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  • Weight Watchers: Excellent Business At A Fire Sale Price [View article]
    Yep. Another interpretation is that the company's owners just put themselves in a position to use their creditors money (but not their own). If Mr. Graham were here I would think he would explain that in a situation like this, common stock holders are *advantaged* (they get profits using the creditors capital) and creditors are *disadvantaged* because the risk of their lending has increased. In my opinion, I think the company will be able to push enough cash flow to satisfy the creditors and lower their leverage -- greatly benefiting common shareholders.
    Mar 29 12:57 PM | 2 Likes Like |Link to Comment
  • Weight Watchers: Excellent Business At A Fire Sale Price [View article]
    Sure thing, hopefully we get an opportunity to buy again. Either the stock tanks and we buy more -- or it shows enough improvement to go long at a higher price. Either way, I feel I may be a buyer.
    Mar 29 12:48 PM | 1 Like Like |Link to Comment
  • Weight Watchers: Excellent Business At A Fire Sale Price [View article]
    "Go back and look at Tenneco and Dana holdings during the late 2008 and early 2009 crash. Although they faced a different set of challenges, in retrospect, the market completely missed priced the automotive suppliers. Some of these stock dropped 99% and investors determined with a cursory glance that the debt would overwhelm the companies and the equity would vaporize. During that time period, overall automative industry units experienced SAAR declines from upwards of 16.5 million to 11 million units. I point is out because a good friend of mine made about 40X his money buying DAN and TEN equities near the bottom as I was too smart to buy them because surely the debt crush them."

    Great tale, great lesson, thanks for sharing. I saw your piece, it was good and I am obviously in agreement. Good luck.
    Mar 29 12:46 PM | Likes Like |Link to Comment
  • Weight Watchers: Excellent Business At A Fire Sale Price [View article]
    Thanks for the comment Glyndon.

    "The apps are just too cutthroat to sustain any margin."

    Most apps cannot command the premium which Weight Watchers can... so I don't exactly understand that point. Weight Watchers is about life-style change not dieting. The vast majority of people are DYI dieters, only a tiny fraction of maybe 5% use a commercial service like WTW. But those who do, do so very seriously. They will pay, if it works. The cost is really small in proportion to the existential value these people stand to gain. That is the "value proposition" to use some corporate speak. Weight Loss is emotion and deadly serious at times. People will continue to pay a premium for results.

    Also, I personally find the buybacks despicable. But I do see the debt as the reason the stock is so cheap. The debt it is not due for 6 years-ish and the corporation has had a strong history of cash flow and so I would expect we hit bottom and bounce off before the debt is due.
    Mar 29 12:35 PM | 2 Likes Like |Link to Comment
  • Weight Watchers: Excellent Business At A Fire Sale Price [View article]
    People may be betting it falls further. I see that as a possibility too, so I am keeping the powder dry. That said, we are starting to see good pricing now.
    Mar 29 12:14 PM | 2 Likes Like |Link to Comment
  • Frontier Communications Is Nothing Without Its Dividend, Here's Why [View article]
    The author has no position, just fyi. It says it at the top.
    Mar 27 03:58 PM | Likes Like |Link to Comment
  • Frontier Communications Is Nothing Without Its Dividend, Here's Why [View article]
    "As it is, Frontier has a sky-high payout ratio of 364% and a debt burden of around $8 billion that will hurt earnings in the form of interest expenses."

    The payout ratio is much lower than that. Look at the corporations dividend to free-cash-flow. Also, the dividends are tax shielded since they are categorized as a return of capital (I think). If the company cut the dividend and paid down debt -- it would be even more attractive.
    Mar 27 12:20 PM | Likes Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    "Fair warning to anyone considering a short based on this article is that there are unusually strong hands involved in this stock."

    Ain't that something?

    "There is a tiny float. The stock has already been through a 50% retracement. News is pending because the company is actively engaged in signing new franchisees and is reviewing new sites."

    Wow: "new is pending." I still wish you'd play my game and give me some model assumptions so I can see what sort of value you put on this bad boy. Currently, it seems like you view the stock as a price and a price only. It is a business entity which will have to shape itself to the demand of the market.

    "New executive hires are pending in key positions who are unusually qualified given the size of this company because the company is interviewing and has already announced the overhaul of its executive team to fuel the new growth they see coming imminently."

    Wow. Insider leakage. Now, I suppose this isn't too surprising given the resignations on 1/12 (resignation of the Controller) and 1/22 (resignation of the Senior Vice President and Chief Development Officer). I, however, viewed those resignations as a negative for the company. Unusually qualified people sound expensive.

    "A seasoned short stock seller will not short a stock like this because of the potential for information arbitrage, the lack of liquidity and the inability to hedge with call options."

    Those last ones are fair points, really. Although, I sort of have a hard time seeing how this stock will stay float with its economics. I don't argue that some speculators might bet on the reflexive market reaction created by a bout of positive news, but I would still doubt that the shares will be able to hold their share price. I mean, come on, the P5's have not demonstrated profitability.

    "This is what makes a market." Sure is. Nice talking with you.
    Mar 23 02:40 PM | 1 Like Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    Give me your assumptions, I will run them through my little model. I need these variables:

    number of franchisees = 150
    average weekly sales = 13,000
    F&S revenue per franchisee sales = 30%
    F&S operating margin = 5%
    Royalties per franchisee sales = 6%
    Franchisee operating margin = 35%,
    Tax rate = 35%
    unallocated corporate overhead = $1,750,000
    operating profit without P5 franchisees = $1,000,000
    capitalization rate = 7.5%

    I'll post the function's output. Then, we can argue about the probability of your assumptions being correct. Or you can criticize my model (explained in comments above).

    "When I have questions I have the access I need to speak with the CEO and other large investors so I can put the numbers in context. I know what those investors are thinking and I understand where the company is, why it slowed and when it will re-accelerate in a way that is just not available to most investors."

    So you have insider information? And your trading on it? If you know "when it will re-accelerate" you really should reveal that here.

    Even if you do trust those people, which I am sure they are fine people, you have to take it with some caution. I mean, just turn to page 26 - 27 in the October 2013 DEF 14A filing* -- you will see all the options management was granted. Stock options == short term incentive to boost share price.

    If this company was actually trying to build a long-term future, they could have easily compensated management with restricted stock instead of stock options.

    "We won't sell and we have the means to rip the face off your trade at any moment." You sound like an investment banker who is trying to support their clients share price. When you say, you have the "means to rip the face off your trade" does that mean you will enter the market to buy in an attempt to manipulate the share price?

    *http://1.usa.gov/1fS10e3
    Mar 23 01:37 PM | 2 Likes Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    <<One last comment directly to the author, your stake is in the ground here, short at $5.50 and a $50m valuation.>>

    I am invested else where. Cool your jets.

    <<Would you at least have the intellectual integrity to agree publicly that selling this stock short here at $5.50 support with no options for protection is far too risky for almost all investors?>>

    Interesting. I don't know if a troll has ever wanted me to prostrate myself in front of them and bow down to their infinite and well presented logic.

    Since you seem to think I am spinning tails or creating castles in the sky, why don't we break this down by the numbers. Follow closely. These first numbers are the default case.

    SCENARIO #1

    Two business segments of differing economics stand to gain by the build out of 150 franchisees:

    (1) the food & supplies segment (hereinafter "F&S")
    (2) the franchisee segment

    Historically (and when the corporation has been profitable) the F&S segment has had an operating profit around 5%. The F&S segment sells their good to franchisees. We estimate that about 30% of franchisees sales will be spent purchasing goods through the F&S segment. Let us also assume the franchisees achieve $13,000 in average weekly sales per location (this is well above the current averages).

    We therefore would have 150 * (52 * $13,000) in sales or $101.4 million in total franchisee sales from the 150 Pie Fives. Of that, 30% would flow through the F&S segment -- or about $30.42 million. Multiply that by its operating margin of 5% and we have a contribution from the new stores through their purchases of the F&S segment of approximately $1.521 million in operation profit.

    Now, in the Franchisee segment, we have the 6% of franchisee sales royalty or approximately $6.084 million ($101.4 million * 6%). That segment has typically had an operating expense of revenue around 68% or 70% . Let's assume they can get that lower to only 65% (the level of 1999) -- or a level of expenses which would leave approximately $2.12 million in operating profit.

    In total and assuming improved margins, we are talking about an additional operating income of $3.6 million contributed by the franchisee build out. Now, the corporation in 2013 had an operating income of about $900,000 (see segment numbers from 10-K). Add our new income from the franchised Pie Fives to that and we have $4.5 million in operating profit pre-tax and pre-corporate overhead.

    Subtract the unallocated corporate overhead of around $1.75 million and we have a pretax operating income of $2.8 million *after* the Pie Five build out and assuming improved margins. Assuming a 35% tax, we are talking earning power of around $1.8 million.

    Capitalize that at 7.5%, and we have ourselves a business worth $24.2 million. Keep in mind that I just assumed some favorable stuff too. But I went ahead and wrote this up in some python code and will programmatically generate some other scenarios.

    SCENARIO #2

    Try this estimate with *double* the number of franchisees assumption:

    "300 Franchisees which generate $13,000.000000 in weekly sales. Of the franchisees expenses, 30.0% are spent on goods through Pizza Inn's Food & Supplies Segment -- becoming revenue for that division. We assume that division has a profit margin of 5.0%. Pizza Inn's franchisees will generate about $202,800,000.000000. With a 6.0% royalty rate, this equates to $12,168,000.000000 in franchisee revenue. We estimate that about 65.0% will go to expenses.. We assume that the corporation has an earning power of $1,000,000.000000 before taking into account any growth on the Pie Five side. Furthermore, we estimate that unallocated corporate overhead will be $1,750,000.000000 and that the tax rate will be 35.0%. We will then capitalized that earning stream at 7.5%"

    Under the scenario the corporation would earn $4.2 million and be worth around $56 million. This is a very good scenario and the corporation is only woth 15% more than the current share price.

    SCENARIO #3

    More franchises than base case, more revenue per store.

    "200 Franchisees which generate $14,000.000000 in weekly sales. Of the franchisees expenses, 30.0% are spent on goods through Pizza Inn's Food & Supplies Segment -- becoming revenue for that division. We assume that division has a profit margin of 5.0%. Pizza Inn's franchisees will generate about $145,600,000.000000. With a 6.0% royalty rate, this equates to $8,736,000.000000 in franchisee revenue. We estimate that about 65.0% will go to expenses.. We assume that the corporation has an earning power of $1,000,000.000000 before taking into account any growth on the Pie Five side. Furthermore, we estimate that unallocated corporate overhead will be $1,750,000.000000 and that the tax rate will be 35.0%. We will then capitalized that earning stream at 7.5%"

    Earning power: $2,919,000 -- value: $38,927,200

    SCENARIO #4

    More franchises than base case, more revenue per store, higher profit margin on F&S segment (2%), higher profit margin on Franchisee side (5%). Higher assumed earning power of corporation BEFORE pie fives.

    "200 Franchisees which generate $14,000.000000 in weekly sales. Of the franchisees expenses, 30.0% are spent on goods through Pizza Inn's Food & Supplies Segment -- becoming revenue for that division. We assume that division has a profit margin of 7.000000000000001%. Pizza Inn's franchisees will generate about $145,600,000.000000. With a 6.0% royalty rate, this equates to $8,736,000.000000 in franchisee revenue. We estimate that about 60.0% will go to expenses.. We assume that the corporation has an earning power of $3,000,000.000000 before taking into account any growth on the Pie Five side. Furthermore, we estimate that unallocated corporate overhead will be $1,750,000.000000 and that the tax rate will be 35.0%. We will then capitalized that earning stream at 7.5%"

    Earning power: $5,070,000 -- value: $67,617,333

    SCENARIO #5

    Alternative operating characteristics. More revenue through F&S segment via greater share of franchisee purchases. Higher operating margins.

    "150 Franchisees which generate $13,000.000000 in weekly sales. Of the franchisees expenses, 37.5% are spent on goods through Pizza Inn's Food & Supplies Segment -- becoming revenue for that division. We assume that division has a profit margin of 7.000000000000001%. Pizza Inn's franchisees will generate about $101,400,000.000000. With a 6.0% royalty rate, this equates to $6,084,000.000000 in franchisee revenue. We estimate that about 50.0% will go to expenses.. We assume that the corporation has an earning power of $1,000,000.000000 before taking into account any growth on the Pie Five side. Furthermore, we estimate that unallocated corporate overhead will be $1,750,000.000000 and that the tax rate will be 35.0%. We will then capitalized that earning stream at 7.5%"

    Earning power: $3,219,000 -- value: $42,932,500

    SCENARIO #6

    More franchisees, more weekly sales, greater share of franchisee expenses flowing through F&S, higher operating margins at F&S.

    "250 Franchisees which generate $13,000.000000 in weekly sales. Of the franchisees expenses, 37.5% are spent on goods through Pizza Inn's Food & Supplies Segment -- becoming revenue for that division. We assume that division has a profit margin of 7.000000000000001%. Pizza Inn's franchisees will generate about $169,000,000.000000. With a 6.0% royalty rate, this equates to $10,140,000.000000 in franchisee revenue. We estimate that about 50.0% will go to expenses.. We assume that the corporation has an earning power of $1,000,000.000000 before taking into account any growth on the Pie Five side. Furthermore, we estimate that unallocated corporate overhead will be $1,750,000.000000 and that the tax rate will be 35.0%. We will then capitalized that earning stream at 7.5%"

    Earning power: $5,691,400 -- value: $75,887,500

    ======================...

    Of the above, by far the most likely is #1. That was the base case built after looking at margins and relationships. The best case above is #6, which assumes 60% more Franchisees, weekly sales 8% greater than recent reporting, higher level of franchisee expenditures through the F&S segment. Much higher operating margin at the F&S segment by 2% (or absolutely by 40% greater). Further, it assumes that the level of franchisee related expenses falls by a very large amount. And even under this awesome scenario the corporation only earns $5.6 million and would be worth around $75 million estimated conservatively.

    Now, the above contains my assumptions and the way I believe the future income will flow through the corporation. Criticize the above. No more ad hominems please.
    Mar 23 02:21 AM | 1 Like Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    "Pizza by the slice is a NY concept that really doesn't exist much in the West and SE." I am in the west, and I don't agree.

    "What about the reviews? You haven't addressed that point." I believe the review are pretty good although many reviews have a caveat for price. My opinion is that that little caveat could prove problematic. Besides, there are some pretty negative comments. I am cherry picking but what about this:

    "Doomed. If you think industrialization is a great thing when it comes to "food", this is your mecca. They use TurboChef "ovens" (horribleness from Plano) and conveyorbelt pizza cookers. All the romance of dominos and even less flavor. "We cook our pizza so's its ready in FIVE minutes!" Wow. Is cook time a real deal breaker for folks? Oh, it will take 12 minutes to cook my real pizza in a real pizza oven? That is an outrage! I am OUT! What? Who invested in this? Morons? It is possibly the worst pizza concept ever. Pizza like what they would serve at a greyhound bus stop somewhere in Nebraska. If you are from Togo or Pakistan and don't know what pizza even is and are determined to not like it, go here. They will make sure your thoughts were correct. If you DO happen to like real pizza, keep driving, Nancy!"

    He was so disappointed he wrote "Who invested in this?"

    Further, at this Pie Five (on the Dallas Parkway) the star break down was as follows:

    Five Star: 6
    Four Star: 11
    Three Star: 9
    Two Star: 7
    One Star: 3

    The 9 and the 11 are not so distant from each other. This one is ranked 3.5. The Pie five on Greenvillie Ave is a solid 4 stars (12 reviews) and the Pie Five on McArthur is also a solid 4 stars (60 reviews).

    I looked at them before I wrote the article but I just didn't find them enlightening.

    "PI is a means to an end at this point." Definitely agree with that.

    "There is only one opportunity to invest in a $50m company in a new sector with a TAM like fast casual pizza." This may be true but it doesn't mean that it will make a good investment just because it is 'the only opportunity.' Thinking it is rare could also cause some irrational actions (as described in chapter 7 of "Influence: The Psychology of Persuasion" by Robert Cialdini).
    Mar 21 09:33 PM | 2 Likes Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    Great comment, witw. Despite what some other commentators may think, it is comments like this that I really appreciate. Because hey, I may be wrong. And if your right, it will be a great education since anyone can return to look at this article in a year or two years time. Anyways, back to your points.

    Can't argue with No. 1 or No. 2 (although I believe I saw many reviews, including 4 star ones, commenting on the price as a minor deterrent).

    I saw those commercials you mentioned in No. 3 but I wasn't particularly impressed. Maybe that is because I am from Arizona. It all depends on how much they spent on the commercials but your point is well taken.

    You make some great points in No. 4 -- my problem is exemplified by a Pizza place by my home called NiMarcos (see here: http://bit.ly/1iMaNrp) which sells huge $2 slices. I have found other places like this and I find it hard to believe that people would rather go to a place where it is a subway style build your own with a conveyor belt oven cooker rather than a small shop which sells large slices. But if you go there all the time, it just shows what I know. Anyways, I like the way you argued No. 4 via the established business models and their old capital investment and what-not.

    Point No. 5 is also excellent. I will have to look into that myself.

    Good points in No. 6 and No. 8.

    On No. 7 I don't entirely agree. Your right that it all depends on execution and strategy rather than, say, just being the innovator. But it seems to me there is a bit of a liquidity drain on the Pizza Inn side which could make raising capital to execute on the P5 side difficult. Of course, now that they have franchisees they will not need huge amounts of capital (most likely, kind of hard to predict). We shall see, good points all around.
    Mar 21 09:05 PM | 1 Like Like |Link to Comment
  • Is The Tuesday Morning Turnaround Story A Myth Or Reality? [View article]
    Great article, well researched, well written.
    Mar 21 02:56 PM | 3 Likes Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    Thanks for the comment Larmo411, I think I address how I see the value in the context of the growth of Pie Five in the comment above. The offsetting trends of legacy business verse growth will amount to treading water rather than growth.

    And, I don't speculate on TAM for fast casual. That number is made up by marketers, in my opinion. The marketing for fast casual strikes me as ahead of itself. Pie Five will be locked out the the market via the established chains -- whose pricing I view as extremely competitive. Maybe I have it wrong, but I am not into fast casual nor I am into speculating on TAM.

    "This is not the analysis or the author one should take advise from on a growth stock."

    There might be some truth to that -- I am a value guy. But they are going to have a challenging time obtaining and retaining profitability. I believe profitability is more likely to drive the stock than simply growth for growths sake. That said, we will get to watch and see. Maybe I'll eat my words (but I probably won't be eating pie fives).
    Mar 21 01:55 PM | 2 Likes Like |Link to Comment
  • Pizza Inn's 'Growth' Plans Are Overrated [View article]
    Hey witw,

    You are right that they are under contract and I was being too dismissive. The price of the stock could ride on whether they can be built out fast enough to offset their other franchisee declines. They need them to offset these since their income from their franchisee & food & supplies business was cut in half year-over-year. E.g., page 11 of the 10-Q*:

    Income before taxes for their franchising and food and supply business (ignoring company owned restaurants):
    six months ending 12/31/2013: $620,000
    six months ending 12/31/2012: $1,281,000
    six months ending 12/31/2011: $1,711,000

    Because of the way the company breaks out these numbers, I can only go back to 2011 but you can see the three year trend in the half year numbers.

    Anyways, my skepticism is aroused by their franchisee model -- which, although different from other pizza chains, I view as less competitive for the franchisee. Higher royalty rates, higher initial capital. Lastly, while I am glad someone likes their pizza pies, I am a bit skeptical of the price of their pizzas compared with other chains and local places.

    Also, if you think about the 150 that are opening, that could add probably add $6 or $7 million in royalty fees. This would be very good and would make the company almost fairly valued due to the profits this would generate. *But* offsetting that is a continued declines in the legacy business. Further, they would need to continue to be profitable on their "food and supplies" business. Their food and supplies business needs a certain scale to be profitable which may be difficult to maintain with these opposing trends.

    I think the most likely scenario is the company treads water in terms of revenue and profitability which would likely result in a decline in the share price.

    * http://1.usa.gov/1h2cZqb
    Mar 21 01:28 PM | Likes Like |Link to Comment
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