Thursday post market close and Friday brought with it several interesting restaurant earnings releases, and they are continuing to paint the picture of a chaotic sector, with the occasional positive surprise.
Cult name Shake Shack (SHAK) , fell 12% on Friday after posting lower than expected second quarter results. A loss of 45 cents/share missed consensus estimates by 7 cents, while revenue of $91.8 million was off by about $800K. Revenue was down 40% from the same quarter last year, again, which was close to expectations, but let the enormity of that sink in for a moment. Same-store sales, which the company cleverly calls "Same-Shack" sales, were off by 49%. That is insane, and yet another testament to how disrupted our economy has been due to the pandemic.
Surprisingly, the company opened four new company-owned stores during the quarter, and one international licensed store in China. SHAK ended the quarter with $191 million, or about $4.60 per share in cash and securities, and no debt. The company had fully drawn down its $50 million revolver in March but paid it back in June. If you are wondering how the company has stayed liquid, and paid back its revolver in the face of an awful operating environment, that was through the sale of 3.65 million shares of Class A stock, netting the company $145.7. Issuing equity and tapping credit lines has been a common theme for restaurant names during the pandemic While there may have been no other way to survive, it has impacted shareholders, and will continue to impact them in the future due to dilution on the equity side, and the more leveraged balance sheets resulting from those who added debt.
SHAK shares are remarkably down just 22% year-to-date, but now trade very close to the price where they opened ($47) on their first day of trading (January 30, 2015). Shares currently trade at 265x next year's consensus estimates, and 90x the 2022 consensus.
El Pollo Loco (LOCO) , however, surged 15% on Friday after reporting better than expected second quarter revenue ($99.6 million vs. $96 million) and earnings per share (20 cents vs. 5 cent consensus). Total revenue was down 12% versus the same quarter last year, while same store sales fell 9.7%, which does not seem that bad under the circumstances. (Admittedly, every time I look at this company, I think of Los Pollos Hermanos, the fictitious restaurant chain in Breaking Bad).
LOCO ended the quarter with $60 million or $1.73 per share in cash (up from $8 million at year-end 2019) and $139 million in debt (up from $97 million), both courtesy of a fully drawn down $150 million revolver during the first quarter. LOCO shares had some rough years while other restaurant stocks were soaring, but now finds itself trading at a five-year high in the midst of a pandemic. LOCO currently trades at 24x next year's consensus estimates.
Someday, when we are done with this pandemic, the plight of restaurants, those who made it and those who did not, those that thrived and those that dived, and the impact of changes to the capital structures will make for an interesting case study.