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  • Darden Restaurants Puts Growth On The Menu With REIT Plan [View article]
    Author's hopeful narrative is way off.

    This is a dividend and share buyback play only, lets not disguise it as anything else. Debt can be reduced from proceeds of course, but that is a one trick pony. Then what ? Publicly traded companies need forward progress quarter after quarter.

    What is recurring and growing is rent expense and rental step expense rates, which are always expected by the REIT investorside. Revenues and profits do not rise due to a REIT. That being said, we can give Starboard and (DRI) Darden the credit to figure that out and hopefully find the lease structure that works best for all.

    Restaurant sites are of finite shelf life...neighborhoods and traffic patterns come and go. What corporate entity gets stuck with the dead sites?

    John A. Gordon
    Sep 1, 2015. 03:01 PM | Likes Like |Link to Comment
  • Wendy's: Refranchising Initiatives Offer Solid Upside [View article]
    Note to readers: a bit of a perception problem exists regarding restaurant refranchsing initiatives.

    Refranchising does provide cash for stock buybacks from unit sale proceeds and the earnings per share effect when outstanding capital stock goes down, and it may improve return on invested capital (ROIC), since capital assets are bought by franchisees.

    It may move the stock. In this case, Nelson Peltz insisted on such actions after owning it and seeing little return for 7 years.

    However, earnings dollars and free cash flow (Operating less CAPEX) gains from refranchising are not guaranteed from refranchising, and are best evaluated case by case. For example, how much does WEN G&A go down, can franchisees assume the debt service and future CAPEX and whether a WEN real estate margin is possible and affordable by the franchisees are important.

    John A. Gordon
    Pacific Management Consulting Group
    Aug 4, 2015. 12:17 PM | Likes Like |Link to Comment
  • Fast-casual flameout at Noodles [View news story]
    $NDLS is not a fast casual flameout. As I noted just now on my twitter feed @JohnAGordon and last year on SA, restaurant (and NDLS) unit development is hard and sites limited in the US. Thousands of new units in US not likely, but still a nice business can be built.

    Yesterday's (TTM) PE of 54.8X, and our culture of immediate gratification is the most counterproductive of all to properly build a restaurant chain. Give it time !

    John A. Gordon
    Pacific Management Consulting Group
    chain restaurant analysis and advisory
    May 6, 2015. 11:31 AM | 2 Likes Like |Link to Comment
  • Darden's Revenues Are Of Very Good Quality [View article]
    Not to be too critical to this well intended review, but other than a few private party contracts, Darden (DRI) is overwhelmingly (near 100%) a cash or credit card business. Credit card settlement terms are usually within 1-2 days. Therefore, I would expect any company owned restaurant chain DSO metrics to be great.

    John A. Gordon
    Pacific Management Consulting Group
    chain restaurant analysis and advisory
    Apr 8, 2015. 09:56 AM | 2 Likes Like |Link to Comment
  • 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 | 6 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 | 2 Likes 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 | 5 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