Restaurant Finance Across America
Archived postings from November, 2010...
Fertitta Targeting McCormick & Schmick's?
Posted: Tue, November 30, 2010 at 1:43pm (CST)
It's been a couple of weeks since Tilman Fertitta has made some noise on the restaurant front, so he must be getting antsy. The CEO of Landry's, who in October completed a $1.4 billion buyout of his company and then followed that up with acquisitions of Claim Jumper and Bubba Gump Shrimp Company, is prowling around McCormick & Schmick's. Fertitta last week filed SEC documents saying that he has bought another 150,000 shares of the chain. He now owns 9.9% of McCormick, making him the company's largest shareholder. The filing is a Schedule 13D, meaning Fertitta doesn't plan to sit on the sidelines as a passive investor. Indeed, the filing says that Fertitta intends to review the investment on an ongoing basis and to take actions deemed "appropriate," including discussions with management and instigating various proposals on board or ownership structure.
SEC, November 30, 2010
Franchisees Next on the Buyout List
Posted: Tue, November 30, 2010 at 10:54am (CST)
The buyout boom that infected the restaurant industry seems to have slowed down recently, but that doesn't mean it's over. In fact, the boom may simply be shifting--from brands such as Wingstop and Rock Bottom Brewery to franchisees. Improving restaurant sales could spur a number of deals, and with a two-year M&A backlog the result could be a flood of sales involving franchisee-owned restaurants, according to a number of M&A experts we spoke with. While some refranchising deals have been completed, efforts at chains like KFC have stalled but could restart now that sales are improving. Operators that haven't been able to get out of the industry for two years, meanwhile, meanwhile, could test the market. As it is, some big deals involving large restaurant franchisees are expected to come to fruition in the coming weeks. ...continue reading.
Restaurants' Long, Dark Slog Appears to be Over
Posted: Tue, November 30, 2010 at 9:18am (CST)
The National Restaurant Association this morning said that its Restaurant Performance Index was 100.7 in October, the highest level in three years. Perhaps more importantly, the index stood at more than 100 for the second consecutive month. An index of greater than 100 signifies an expansion, and a second such report provides some evidence that the previous index was no fluke. A majority of restaurants also reported higher same-store sales in October, said NRA Senior Vice President Hudson Riehle--the first time that happened since August 2007, four months before the official begin of the Great Recession. Operators are increasingly optimistic about sales for the coming months, which of course is easier when their sales are rising.
National Restaurant Association, November 30, 2010
Starbucks, Kraft and the Importance of the Supermarket
Posted: Mon, November 29, 2010 at 11:57am (CST)
The food fight that has erupted between Starbucks and Kraft over the companies' distribution deal highlights the growing importance of the supermarket to restaurant chains. Supermarkets sold $557 billion worth of food last year, and an uncertain--but growing-- amount of that has been products licensed by a restaurant chain. Companies like California Pizza Kitchen, Boston Market, Dunkin' Donuts and White Castle have leveraged their brand names, extended their brands' reach and earned a little extra cash by licensing their brands and recipes for home use. Such deals, apparently, have become quite lucrative--coffee chains in particular have done well at the grocery store, as evidenced by the Starbucks business, which at $500 million is 10 times as big as it was 12 years ago. ...continue reading.
Starbucks v. Kraft: Now The Lawyers Are Involved
Posted: Mon, November 29, 2010 at 11:18am (CST)
A few weeks ago, Starbucks executives said in an earnings call that they planned to end the company's lucrative distribution deal with Kraft, a statement that shocked Kraft executives who learned about the statement from an analyst on their own earnings call. Not surprisingly, that statement has led to some legal action. Kraft said today that it has filed an arbitration on the matter, saying that the 12-year-old distribution deal between the two enables Starbucks to buy out the partnership for fair market value plus 35%. Kraft's general counsel, Marc Firestone, called Starbucks' statements unjustified and said that they risk "confusion among customers as to the agreement's status." Regardless, it's clear that Starbucks wants full control over the coffee it sells in grocery stores, which has become a lucrative business worth $500 million a year.
Kraft Foods, November 29, 2010
Some Good News On The Economy
Posted: Wed, November 24, 2010 at 9:42am (CST)
As you leave for the weekend's Thanksgiving/Black Friday extravaganza, here are a couple of things to be thankful for: lower jobless claims and rising consumer sentiment. The latter, from Reuters and the University of Michigan, found that consumer sentiment rose to a five-month high. The former is perhaps more promising. Initial jobless claims totaled 407,000, the lowest level in two and a half years and demonstrating, perhaps, that businesses, flush with cash, may soon budge on hiring. Companies are firing fewer workers, which sets the stage for adding workers. And more employed people is what this country, and its restaurants, really need.
Bloomberg, November 24, 2010
Sonic CEO Is Under Fire, Somewhat
Posted: Wed, November 24, 2010 at 9:17am (CST)
A small, albeit longtime, shareholder of Sonic Drive-Ins, the Ohio Laborers Pension Fund, has proposed splitting the titles of chairman and CEO, which would effectively take the chairman title away from J. Clifford Hudson. The proposal will go to a shareholder vote in January. The pension fund believes that giving the chairman title to the CEO is bad for shareholders, and says that the chairman should be an independent director. Not surprisingly, Sonic's board is recommending shareholders vote against the proposal, saying that keeping a combined chairman-CEO "ensures clarity regarding leadership" and allows the company to "speak with one voice." While the proposal's chances seem doubtful at best, a shareholder revolt targeted at leadership wouldn't surprise us, given Sonic's performance recently and its stock price, which is under-performing the overall restaurant industry.
SEC, November 24, 2010
The Recession Is Changing How Restaurants Look
Posted: Tue, November 23, 2010 at 2:38pm (CST)
The new restaurant that Bennigan's opened early this month in Wisconsin was a big deal for a company that has seen about four-fifths of its system shut down within the past three years. But it also serves as a sign of the times in the restaurant industry. The new unit is about 50 percent smaller than a traditional Bennigan's. The reason for the smaller size is two-fold: It helps with international development, and it helps operators get financing, Bennigan's CEO Dave Goronkin told me during a recent interview for our sister publication, Franchise Times. "We looked at today's environment and the cost of doing business and decided it just makes sense to right-size the restaurant," he said. In other words, the credit freeze and the recession have had an impact on how restaurants look, as well as how they operate. Restaurateurs are shrinking their footprints to make their stores easier to finance and make them more profitable. ...continue reading.
Burger King Gets A Hollow Victory
Posted: Tue, November 23, 2010 at 1:08pm (CST)
A federal judge in Miami has ruled in favor of Burger King in franchisees' lawsuit over the company's $1 double cheeseburger promotion. The judge, not surprisingly, said that offering products at a loss is a common business strategy and that Burger King had the right to require a maximum price. While the court win ensures that Burger King has the right to set price, in the end both sides lost. The fact is, the $1 double cheeseburger promotion didn't bring in the hoped-for customers. It angered already frustrated operators and the chain ultimately acquiesced to franchisee demands and raised the price, proving that not all discounting plans are created equal. Then again, Burger King was eventually sold for a sky-high multiple, so perhaps it did end up the victor.
Miami Herald, November 23, 2010
The Booming Dakotas
Posted: Tue, November 23, 2010 at 10:37am (CST)
Those of you looking to open a restaurant, and especially those of you who don't care where, should consider moving to ... North Dakota? Indeed. The coldest state in the lower 48 boasts the nation's lowest unemployment rate at 3.8 percent, which is essentially full employment, meaning the few people who live there (about 650,000 or so) all have jobs. But it does highlight the best performing region in the country, the Upper Midwest. South Dakota has the second lowest unemployment in the country at 4.7 percent. Right behind is its neighbor to the south, Nebraska (4.7%). Iowa, Kansas, Minnesota and Wisconsin all have unemployment rates that are well below the national rate of 9.6%. As for the worst, here they are in order: Nevada (14.2%), Michigan (12.8%), California (12.4%), Florida (11.9%), Rhode Island (11.4%) and South Carolina (10.7%). Indeed, for the most part, the nation's pain is all over the map.
U.S. Bureau of Labor Statistics, November 23, 2010
Why Are Commodity Costs Going Up?
Posted: Tue, November 23, 2010 at 9:54am (CST)
Commodity costs are going up, as any restaurant purchasing manager knows full well. But, as any restaurant owner probably knows, prices aren't exactly keeping pace. In fact, the October consumer price index, 0.6 percent, was the lowest in 53 years, suggesting that deflation is a bigger worry than inflation and that, despite commodity increases, businesses aren't raising prices. The U.S. economy isn't exactly supporting surging demand for commodities. So where is this demand, and the commodity price increases, coming from? China. According to Bloomberg, meat and vegetable prices there are increasing 10 percent, which is forcing the country to raise interest rates to stabilize demand and bring those prices down. Chinese demand will likely keep prices up into next year. And U.S. restaurants will be forced to decide between lower profits and, potentially, fewer customers.
Jonathan Maze, November 23, 2010
Kona, Mill Road Are At It Again
Posted: Mon, November 22, 2010 at 4:27pm (CST)
Another fight is apparently brewing at Kona Grill. Mill Road Capital today said it plans to submit a proposal on the makeup of Kona's board of directors at the Arizona-based chain's next shareholder meeting. Mill Road, which owns 9.8% of Kona shares, "believes that Kona Grill's performance would improve if all directors were required to stand for election each year." Mill Road said that a classified board is an "impediment to annual accountability" that denies stockholders from "determining whether the appointment was merited." This proposal was submitted to Kona on Friday, just two days after the chain appointed Jim Jundt, a money manager and father of ousted former CEO Marcus Jundt, to its board. Mill Road last year tried to buy Kona and had been among the most vociferous opponents of the younger Jundt's reign, as well as a controversial financing deal involving the elder Jundt. ...continue reading.
What Will Commodities Do?
Posted: Fri, November 19, 2010 at 10:56am (CST)
Many restaurant chains avoided more significant financial problems these past two years because commodities were held in check--less demand for food = lower prices. That changed this year. Grains, particularly corn, are up 50%. Beef, coffee and sugar are up, too. And many observers believe those increases will continue into next year, which is putting a damper on some good sales reports. But perhaps it won't be as bad as many think. Sara Senatore, analyst with Bernstein Research, said in a note this morning that, "spot market prices may overstate the impact on restaurants," and that more modest price inflation is more likely in the coming year. Of course, Senatore hedges her bets, saying emerging market demand and short-term supply shocks will keep prices higher. Still, she compares the market not with the brutal one from 2007-08 but to 03-05 when producer prices rose 3-4% a year. ...continue reading.
Panera Bread And The Great Recession
Posted: Fri, November 19, 2010 at 9:53am (CST)
Panera Bread founder Ron Schaich said in an interview with Bloomberg TV that, "The Great Recession really didn't affect our business." Maybe not, but that doesn't mean Panera is recession proof. Sure, many of Panera's customers (higher income women) were less affected by the recession's job cuts. But it's also likely that many people "traded down" to Panera from casual dining because of their finances. And Panera responded well to market conditions, investing in its business rather than cutting back. "We had a decision to make: Do we react to the recession or do we continue with our core strategy?" Schaich said. "So many people were under so much pressure and were so over-leveraged that they ripped cost out of their P&L. In essence they were trying to cost their way to financial stability." Of course, it's easy to avoid that trap when your comps aren't falling 10 percent a quarter.
Bloomberg TV, November 19, 2010
A Jundt Comes Back To Kona
Posted: Thu, November 18, 2010 at 4:43pm (CST)
This afternoon, Kona Grill announced the appointment of two members of its board of directors, and one of them might be familiar to anybody who watches the company: James Jundt, father of former CEO Marcus Jundt. The Jundts were at the center of a shareholder revolt at Kona in 2009. Some of Kona's big investors had questioned Marcus's performance at the company--some of which were asked during an unusually heated investor conference call. They also questioned a proposed financing deal involving James Jundt, a money manager who is currently the chairman of an investment advisory firm in Arizona. The issues triggered lawsuits and a proxy fight in which most shareholders withheld their votes for Marcus Jundt as company chairman. Marcus resigned as CEO, but James Jundt continues to own 8.3 percent of Kona's stock. Kona said in a filing that there was no arrangement that led to the elder Jundt's appointment.
Kona Grill, November 18, 2010
Good Grief: Charlie Browns Owner Goes Bankrupt
Posted: Thu, November 18, 2010 at 12:23pm (CST)
This week, the owner of Charlie Brown's Steakhouse and Bugaboo Creek Steakhouse closed 40 restaurants. Not surprisingly, the company followed that move by filing for bankruptcy--CB Holding, which owns the chains, including their remaining 39 restaurants, asked the federal government for credit protection yesterday and said it plans a quick sale of the restaurants. The chain has about $114 million due to various lenders. In a court filing, the company blamed a combination of competition and the recession for a decline in revenue over the past several years. The company has also seen cost increases. The company also said that it was unable to reach a deal with lenders to secure a refinancing, and that its liquidity situation never improved. Only one lender, Ally Commercial Finance, was willing to lend any money, and in that case the amount was for $2.5 million so the company can keep operating through bankruptcy. ...continue reading.
The So-Called Health Craze
Posted: Thu, November 18, 2010 at 9:47am (CST)
Technomic today published 11 trends for the coming year, and one in particular caught our eye: "Healthful versus indulgence." Consumers, it seems, say one thing and do another when it comes to healthy eating. They demand healthy options on the restaurant menu--and such demands should pick up next year as diners begin seeing those calorie counts on menu boards--but when it comes down to it they ultimately buy the unhealthy stuff they want, anyway. We've never subscribed to the idea that people are suddenly going to rush toward healthier restaurants and healthier options--there's little evidence that such options attract sales. But that doesn't mean restaurants shouldn't add those options. Consider DineEquity, which recently added a 12-item "Simple & Fit" menu at IHOP. CEO Julia Stewart indicated that it was as much of a marketing idea as a sales strategy. It "absolutely" gives IHOP a "halo effect" in the eyes of diners who appreciate the options, even if they never order them.
Technomic, November 18, 2010
Posted: Wed, November 17, 2010 at 4:50pm (CST)
Dunkin' Brands recently proposed refinancing is generating a bit of heat among debt watchers. The refinancing, which includes a $625 million notes offering on top of a $1.35 million credit facility, would give Dunkin' a debt ratio of 7x EBITDA. That's lower than the debt ratio when Dunkin was bought, but now we're coming off a recession fueled by an overstimulated credit market. And not all of the funds will refinance debt--$500 million will fund a dividend for owners Bain Capital, Thomas H. Lee & Partners and the Carlyle Group. Moody's analyst Bill Fahy noted the high debt ratio "and our expectation that historically high unemployment and intense promotional activity by its competitors will continue to pressure operating performance." Then again, as CIT's Bob Bielinski noted at the RFDC, "being comfortable with recapitalizations is just part of doing business with private equity folks. They want to get their money out."
New York Times, November 17, 2010
Big Banks Boost Their Small Biz Lending
Posted: Tue, November 16, 2010 at 1:54pm (CST)
As the lending market slowly picked up following its freeze two years ago, big banks largely ignored small businesses in favor of the big deals. But now, it seems, those big banks are warming up to the little guy. Last month, Bank of America said it plans to hire 1,000 bankers to focus on small business lending. And yesterday, Chase said it became the nation's biggest SBA lender after it nearly tripled the government-backed loans it made during the last federal fiscal year. Now, according to Bloomberg, CitiGroup is getting into the act, saying that it plans to target companies with less than $20 million in revenue and that it is hiring 200 bankers by the end of next year to do the job. Of course, the big banks, which received billions in federal bailout money, have been under incredible pressure to boost small business lending from everybody from President Obama on down.
Bloomberg Businessweek, November 16, 2010
More Of The Same: Expect Slow Improvement in 2011
Posted: Tue, November 16, 2010 at 1:18pm (CST)
It's been said that if you say that the weather tomorrow will be the same as it is today, you'll have a better chance at being correct than the weatherman. Analysts must be using that same strategy to forecast restaurant sales. Today, Fitch Ratings said that restaurants' same store sales should grow slowly next year and that chains should see the most benefit, which is similar to the existing environment. But it also said that casual dining chains should outpace quick-service chains as people slowly begin eating out more, and spending more discretionary income. And Fitch noted that chains refranchising company-owned units should see slower growth than other chains--dumping your own units must not be good for sales. Meanwhile, discounting will go away in the face of rising costs but value will still be important because of high unemployment. ...continue reading.
Posted: Mon, November 15, 2010 at 2:23pm (CST)
Some acquisitions are investor related. Some are strategic deals. And a few are both. New York investment firm Centerbridge Capital Partners today announced that it closed on a pair of acquisitions, of Rock Bottom Restaurants, which operates the Rock Bottom and Old Chicago chains, and of Gordon Biersch Brewery. Centerbridge then merged the two companies into a single holding company called CraftWorks Brewery & Restaurants. The new company will have 185 locations, both company and franchise owned, under the three major brands plus some smaller names like ChopHouse Brewery and A1A Ale Works. Duff & Phelps Securities and North Point were the financial advisors to Rock Bottom and Gordon Biersch, respectively. Rock Bottom founder Frank Day will be CraftWorks' chairman. Gordon Biersch CEO Allen Corey will keep that same title with CraftWorks. Terms of the deals were not disclosed. ...continue reading.
People Are Eating Out
Posted: Mon, November 15, 2010 at 9:08am (CST)
Amid a fairly downcast third quarter report last week came one bright glimmer of hope for the Wendy's/Arby's Group: Company-owned Arby's stores reported a 5.5% increase in comp sales in October. This, apparently, was no fluke. Sales at eating and drinking places grew 4.3% in October, according to a report this morning from the U.S. Census Bureau. To be sure, part of the growth in restaurant sales for the month, and for the last quarter, could be explained by easier comparisons--October 2009 had been pretty brutal for restaurants, much like that entire year. And the industry has a way to go before it recovers customers lost during the recession. Still, the northward moving numbers show that restaurants have found the right combination to get people out of the house. Either that or people are just tired of cutting back.
U.S. Census Bureau, November 15, 2010
Wendy's Asks Peltz To Get On With It
Posted: Fri, November 12, 2010 at 11:45am (CST)
In June, Trian Fund Management, the Nelson Peltz-led largest shareholder of the Wendy's/Arby's Group, disclosed that it had received an inquiry from a "third party" about a potential acquisition, and that it was considering this inquiry as well as other alternatives. Little has been heard about this since, other than an analyst-sparked rumor a few weeks ago. But expect to hear something relatively soon. During the company's quarterly conference call this morning, Wendy's/Arby's CFO Steve Hare said that the company has "asked Trian to bring this to a head as quickly as possible." Wendy's/Arby's, it seems, has held off on a share repurchasing program while waiting for Trian's inquiry, and the company is eager to restart those efforts. We'd also guess that the company would like clarity on its ownership future. ...continue reading.
The Kids Love The Golden Arches
Posted: Thu, November 11, 2010 at 4:55pm (CST)
As many of you probably know by now, San Francisco put limits on toys provided with kids meals, a direct shot at McDonald's and its ever-popular Happy Meal. If a city wants to blame childhood obesity on a bunch of cheap, Chinese-made plastic, that's clearly its right. Even so, it will hardly stop kids from demanding McDonald's. The Golden Arches have demonstrated an amazing ability to attract kids and their parents that goes back decades--indeed, a study by Michigan-based CFI Group found that 32% of families who go to McDonald's do so at the request of their children. That ability is a huge reason McDonald's is far ahead of its competition in the QSR space. The Happy Meal toy is just a part of that draw, it's not the draw itself--just about every other QSR offers kids meals with toys and many of them would love to draw the number of families that McDonald's does.
CFI Group, November 11, 2010
Fertitta Ends Acquisition Drought With A Flood
Posted: Thu, November 11, 2010 at 2:16pm (CST)
We're wondering whether Tilman Fertitta bought out Landry's Restaurants so he could get back into the acquisitions business with a lot more vigor. Since finalizing his $1.4 billion buyout in early October, Landry's bought Claim Jumper for $76.6 million late last month, and then this week announced a $120 million purchase of the Bubba Gump Shrimp Company--spending $200 million in 10 days. Before Landry's bought Oceanaire in April, it had been four years since Landry's previous acquisition, though a 2007 effort to buy Smith & Wollensky failed. Now, it seems, Fertitta is making up for lost time. "Tilman Fertitta built his business through acquisitions," North Point Advisors founder David Jacquin said at the recent Restaurant Finance & Development Conference. "That's just what he does." ...continue reading.
Biglari Gets His Bonus Deal
Posted: Thu, November 11, 2010 at 11:34am (CST)
Shareholders at Biglari Holdings are OK with Sardar Biglari's reworked pay proposal. The company said this week that shareholders overwhelmingly approved the pay plan for its chairman that would give him a bonus equal to 25% of the growth in the company's book value above 6%. For example, 12% growth would net Biglari a $4.5 million bonus. Any bonus would be capped at $10 million. The original plan, which had a 5% threshold and no cap, had generated rare shareholder unrest at Biglari Holdings, which has seen a surging share price since Biglari's Steak & Shake coup three years ago. According to the company's SEC filing, 82.2% of shareholders approved the plan. The company's stock, meanwhile, has recovered much of the value it lost in May when the original plan was announced.
Biglari Holdings, November 11, 2010
Posted: Thu, November 11, 2010 at 11:02am (CST)
Those of you still smarting from David Rosenberg's decidedly, uh, downcast view of the country's economic future at the recently concluded Restaurant Finance & Development Conference might want to check out the Permabear-to-English Translation Guide, linked below, for a bit of levity. The guide, from journalist Barry Ritholtz, author of the Big Picture blog, has an entry for Rosenberg, chief economist at Gluskin Sheff and a noted "permabear." Here it is: "A minor deity amongst the Perma-bear faithful. The very mention of his name causes a reverential hush to fall over the gathered masses as they hungrily devour his latest proclamations of death and dismemberment." The rest of the post is pretty good reading, too.
The Big Picture, November 11, 2010
A Chicken Chain Goes Bankrupt
Posted: Thu, November 11, 2010 at 10:21am (CST)
The restaurant industry may be in a recovery, but it remains a tepid one that is not being broadly felt. That became evident last month, when Mrs. Winners Chicken & Biscuits, a Southeastern QSR based in Atlanta, shut down most of its more than 100 units, leaving open only 31. Yesterday, the struggling chain took the next logical step, filing for federal bankruptcy protection with a paltry $2.4 million in assets combined with $21.9 million in liabilities. It reported no secured claims, meaning Mrs. Winners is a simple victim of a recession that has been brutal for restaurants that cater to a lower-income clientele, particularly bone-in chicken chains. In two years, between 2007 and 2009, Mrs. Winners' gross income fell from $64.4 million to $40.6 million--a stunningly bad, 37-percent sales plunge, for those of you doing the math.
Georgia Bankruptcy Law Blog, November 11, 2010
Starbucks Gives Kraft A Public Boot
Posted: Fri, November 05, 2010 at 3:46pm (CDT)
Earnings calls are usually predictable and periodically newsworthy events that companies keep tightly controlled. But now and then, something surprising happens that takes analysts for a loop. The latest example: Starbucks. Yesterday afternoon, Starbucks said in its earnings report that it planned to end its $500 million grocery distribution deal with Kraft. Apparently, however, Kraft executives didn't know Starbucks planned to say this on its earnings call--the Kraft folks found out on their own earnings call, which was taking place at the same time in another part of the country, when analysts began asking Kraft executives about the Starbucks deal. Both companies quickly put out short, terse statements about the distribution deal. Starbucks said it had notified Kraft of its intent to get out of the deal a month ago, and Kraft said that Starbucks would have to pay a premium to do so.
Crain's Chicago Business
Taking Surveys With A Grain Of Salt
Posted: Fri, November 05, 2010 at 8:36am (CDT)
Since the beginning of the recession, a large number of organizations have started taking consumer sentiment surveys and have analyzed the job picture. Lately, their results have exposed their inexperience at these sorts of things. To wit: unemployment. Last month, we'd seen some surveys showing declining consumer sentiment and predicting increased unemployment--one in particular suggested a sharp rise in unemployment would be revealed with the federal government's November release. That release came this morning, and we saw no such uptick. In fact, employers created 151,000 jobs, the first increase since May, and an indication that companies are beginning to step up hiring. That's not as much as the economy needs, of course, and unemployment is still 9.6%. But it's still positive territory, and that's good news for restaurants that need people working again to recover lost sales.
U.S. Bureau of Labor Statistics, November 5, 2010
Red Robin Acknowledges Some Realities
Posted: Thu, November 04, 2010 at 4:44pm (CDT)
Stephen Carley has been chief executive at Red Robin Gourmet Burgers for all of two months and already he has a good handle on his new company's competitive landscape. On a conference call this afternoon, Carley noted that every major non-ethnic chain has added burger menus and, what's more, the growth in fast-casual burger chains has started eating into the company's core, burger-loving market. So, while offering no specifics, Carley promised that Red Robin plans to make a lot of changes in the coming months, and that, "nothing is sacred. We will look at everything we do as an organization and identify better, more efficient ways to do it." He said the process will be slow and won't happen "overnight," and thus stopped offering earnings guidance to hold down expectations about any announced plans. "I need to make sure the expectations of those who follow the business are appropriate."
Jonathan Maze, November 4, 2010
Stabilizing Restaurant Sales
Posted: Thu, November 04, 2010 at 2:17pm (CDT)
Restaurant sales seem to have stabilized in the third quarter, according to the Small Business Credit Report from the Capital Access Network, which tracks credit and debit card use at small businesses. Credit and debit card sales at restaurants fell 1.65%. That is worse than the 1.18% drop of the previous quarters, but was a small enough drop to be considered stable, according to Mark Lorimer, chief marketing officer at Capital Access Network. It's also much improved over the brutal period of a year earlier, when total retail card sales fell more than 18%. In fact, the report also found an actual increase in sales at restaurants with average tickets less than $25. That could be further evidence of a public that is eating less expensive meals. Or it could be an indication that credit card use is changing and becoming more popular at limited-service restaurants. It could also be a bit of both. ...continue reading.
Restaurants And Ad Spending
Posted: Thu, November 04, 2010 at 9:40am (CDT)
Here's one thing that full-service restaurants have over their limited-service counterparts: Full-service chains can grow sales simply by growing their ad spending. QSRs can't. According to a note from Sara Senatore, analyst at Bernstein Research, there is a correlation between growth in sales at full-service restaurants and their growth in ad spending. Yet Senatore said there was a negative correlation between sales and ad spending growth at QSRs. Most important in the QSR space was the message--chains that focused on value, such as Pizza Hut, fared better--and absolute size of spending. So chains like McDonald's and Subway that dominate the airwaves performed better. Thus, QSR chains with less to spend on advertising, such as Arby's or Quiznos, have to be more strategic if they're looking to get their message across and bring customers in the door. ...continue reading.
Chipotle To Go Asian
Posted: Wed, November 03, 2010 at 3:27pm (CDT)
There's little doubt that Chipotle Mexican Grill is having a lot of success, and investors sure think so. Its stock is trading at well over $200 a share, which is stratospheric for a restaurant chain. Now the company thinks it can do the same thing for the Asian sub-sector, which like Mexican is dominated by independents but has a few chains, only a few of which would be recognized nationally. The company said today that a small team from Chipotle, led by founder Steve Ells, is working on an Asian concept that follows the "Chipotle model" and could be open by next year. We're certainly not going to bet against Chipotle, certainly not right now, but we also know that it's difficult to catch lightning in a bottle twice (let alone once). Just because a model works in one restaurant sector doesn't mean it will work in the other. Then again, when your company's stock is trading at 19x EBITDA, you probably have a license to take a risk.
Chipotle, November 3, 2010
Denny's Reports Some Good News
Posted: Tue, November 02, 2010 at 4:24pm (CDT)
Sales struggles at Denny's have seemingly gone on forever--since 2005, to be exact, though they got worse during the recession. So the company was rightfully enthused to report that, in the last quarter, its company-owned stores brought in more customers--the units' guest counts rose 2.3%. Denny's clearly relied on its value offers to get those customers. Guest check at company stores declined 2.9%, more than offsetting the guest counts and resulting in a comp sales decline of 0.7%, and systemwide same-store sales fell 1.1%. Nevertheless, while we're not huge fans of discount dependency, lower prices may be necessary for family chains whose customers are struggling disproportionately in this economy. In any event, they helped the company to its strongest performance in half a decade.
Denny's, November 2, 2010
More On The Claim Jumper Auction
Posted: Tue, November 02, 2010 at 2:05pm (CDT)
When Claim Jumper went to auction last week, four companies showed up to submit bids: California-based private equity firm Meruelo Capital, Landry's Restaurants, the investment firm Black Canyon ... and Friendly's, the Massachusetts-based family chain. Black Canyon bowed out of the bidding relatively early, according to a transcript of the auction. And while Landry's ultimately outlasted both Friendly's and Meruelo, it was Meruelo that was the most aggressive at the auction, repeatedly outbidding competitors during the nine-hour, 100-round auction. At one point, frustrated that Friendly's bidder kept requesting breaks to make calls seeking bid approval, Meruelo's founder Alex Meruelo--who started La Pizza Loca--threatened to withdraw altogether, saying "I'm tired of this (stuff)." Ultimately, he bowed to Landry's final bid, telling Landry's CEO Tilman Fertitta, "You own it. Good job." The court OK'd Landry's $76.6 million bid earlier today. ...continue reading.
Applebee's Refranchising Looks Prescient
Posted: Tue, November 02, 2010 at 11:17am (CDT)
Applebee's decision to refranchise most of its company-owned locations keeps looking better, at least from a sales standpoint. For the past year, franchisee-owned Applebee's units have performed better than company-operated restaurants, and that gap has been widening. In the most recent quarter, comp sales at franchisee-owned units grew 3.8%, compared with 1.2% at company stores. The reasons for the gap remain uncertain, but DineEquity CEO Julia Stewart on a conference call today listed a number of potential reasons: aggressive menu price increases from franchisees; more franchise units with late-night hours and better markets. "There's not a simple answer for it," Stewart said. Or maybe there is: Franchisees are just doing a better job right now.
DineEquity, November 2, 2010
Biglari Unloads His Sonic Holdings
Posted: Tue, November 02, 2010 at 10:59am (CDT)
In early August, Biglari Holdings filed a form 13G with the SEC indicating it had bought up 3.6 million shares of Sonic Corporation as a "passive investment," leading to immediate speculation that it was eying the chain as a potential takeover target. That speculation only increased when Biglari unloaded its Red Robin stock following that company's decision to swallow a poison pill. Yet, for now at least, it looks like Biglari isn't going to acquire Sonic, either. Biglari yesterday said in an SEC filing that it no longer owns any Sonic stock. It's uncertain why Biglari unloaded the Sonic stock--Biglari is currently occupied with an effort to buy Fremont Michigan Insuracorp. At the very least, it was a no-lose proposition: Biglari probably made roughly $1 million on the stock sale.
Jonathan Maze, November 2, 2010
The Dangers Of Going Dark
Posted: Mon, November 01, 2010 at 4:50pm (CDT)
Mexican Restaurants' decision to "go dark" by voluntarily de-listing its shares is hardly an unusual decision. Hundreds of companies have made the same decision since Sarbanes-Oxley became law eight years ago. Yet it's hardly risk free. Such companies see a big stock decline (Mexican's stock has fallen 10%) and trading on the Pink Sheets is more limited and more volatile. Companies that go dark have a tougher time raising money and financing. They're more susceptible to shareholder lawsuits. And the company may not even save that much because it will still need to be audited. "It seems penny wise and pound foolish," said John Gordon, principal at the Pacific Management Consulting Group. Still, Mexican's share price, now at $2.05, has fallen steadily since its $13 a share peak in 2006. In addition, the company is losing money amid big declines in comp sales and it has all but stopped making capital expenditures. It probably needs to save money anywhere it can. ...continue reading.