John Gordon

Buffalo Wild Wings: Costs Are Getting Out of Control

I suppose when you are a short, Its always easy to look for (and hope for) the negatives. Ourselves, we do not take stock positions, and supply independent restaurant analysis only.

The company's real earnings fundamentals are good, much better than almost anyone in the restaurant universe right now. Consider all of the following:

Postive same store sales--company stores +4.5%, zees 2.5%
Company is adding new units--36 on year to year basis, 18-22 new units (company plus zees) in next quarter.
$2.2M store level AUV isnt bad
Depreciation up but this is a noncash expense--its a good thing, folks! It is a source of cash
Price increase of 4% planned (for Chicken wings and other commodity movements).

For now, BLWD is in that rare position where it is growing stores and comp sales in a very bad economy. Lets take it !

Stock Price: little has happened since week ending 2 February (price $22.67) to week ending 16 March ($36.46) other than the rest of the restaurant universe continues to move sideways or down in real earnings fundamentals.

John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

An analytically focused management consultancy

Darden Surges on Positive Earnings Report

Several chain restaurant operators have reported less of a decline in comparable sales versus prior year, in late February and March, to date.

While I for one certainly hope business conditions improve WORLDWIDE, chain restaurant investors should keep in mind that 2008 was NOT A GOOD YEAR (traffic, especially at casual dining operations, fell throughout the year, but especially in September-December).

Comparing to a weak 2008 is not the most valuable metric, and all factors should be conidered in assessing sales and (more importantly) earnings.

John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

An analytically focused restaurant management consultancy that does not take stock positions

Average Consumer Not Cutting Restaurant Costs

I like Geezeo, but the restaurant statistic DOESNT TRACK at all to chain restaurant same store sales. US Same store sales are flat to down almost EVERYWHERE (with one restaurant chain down 12%, another down 20% year over year, same stores.)

Perhaps this Geezeo survey didnt include frequency?

John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

About us: we are an analytically focused restaurant maangement consultancy.

Are Cosi and Jamba Juice Going Extinct?

One common denominator is that both chain concepts noted have a somewhat narrow dayparts focus--snacks/off peak period for Jamba or Breakfast/lunch for Cosi, and that they weren't known as a value leader.

Restaurant theory is that you must have success in a vibrant two or three dayparts in the daily business cycle to make proforma sales goals: breakfast, lunch, dinner, overnight. Some now add a fifth daypart, snack/off peak.

John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

We are: an analytically focused restaurant management consultancy

Cheesecake Factory: Why Piper Jaffray's Downgrade Was Baseless

I know Marc wants to get his money back, but there is NO reason to think that consumer confidence will return anytime soon, OR that casual dining operators will necessarily benefit, soon. That is wishful happy talk that does no good.

Hint: check it any companys geography, urban/suburban/rural mix and site characteristics (mall vs non-mall characteristics, etc.) first.

Restaurants broadly trade in a PE range from the single digits close to 20, The casual dining operators have been the most negatively impacted by societial and economic changes, and thus, warrant a lower valuation multiple.

Nicole is a great analyst and always asks the hard questions.

We are an analytically focused restaurant management consultancy, have no stock positions, and only will provide truly independent commentary.

John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

Retail in the Age of Frugality: Saks Gets It, Starbucks Not Quite

As noted in my February 2, 2009 Seeking Alpha post, SBUX does not seem to have (or not now considering) a value band in its menu offerings. Simply, put there should be affordable items and portions.

It will be interesting to see what a combo LTO or possible later price decreases will do.

John A. Gordon
Pacific Management Consulting Group
An analytically focused management consultancy

Earnings Preview: Brinker International

We were doing field checks last week in a Macaroni Grill. The QSC and value were great. Brinker did a nice job with the concept.

However, as I noted in December on seeking alpha, the closing of the Macaroni Grill sale had to do with getting the sale price down low enough (under $1 million per unit) so that the restaurant level cash flow could service the debt.

Its all about the math. Hence, Brinker will have to make it on its existing brands.

John A. Gordon
Pacific Management Consulting Group
pacificmanagementconsu...

an analytically focused restaurant management consultancy

Starbucks Still Brewing Growth

We look at restaurant sector earnings and business conditions continually.

The posted Dunkin v. Starbucks comparison itself is faulty. They trade customers only in a very few places.

Dunkin is strongest in the Boston-NY corridor and is trying to add franchisees elsewhere and internationally. It is privately held and has a boatload of debt.

Starbucks is publicly traded, more globally positioned and has a lot more eyes on it. Nothing fundamentally has changed in its business model or macro/micro economics conditions to cause a sales gain.

John A. Gordon
pacificmanagementconsu...

Analytically focused restaurant analysis and management consulting

McDonald's: A Billion Sold, but What about 2009?

Trader has written a nice article, but not being an restaurant analyst, he misses a few points about McDonalds: He principally needs to think about unit growth.

McDonalds profits comes from franchising, company store operations and real estate transactions in that order.

McDonalds has been outperforming the restaurant sector and is practically the only company in the chain restaurant universe that has positive comp sales in both the US and Internationally. Its is because it has a great menu and great marketing support.

Should commercial real estate tank worldwide (as it is about to here in the US) that will be a drag on earnings.

But at the same time, a stronger dollar will help moderate commodity cost inflation, which will improve company operated unit level margins in the US.

And: the most important factor: the availability of credit for franchisees to continue expanding. The (AUV) sales to investment level for McDonalds is about 1:1. Buildings are not cheap. If no $ less franchisee expansion. Thats a big deal.


John Gordon
Restaurant Analyst
Pacific Management Consulting Group

Chipotle Mexican Grill: Too Hot To Handle?

I'm a restaurant sector analyst, and former Chief Financial Officer, who does analysis, research and due diligence projects in the restaurant sector.

I myself have not seen a price increase, have travelled throughout the Midwest and Western US and saw no price changes (yes--zone pricing might be an idea). But that said, there is a upper bound that prices can be pushed. But with raw materials going up so rapidly, restaurants must raise prices. They key is to do it smartly.

Finally, Chipotle is a well managed company. We are in a recession and consumers react. The key is to now survive the downturn, and be first out of the gate when conditions begin to improve. We have some time to go until that happens, however.

Krispy Kreme Turnaround Gaining Traction

The key words here are: Company is concerned about franchisees closing new stores. If they said it, you can believe its a real threat, with the economic problems underway.

We have no stake, nor never will, in any of these stocks.

Bob Evans Likely to Suffer from Sector Troubles

In addition to the comments above, the company's core markets are in the Mid-West (Ohio, IN, PA) where population growth has slowed, the population is older and gasoline issues always have had a large impact, even back to the 1980s, when we first started in this business !

Raw Data Report: Fast Food Restaurants

Interesting survey data, but not written by an expert. Anecdotial, customer level input.

CKE no longer owns LaSalsa, it was purchased by a private equity group in 2006/2007.

If you need more detailed restaurant analysis, contact us at pacificmanagmentconsul..., 619 379-5561, restaurant economics experts.