Monday, November 11, 2013
Hip-Pocket Analysis of Resturant Chains Offering Veterans' Day Specials
Military veterans are familiar with the "hip-pocket training" that junior NCOs and company grade officers conduct when there's white space on the unit training schedule and no one has anything better to do. Well, I can still pull this off for the finance sector. Here comes my hip-pocket analysis of a few restaurant chains I sampled this Veterans' Day weekend. These chains offered free meals to veterans yesterday and today. I found their service to be excellent. Let's see if that service pays off in the bottom line of their financial statements.
I had dinner last night at McCormick and Kuleto's in San Francisco's Ghirardelli Square. It's part of the McCormick and Schmick's chain, owned by the Landry's multi-brand collection. Its old ticker symbol was LNY but it's now privately held. Their financial performance numbers aren't publicly available and I don't have time to talk to their investor relations folks. I'm on a deadline here. I will give them props for the fried shrimp and french fries. In years past I've had the seared chicken on Veterans' Day.
I had breakfast today at Denny's. The all-you-can-eat pancakes hit the spot but I could only handle two servings. My metabolism is slowing down and I'm not out to bankrupt a company with free pancakes.
Profit margin: 5.77%
EPS Growth (5yr): -5.02%
ROE (5yr): unavailable?!
I had lunch at Red Robin Gourmet Burgers. The free Red's Tavern Double Burger and bottomless fries came with a little US flag stuck in the burger bun. God bless America, land of burgers. I could only handle two servings of bottomless fries after those pancakes for breakfast. I would have preferred a bottomless waitress (and topless) but I can't have it all.
Profit margin: 3.13%
EPS Growth (5yr): 1.17%
ROE (5yr): 6.85%
I had dinner at Olive Garden. Those rustic sausages and bell peppers were just fine, and I even got a take-home plate to enjoy that stuff tomorrow. They were generous with the soup bowl and I got more than my fill of sausage, potato, and leek spiciness. Darden owns the Olive Garden and other chains, so that's where I have to look for data.
Profit margin: 4.28%
EPS Growth (5yr): 4.25%
ROE (5yr): 23.82%
These numbers are disappointing. DENN trades in single digits but only a moron with a single digit IQ would think that's a good value given its high P/E and thin profit margin. Reuters didn't have an ROE listed for Denny's but I don't care enough to calculate it myself. I could easily say the same for RRGB, another let-down. DRI has an impressive ROE but I am doubtful they can sustain it with such a high debt load (more than 2x net income).
None of these investments are for me. I have probably said before that retail food outlets are very sensitive to changes in middle class consumer spending. If I haven't said it before then I'm saying it now, woop-de-doo. The Fed's eternal monetary easing will squeeze middle class incomes and force consumers to stop dining out. It will also force up commodity prices and make national supply chain management costs prohibitive for branded restaurants, unless they're smart enough to lock in long-term food contracts right now. Hyperinflation will turn microeconomics into an art form for those locally owned chains lucky enough to have pricing power in their markets and dedicated local suppliers. I'm thankful for the free meals on Veterans' Day but these national chains can ill afford to give away food.