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John Gordon  

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  • The Argument Against The REIT Is McWrong. Here Is Why It Works For McDonald's. [View article]
    What writer misses in his pro-REIT commentary is the following. Here are five questions for further thought:

    (1) what is the rent step up--higher rent costs that the MCD entity no doubt would have to pay to meet the REIT entity's needs in the outyears. Virtually all sale/leaseback terms that I've seen over time invariably have a step up. Can the restaurant cash flow handle it? What is the negative impact upon the MCD entity?

    (2) What about real estate portfolio breakage? Lets face it, with so many restaurants in the US, the effective economic useful life of a restaurant is highly dependent on visibility and locational factors. Locations need to close and be sold, sometimes quickly. Will the MCD entity be on the hook for paying dead rent on dead sites?

    (3) Can MCD shareholders get more than $5 billion in earnings annually from the REIT ownership, tax savings or stock appreciation as that is the MCD real estate margin currently? Check out the MCD 10K in detail.

    (4) Why are there no restaurant REITs now?

    (5) How did that gaming REIT, Penn National (PENN) work out?

    John A. Gordon
    Pacific Management Consulting Group
    chain restaurant analysis and advisory
    Mar 30, 2015. 03:17 PM | 5 Likes Like |Link to Comment
  • Zoe's Kitchen: Cheap For A Reason [View article]
    I generally agree with writer above that Zoes's is a strong brand and there is a long positive pathway for Zoes's to develop.

    However, Colorado fundamentally misunderstands the economics of franchising. At an early stage, when the brand is growing with great unit level economics, restaurants should develop company owned store models because the profitability is greater than that of franchising. Franchising yields only a small royalty stream per store. It is later, when the brand matures, and is overbuilt, or when it should be expanded internationally, that franchising makes sense. One always takes dollars to the bank, not percentages.

    John A. Gordon
    Pacific Management Consulting Group
    Mar 20, 2015. 01:38 PM | 1 Like Like |Link to Comment
  • Habit Restaurants: Suspicious Takeaways From FY 2014 Earnings Week [View article]
    Writer: suspicious? Really?

    There are plenty of equities (some restaurants) that do give truly suspicious guidance and accounts but HABT, on its very first earnings call, was not and could not. As I noted in my SA article piece this year (2015 Restaurant Realities), just out of the gate restaurant IPOs need some time to settle out due to extraordinary market sentiment. But it's explanation and expansion looks logical. There is no typical at such an early stage.

    As a southern CA based restaurant analyst (buy side), with almost 40 years of restaurant experience, I can tell you the HABT stores, staff, food and execution has been wonderful, and exactly what I expect to see. If you leave nuclear engineering, I'd be happy to give you a tour of the real restaurant world.

    John A. Gordon
    Pacific Management Consulting Group
    chain restaurant analysis and advisory
    Mar 17, 2015. 11:58 PM | 4 Likes Like |Link to Comment
  • Is McDonald's Dividend At Risk? [View article]
    Very interesting piece. There is some FCF tightness, that's why MCD has said what it has lately. Of course, share counts will go down with buybacks.

    However, what needs to be further aired out is CAPEX. CAPEX is only semi predictable, and for an older chain, should grow in cycles. While heavily franchised, its not enough to assume the franchisees will do it. They can't necessarily given the MCD real estate model.

    John A. Gordon
    Mar 3, 2015. 11:09 PM | Likes Like |Link to Comment
  • Panera Through The Eyes Of A Customer And An Analyst [View article]
    I agree with author that Wall Street forgets about customers.

    Author didn't note if his visit was to a v 2.0 store or not. But presume so.

    Author has seemingly missed the 2014 and 2015 earnings calls, guidance and color that PNRA and the analytical community has provided for some time. Labor is going up, not down. Number of cashiers is not meaningful to the labor mix in store, due to other moving pieces. They are transitioning to a service delivery model ! That means something in an era of more expensive labor. Whether that service plus up will cause PNRA to stand out via a competitive niche will be seen over time.

    Could digital or sales mix go up over time? Of course. If the dining room is less busy right now...that is not a good sign. That is January/February seasonality. It will take months to see the digital or catering sales mix moves up. Too soon to see it.

    John A. Gordon
    Mar 3, 2015. 10:59 PM | Likes Like |Link to Comment
  • A Fresh Cup Of Coffee? Starbucks Q1 Projections [View article]
    SBUX is a wonderful, powerful, creative consumer thought and business leader that can turn on a dime. However, i think the near term investor perception issue will be whether the mix between sales and transactions will show another narrowing of the transactions as we saw last quarter. Reports of down mall foot traffic should be watched.

    John A. Gordon
    Pacific Management Consulting Group
    chain restaurant analysis and advisory
    Jan 20, 2015. 12:47 PM | 2 Likes Like |Link to Comment
  • Update: Dunkin' Donuts Grows Units Faster Than Sales [View article]
    Ah, but the problem is that you can't carbon copy it everywhere. Retail, restaurants (any consumer business) have a strong geographical DNA; some things work, some don't. A franchisor can expand but the store level economics have to work. The US is a mature restaurant market, its not the wild west anymore.
    Jan 19, 2015. 10:43 AM | 1 Like Like |Link to Comment
  • Dunkin' Donuts Takes Second Dip Into China [View article]
    Doug, thanks for your piece. For the Dunkin store economics to work, the sales mix must skew towards beverages, and then fill in products like breakfast sandwiches and lunch grab and go food items. If its all about donuts, the store economics will be suboptimal. Given this, does Dunkin have a play given that SBUX and others are present?

    John A. Gordon
    Restaurant Analyst
    Jan 9, 2015. 11:47 AM | Likes Like |Link to Comment
  • Dunkin' Brands' Troubles And The Parallels To Starbucks [View article]
    Happy Holidays, all !

    Looks like the DNKN--DD US-- residual check weakness continues. Discounting is not buying traffic.
    Dec 25, 2014. 01:25 PM | Likes Like |Link to Comment
  • Is Casual Dining Dying? [View article]
    I agree with Denise. I'd add Texas Roadhouse (TXRH) to the standouts list: no breakfast, no lunch, no brunch; are buying back franchisees; incented and well compensated store partners, the heart of the system. No financial engineering, no gimmicks.

    John A. Gordon
    Pacific Management Consulting Group
    Oct 27, 2014. 12:17 PM | 3 Likes Like |Link to Comment
  • Bob Evans May Soon Be 'Delivering Farm Fresh' REIT Revenue [View article]
    Brad, I appreciate the comprehensive piece. I very much agree that BEF is very sellable. However, regarding real estate, several points that never seemingly get addressed by the pro-REIT advocates are:

    (1) what do the inevitable outyear rent step ups do to the retail or restaurant entity profitability and free cash flow going forward? No one seemingly models that out through the outyears. Isn't it merely a wealth transfer from entity one to entity two?

    The recent example of Penn National Gaming's deterioration is worth watching. Will the REIT sink it or the long term over expansion of gaming in the US?

    (2) For an older legacy brand, like BOBE, that has older properties that it needs to get out of, how would a REIT affect company contractual outyear lease payments? Would they not be stuck with outyear lease payments on dead sites? Is a site by site analysis required?

    John A. Gordon, MAFF
    chain restaurant analysis and advisory
    Sep 29, 2014. 12:09 PM | 1 Like Like |Link to Comment
  • Memo To McDonald's: Core Execution Should Be On New U.S. President's To-Do List [View article]
    Denise: as always, a very wise perspective, thank you.

    On value and $1 items, for many reasons, not the least of which is minimum wage hikes, the US (and many international markets) simply can't afford $1 items anymore. It's got to find a new platform that features price but that is not only about price.

    Getting breakfast to work 24/7 (see: JACK) and a real digital program are way overdue.

    John A. Gordon
    Pacific Management Consulting Group

    Sep 8, 2014. 11:44 AM | Likes Like |Link to Comment
  • McDonald's: The Real Estate Juggernaut [View article]
    If there is a followon discussion on MCD real estate, what might be useful is to track the rent and occupancy proceeds generated per franchise unit and the effect that produces on franchisees. In the past, MCD used rent as a "shock absorber" to help even out early term development hurdles. That does not seem to be happening in recent years. In some cases, the MCD rent overage collected above a threshold is 18% of sales. Good for franchisor corporation, bad for franchisees.

    MCD is over 80% franchised, and trending higher as we learned this week, and franchisee free cash flow matters to the good of the whole.

    Bloomberg and I collaborated on such a review in 2013, see it on my website, below.

    John A. Gordon
    Pacific Management Consulting Group

    May 29, 2014. 02:24 PM | 1 Like Like |Link to Comment
  • Red Lobster Levers [View article]
    Thanks for note--but this is what DRI has reported in its earnings calls.
    May 22, 2014. 12:22 PM | Likes Like |Link to Comment
  • Analyzing Companies Is A Complex Affair: Don't Use EBITDA [View article]
    In the CAPEX intense restaurant space, I've seen more problems using EBITDA --both investment decisions and compensation decisions for example-- than any other single measurement metric. Taxes, debt service and maintenance CAPEX and routine CAPEX have to be counted.

    John A. Gordon
    May 18, 2014. 09:20 PM | Likes Like |Link to Comment