before studying further. It helps us so maybe it will help you, too.
All the Corporate Descriptions can be accessed from our Home Page, but not all are updated yet. Below are links to:
MONTHLY COFFEE PROGRAMS – WHO WINS, WHO LOSES ?
I really like Starbucks. It’s my social life in the morning. Everyone in the store knows my name (Roger that!) and my drink (a grande’ soy latte’, no foam, costs $6.04 in Manhattan, including tax). It therefore costs me $2200 annually of after tax money, so it costs well over $3,000 per year, pretax, for my morning coffee experience.
On the other hand………..
As you may have heard, Panera is now offering a monthly coffee program, whereby I can get unlimited coffee for the month for $8.99, any size, any flavor. (no soy for that price, admittedly)
Burger King has been offering, since last March, a monthly coffee subscription for $5.00 per month.
McDonald’s has been offering any size coffee for $0.99. You can also get two breakfast sandwiches for $4.00, so two people can have a McMuffin and cup of coffee for $6.00 plus tax.
Wendy’s is aggressively rolling out a new breakfast program, starting today. They have been promoting “two for $4” sandwich deals for some time, so we can expect the breakfast offerings to be similar. They are planning to spend $40-50M on advertising of the introduction so we can assume they will be aggressively pricing the coffee.
Dunkin’ Brands, with an extensive selection of donuts and other pastries, sells their coffee at $2.00 a cup, more or less, a little less for a “regular”, a little more for “large”.
All these companies are clearly hoping that the customer will buy something else besides the coffee, as long as they are at the store. However, without question, the pricing environment for our morning cup of coffee is getting more competitive..
Away from the publicly traded companies, perhaps Panera, with their established reputation for the quality of their breakfast offerings, combined with their “community gathering place” comfort (pioneered by Starbucks) will see the largest incremental positive effect of their new breakfast program. The publicly held companies will be fighting each other for market share, since nobody has a “moat”.
Relative to Starbucks: This can’t be a plus. Will it cripple them? Certainly not, but we suggest that the comps will slow rather than accelerate. If only one out of twenty customers makes a switch, it will be noticeable, and there is likely to be at least one of their competitors fairly nearby. They could sell more food but that’s already been the strongest part of their comp growth the last ten years. Their competitors sell food as well, and Starbucks doesn’t have a material edge in that regard. Stocks sell, by the way, based on the “second derivative”, the change of pace of the growth rate, still growing but how fast?
If there were a Panera or McDonald’s between “my Starbucks” and my office, I would be sorely tempted to adjust, even if I have to make new friends. I could afford to spend another day or two on the golf course 😊
WENDY’S (WEN) DOWN OVER 10% TODAY – IT’S ABOUT BREAKFAST, RIGHT?? – NOT EXACTLY
Wendy’s stock is under a lot of pressure today, as a result of their entry (again) into the breakfast fray. The company said that they will spend about $20M to support the breakfast initiative. Analysts are obviously reacting skeptically, since WEN has previously experimented with breakfast, in 1985, 2007 and 2012. Since $20M amounts to less than $.09/share, it seems like a reduction of $2.70/share (as this written) is a bit overdone. This is like when your wife criticizes you for not putting the top back on the toothpaste. It’s not about the toothpaste 😊
The chart below shows the outstanding price performance of WEN over the last five years. It has recently been selling for over 30x EPS estimates for 2019, and about 20x trailing EBITDA.
The table below provides some broad financial results over the last eight years, including the Arby’s divestiture. There have been lots of “puts and takes” from the income statement, and the GAAP earnings per share have fluctuated accordingly. We show both the GAAP results and the Adjusted Earnings Per Share from Continuing Operations.
Operating Profit, as reported, was up from 2011 to 2014, has been “flat” from 2014 through 2018. As shown on the annual cash flow statement, we view Net Cash Generated from Operating Activities as a reasonable proxy for how a company is really progressing. Though fluctuating, up and down during the period, THIS NUMBER IS LOWER NOW THAN IT WAS IN 2011. For our purposes here, we can (charitably) call it “flat” as well.
EPS has been up sharply from 2011 until 2018, both adjusted or by GAAP. That “progress”, however, has been, since 2014 especially, the result of borrowing $1.3 billion to buy back about 150 million shares of stock. (Ain’t low interest rates grand?? ) Setting aside the modest remaining equity, reduced from the buyback: with $2.8 billion of long term debt against calendar ’18 EBITDA of $379M ($250M of pretax, pre-interest, continuing operating profit + $129M of Depreciation), with debt now at 7.4x TTM EBITDA, one would have to conclude that this financial lever has been pulled.
Just a week ago we wrote an article describing how the stock of lots of companies (we referenced Starbucks (SBUX) and Restaurant Brands (QSR), in the wake of the breakdown of ULTA and OLLI), are “priced for perfection”, are vulnerable to the possibility of even a small disappointment. Wendy’s now comes into play from that standpoint. Over the last five years, WEN has provided essentially flat Operating Profit and Net Cash from Operating Activities. Earnings Per Share have been increased through leveraging the balance sheet and acquiring a great deal of stock. Down over 10% as we conclude this piece, WEN still sells at 30x estimated earnings for calendar ’19 and 19x our calculation of ‘18x EBITDA from continuing operations. Setting aside the prospect of success with breakfast, which will be expensive and time consuming, and is the focus of virtually all of today’s press coverage: We are not long or short WEN common stock, because we cannot predict how long investors will embrace “asset light” and “free cash flow” companies (this one has $2.8B of debt to service), but, by all standards we consider reasonable, WEN is more than fully valued.
PAPA JOHN’S “IN PLAY” – WHAT TO DO NOW?
We have written several articles regarding Papa John’s (PZZA) in the last sixty days, since John Schnatter became a persona non grata in mid July, the latest on 8/8 after he had been forced out and sales were disclosed to have been down double digits in July. You can read our commentary below:
July 17th, here:
https://www.liptonfinancialservices.com/2018/07/papa-johns-pzza-the-latest-restaurant-situation-a-buy-or-a-sell/ – PZZA closed that day at $52.09
July 23rd, here:
https://www.liptonfinancialservices.com/2018/07/papa-johns-pzza-should-you-be-long-or-short-this-one/ – we disclosed that we had bought the stock, PZZA closed that day at $46.56
and August 8th, here:
https://www.liptonfinancialservices.com/2018/08/papa-johns-pzza-reports-q2-stock-down-again-how-bad-is-it/ – we reiterated our bullish position – PZZA closed that day at $38.94
Activist investor, Trian Fund Management LP, controlled by the well known Nelson Peltz, is one of a number of potential buyers who have indicated interest in acquiring Papa John’s. The company has retained investment bankers to “shop” the company, and it is not clear whether Trian’s interest, or that of others, is a result of that process.
In any event, the due diligence process is under way, and PZZA is trading up about 10% this morning to the $54-$55 per share. “Let the games begin.” While PZZA is still statistically cheap, relative to other franchising companies, like Dunkin’ (DNKN), Restaurant Brands (QSR), Wendy’s (WEN) and (especially) Wingstop (WING), there are some unique uncertainties here, among which are:
On the other hand, as we pointed out in our previous articles, it is in the interest of all the major stakeholders to get a deal done, including John Schnatter. Unfortunately, Schnatter may not realize that yet, and it could take some more time for that reality to sink in.
Putting it together, we doubt that a deal will be done at much more than $60 per share, and the process could drag on for months. Should a transaction be delayed, or not seem likely, due to continuing weak sales or Schnatter’s requirements, PZZA could fall back to the high 40s.
Longer term, six months to a year out, or beyond, we think there is a likelihood that PZZA could trade a lot higher. Chipotle (CMG), for example, hired a new CEO, and, before anything much in terms of tangible results has even occurred, CMG is up over 50%. Relative to PZZA Over the next several months, with the foreseeable uncertainties, there is not much more upside potential than downside risk. We advise long term investors to stick with at least part of their position. Shorter term traders would be well advised to take partial profits, lowering their cost basis on the remainder.
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