Bravo Brio Restaurant Group (NASDAQ:BBRG) managed to post 2Q earnings of $0.20 a share (missing consensus of $0.22). Revenues came in at $104.5 million (missing $107.9 consensus). Comp restaurant sales were down 5.1%, revenues were down 1.1% y/y and restaurant level operating profit was down 4.1% y/y. Shares fell over 7% on the news.
Shares are flat since we first covered the company back in September. We still have a $20.50 price target on the company. A year ago, the company traded at an EV/EBITDA multiple of 7x, it now trades at 6.7x. Activist, Red Mountain, now owns 9.7% of the company, up from 8.5% in our first article. As we noted back then,
Overall, we agree with Red Mountain and see BBRG as being an undervalued player in the restaurant space. The economics per new location make sense and the company can fund its growth plans with cash flow from operations and each new location generates a cash-on-cash return on investment of 30% to 40%. We believe that Red Mountain is looking to help BBRG accelerate this growth, where the company has a debt to equity ratio of only 0.13 (compared to 0.36 in 2011), which is well below peers.
Management noted with 2Q earnings that it's still opening new locations with internally-generated cash. It also noted that the recent quarterly weakness was due to heavy discounting by its competitors.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.