Archived postings from July, 2010...

NRA's Performance Index Follows The Pattern

Posted: Fri, July 30, 2010 at 9:33am (CDT)

Consumer confidence has been falling recently based almost entirely on the public's withering economic expectations. Not surprisingly, the National Restaurant Association's Restaurant Performance Index has followed suit. The index fell to 99.5 in June, the second straight month it was below 100, which signals a contraction. That was the lowest level since February. The reason, according to the association, is that restaurateurs' expectations have fallen to a five-month low, offsetting a "modest" improvement in their view of the current situation. Restaurants depend on happy, confident consumers, and a worried consumer begets a worried restaurateur.
National Restaurant Association (press release), July 30, 2010

On Biglari And Stock Price Growth

Posted: Thu, July 29, 2010 at 4:14pm (CDT)

Biglari Holdings, which is trying to get shareholders to approve a generous pay plan for CEO Sardar Biglari, in an SEC filing today pointed out that Biglari Holdings' stock price more than doubled between August 5, 2008, when Biglari took over, and June 15 this year. The performance beat 18 other restaurant companies, including Chipotle. Not mentioned is that, when Biglari took over, the former Steak & Shake's stock price was trading at half the level it had been a year earlier, a steep drop due in part to the proxy fight Biglari engineered. Only three restaurants had seen a stock price decline that was worse: Wendy's, which was bought by Arby's in that time; DineEquity, which also went through a merger; and Ruby Tuesday, which was nearly bankrupt. Biglari Holdings' adjusted price on August 5, 2007: $298.20. Today: $299. In other words, Biglari has simply brought the stock price back to where it was before he began making noise. ...continue reading.

Reuters: California Pizza Kitchen Has A Bidder

Posted: Wed, July 28, 2010 at 4:22pm (CDT)

California Pizza Kitchen has a bidder, and not surprisingly it's a private equity group. The New York Post reported that a deal between the casual dining chain and American Securities is close. Reuters confirmed that American Securities is bidding on CPK. It also said another private equity firm, Harvest, is bidding on the chain. American Securities has some investments in restaurant companies, including Potbelly Sandwich Works. It had previously invested in Burger King's Puerto Rico franchisee and in El Pollo Loco.
Reuters, July 28, 2010

Activist Targeting Jack?

Posted: Wed, July 28, 2010 at 10:17am (CDT)

Blue Harbour Group, a private equity firm out of Connecticut, filed a Schedule 13D this morning regarding Jack in the Box, the California-based QSR. Such filings mean that the investor plans to take an active role in the company and these days such roles usually devolve into proxy fights. But don't expect that in this case. The Blue Harbour Group has little record of adversity. According to the firm's website, Blue Harbour Group has a "longer-term perspective than most public investors" and thus works with management. The firm says it identifies "well-managed but strategically undervalued" companies. Blue Harbour, which owns 5.2 percent of Jack, said in its 13D that it plans to monitor and evaluate Jack and communicate its findings with the board, shareholders, analysts and others.
SEC, July 28, 2010

The Cost Of A Proxy Fight

Posted: Wed, July 28, 2010 at 9:48am (CDT)

This spring, Arizona-based casual chain Kona Grill fended off a proxy fight for three board seats as the three company directors won re-election against a slate backed by the private equity group Mill Road Capital. Yet it's not like the proxy fight didn't come with a cost. In its second quarter earnings call yesterday, the company said that the proxy fight cost $375,000 this year. That may not seem like much, except for this: Kona's total second quarter profit was $300,000, meaning no proxy fight essentially doubles the company's earnings. And by the end of the year it could mean the difference between a profit and a loss, given that so far this year Kona has lost about $600,000. Then again, the fact that this was Kona's first profitable quarter in three years might explain why the company was facing a proxy fight to begin with. ...continue reading.

There Goes Consumer Confidence

Posted: Tue, July 27, 2010 at 9:10am (CDT)

Just when you think it's safe to have some confidence in the economic outlook again, along comes a consumer confidence report to splash cold water on all your good feelings. The Conference Board this morning said that consumer confidence fell sharply in July, mostly on a steep decline on the expectations index, showing again that belief in short-term economic improvement is waning. The numbers prove, again, that consumers won't start feeling good until the jobs outlook begins to strengthen--and, as everybody knows, that has yet to happen. The report casts a dark cloud over what has thus far been a strong earnings season for restaurants and other companies.
The Conference Board, July 27, 2010

Denny's And Its Ex-CEO Have A Disagreement

Posted: Mon, July 26, 2010 at 9:54am (CDT)

Earlier this month, Denny's quietly announced that it had booted its former CEO, Nelson Marchioli from the company's board. The company said that Marchioli's removal, on July 9, was due to his violation of company policy that requires directors to submit their resignations in the event of a change in employment status. Marchioli did not resign after he was removed as CEO. In a letter to the board last week, Marchioli vehemently disagreed with his removal as director, saying that the removal violated the law because it was done without cause. He added that the policy was targeted at independent directors, and said he is perfectly qualified to remain a director. Marchioli is still the company's top shareholder, after all.
Jonathan Maze, July 26, 2010

Restaurant Sales: Mixed Or Coming Back?

Posted: Fri, July 23, 2010 at 11:32am (CDT)

Several restaurants reported quarterly earnings recently and, by and large, the reaction from Wall Street has been mixed, but that reaction has been mostly on expectations. Here's what we see: improvement. Sure, everybody knew McDonald's would show positive comp sales, and it did at 3.7 percent. Likewise Chipotle (8.7 percent) and perhaps even Starbucks (9 percent). But the improvement is coming at companies like Ruby Tuesday (up 0.3 percent), Cheesecake Factory (up 1.6 percent) and BJ's Restaurants (up 5.3 percent). While there is plenty to worry about, like unemployment, based on these figures it seems as if consumers are gradually getting out of their kitchens. ...continue reading.

Apple American Group Gets Bigger

Posted: Fri, July 23, 2010 at 9:11am (CDT)

Apple American Group, Applebee's largest operator and the second largest restaurant franchisee in the country, is getting bigger. DineEquity, parent company of Applebee's, said this morning that it has sold 63 restaurants in Minnesota and Wisconsin to Apple American. DineEquity said that the deal will generate $32 million, and that removal of the leases and "other obligations" associated with the restaurants will reduce the company's adjusted debt by another $77 million. That said, at $32 million the franchisee bought 63 restaurants for an average of just more than $500,000 per unit. The deal will give Apple American 268 restaurants.
DineEquity (press release), July 23, 2010

Go Green, Get More Green

Posted: Thu, July 22, 2010 at 1:38pm (CDT)

Apparently, restaurants' sustainability efforts could pay off in the long run. A new study out of Cornell University's Center for Hospitality Research found that 90 percent of consumers in a survey would pay higher menu prices for a so-called "green" restaurant. One-third of those would pay up to 12 percent more. The study was based on interviews with Taiwan restaurant customers, but researchers noted that similar results have been found among U.S. diners. The upshot, of course, is that restaurants that employ sustainability efforts should market those efforts, and perhaps bump up their prices a tad.
Cornell University, July 22, 2010

Starbucks Growth Not Good Enough For Some

Posted: Wed, July 21, 2010 at 4:06pm (CDT)

Few brands in the restaurant space can brag about the numbers Starbucks reported today: 9 percent comp sales growth; 6 percent growth in traffic; higher earnings per share and operating margins. It's quite a turnaround from the company's struggles a year ago, and the comp growth was the company's highest in more than four years. That wasn't enough for Wall Street, where the company's stock traded down 2 percent, entirely on concerns that the company's outlook is off, slightly, from analyst expectations.
Starbucks (press release), July 21, 2010

Independents Lead Restaurant Decline

Posted: Tue, July 20, 2010 at 10:37am (CDT)

The number of U.S. restaurants fell by 1 percent this spring, according to the NPD Group's Spring 2010 ReCount, a census of commercial restaurants. The industry lost 5,204 restaurants since last spring, and the decline was felt in all sectors. But independents were again hit hardest. Two percent of the nation's independent restaurants shut down in the past year, accounting for the vast majority of the decline. Chains were down only slightly. In other words, the struggling consumer economy is hurting small businesses the most.
NPD Group (press release), July 20, 2010

Claim Jumper: A Disastrous Investment For Leonard Green

Posted: Tue, July 20, 2010 at 9:29am (CDT)

Off the charts.  That's the phrase industry observers were tossing around in late 2005 to describe the acquisition of Claim Jumper Restaurants by Los Angeles-based Leonard Green & Partners. Although the sale price was never officially announced, most analysts estimated the private-equity firm paid $220-$225 million, or about 11-12 times EBITDA. By most accounts, it was the largest sum a private equity firm had ever ponied up for a restaurant company.

Today, industry operators and other experts, most of whom wanted to remain anonymous, are calling the deal a colossal disaster. One financial advisor says it's the "biggest and fastest deal failure" he's seen in the restaurant space. A casual-dining CEO surmises Leonard Green's equity has been "wiped out."

Not surprisingly, Irvine, Calif.-based Claim Jumper is for sale. The casual-dining chain operates 46 restaurants in eight states.  ...continue reading.

SBA Lending Slowing Again

Posted: Tue, July 20, 2010 at 8:25am (CDT)

Anybody wondering how the government-backed lending market would fare without the stimulus got their answer in June, when lending under the SBA's 7(a) program plunged. According to The Coleman Report, a newsletter that covers the SBA, 7(a) loans fell 74 percent in June from the previous month. The 504 program, which requires real estate, fared somewhat better, but was still down 31 percent. The main culprit: The lapsed stimulus brought the SBA's loan guarantee down to 75 percent again. It had been at 90 percent, which encouraged more banks to make loans under the program. A reduced guarantee = reduced lending.
The Coleman Report, July 20, 2010

Bullishness On DineEquity?

Posted: Fri, July 16, 2010 at 2:41pm (CDT)

DineEquity, owner of IHOP and Applebee's, has attracted some bullishness lately, based on CEO Julia Stewart's turnaround skills and the fact that it has the cash to pay off debt. Raymond James analyst Bryan Elliott, in fact, says the company's stock could ultimately hit $100 if its plan comes together. We remain unconvinced. While Stewart turned around IHOP, that effort came in a growing economy, flush with credit. The Applebee's turnaround will have to come amid a much more difficult economy, coupled with a dining public shying away from anything with a wait staff, and bar & grill concepts in particular.
Smartmoney/Barrons, July 16, 2010

Mexican Restaurants' Plan To Go Private Gets Some Opposition

Posted: Thu, July 15, 2010 at 2:00pm (CDT)

Mexican Restaurants, the small, 72-unit owner of Mexican restaurant chains, said last month that it might want to go private. Yet now some shareholders are wondering whether that's a good idea -- Cross River Capital Management, owner of 10 percent of the company's shares, this week filed a Schedule 13D in which it questioned the wisdom of the company's interest in possibly going private. The investor said in its filing that a de-listing is "not on the surface a shareholder friendly move." Given that the company's current per-share price is near its all-time low, it might be difficult to argue with that statement.
SEC, July 15, 2010

Facing Activist Shareholders, Benihana May Go On The Block

Posted: Wed, July 14, 2010 at 2:33pm (CDT)

Benihana appears to be the next restaurant chain to be looking for a potential buyer. This morning, the Miami-based company said that it was exploring strategic alternatives, including a potential sale. The company is seeking capital to expand, but fears its stock price is too low to offer new equities. Perhaps more interesting, CEO Richard Stockinger said that several large shareholders have expressed disagreement with the company's board and are planning to gain seats to change Benihana's direction. In other words, the very threat of a proxy fight could prompt the chain's sale.
Business Wire (press release), July 14, 2010

Crazy Products: All Buzz, No Substance

Posted: Wed, July 14, 2010 at 1:09pm (CDT)

Yum Brands, in a conference call this morning, said that its infamous "Double Down" sandwich had an "immaterial" effect on sales. In other words, all that buzz had almost no impact on the bottom line. The Double Down probably got more criticism than it deserved on the health front and not enough criticism for what it was: A desperate bid for attention from a company struggling to lure customers. Outlandish product offerings may generate some attention in the short run but do little to generate the long-term sales that restaurants need. Perhaps this should be a lesson for another company suffering from falling comp sales, Carl's Jr., which is testing its own buzz-generating product, a foot-long cheeseburger.
CNNMoney, July 14, 2010

Cosi Could Be De-Listed

Posted: Wed, July 14, 2010 at 9:42am (CDT)

Illinois-based sandwich chain Cosi said this morning that it is once again in danger of being de-listed from Nasdaq over its poor stock price, which this morning was 85 cents, or less than the price of a cup of coffee there. The main issue with Cosi is a basic one: profits. Cosi has never been profitable and has lost millions each year, including an operating loss of $11.1 million in 2009. Cumulative losses have neared $268 million and the chain is now selling company stores to franchisees. Cosi has routinely flirted with de-listing due to its stock price. This is the third time since last fall that the company was notified of a price-based de-listing.
Marketwire (press release), July 14, 2010

Max & Erma's May Have A Buyer

Posted: Mon, July 12, 2010 at 10:59am (CDT)

Max & Erma's, the Ohio-based chain that needed just 18 months after an ownership change to land in bankruptcy, may have a buyer. A bankruptcy plan filed in U.S. Bankruptcy Court in Pittsburgh on Friday calls for a sale of the 87-unit casual dining chain to a company called Concept Development Partners, LLC. Concept Development will pay $14.75 million in cash and has agreed to other considerations, including the honoring of as much as $2.5 million in gift cards. Concept Development, which will operate at least three quarters of Max & Erma's 61 company-owned restaurants, is owned by a pair of investment firms, CIC Partners out of Dallas, and CDP Management Partners out of California. ...continue reading.

Business Bankruptcies Down, Personal Ones Up

Posted: Thu, July 08, 2010 at 2:44pm (CDT)

Here's a bit of good news: Bankruptcies among publicly traded businesses are way down this year, according to BankruptcyData.com. There have been 50 filings so far this year, less than half the number at the same point last year. Based on our experience, the same may be the case for restaurants, publicly traded or otherwise. The same cannot be said for consumers, however -- consumer bankruptcy filings increased 14 percent in the first half of the year, according to the American Bankruptcy Institute. As restaurants depend on a healthy consumer, that latter number is much more disconcerting.
BankruptcyData.com, American Bankruptcy Institute, July 8, 2010

A Few Notes About Bravo Brio

Posted: Wed, July 07, 2010 at 4:22pm (CDT)

Bravo Brio Restaurant Group, the Ohio-based company that earlier this month filed papers to sell $172.5 million in shares on the public markets, has seemingly withstood the recession quite well. The company's two chains, Bravo Cucina Italiana, and Brio Tuscan Grille, have both expanded in recent years, adding a total of nine restaurants last year. Revenues have grown on average of 12 percent a year and the company is planning another 45 to 50 restaurants over the next five years. Yet Bravo has also lost money annually, including $8.2 million last year. And the restaurants themselves have hardly avoided the recession's impact -- comp sales fell 7.4 percent companywide last year thanks to an 8.2 percent drop in guest counts. While the company has improved on those numbers so far this year, they still look little different from the casual dining sector as a whole and may make its stock a difficult sell on the open market.
SEC, July 7, 2010