The line at the local Chick-fil A was long this past Tuesday, and I told my wife we should just forget it, we'd be there forever, but she knew better. That line separated into three, and it was not long before we'd ordered, and the food was delivered. Interestingly, just one mile away is a Wendy's (WEN) location and I was very curious to see how they were doing this particular early evening. There was no one there, not a single car at the drive-through. Not exactly an adequate sample size for a channel check, but eye-opening nonetheless.
Chick-fil A is a chain that truly seems to have its act together, from service to the menu to the quality of the food (and in my humble opinion, it also has the best milkshakes in the business). It's also one I've wished was publicly traded for many years after first visiting a location in a Pittsburgh mall in 1987. The company also passed Taco Bell (owned by Darden Restaurant's (DRI) ) and Burger King (owned by Restaurant Brands International (QSR) ) in 2019 for second place among top grossing fast food chains, with $11.3 billion in sales - and remember they are closed on Sunday - behind the 800-pound gorilla, McDonald's (MCD) , which grossed $40.4 billion.
I'd love to know what Chick-fil A's financials look like. I've heard that profit margins are relatively high for fast food, but since they are not publicly traded, there is no way to know for sure. They do utilize a franchise model, which typically generates higher margins than company-owned store models. The company also generally allows franchisees to have just one store. It's a model (low initial fee, one store only) that Biglari Holdings (BH) , BH-A is trying out in an effort to save Steak 'n Shake, which appears to be a tall order at this point.
Elsewhere in restaurant land, late Wednesday, Ruth's Hospitality (RUTH) , which operates and franchises Ruth's Chris Steak House priced a $43.5 million secondary offering at $8.00-$8.25/share. That increases shares outstanding by more than 5 million, diluting current shareholders by about 20%. Shares fell more than 11% yesterday as a result of the offering.
RUTH is down more than 60% since late February and has taken other steps to increase liquidity, namely increasing its borrowing capacity under a credit agreement to $150 million, while relaxing leverage covenants and suspending dividends and buybacks. In late April, the company announced it was repaying the $20 million received from the Fed's via the Paycheck Protection Program.
As of yesterday, the 150-location chain had reopened 11 company-owned restaurant dining rooms, while 31 franchises had done the same. Another 56 company-owned stores and 22 franchises are operating takeout and delivery-only, while 30 company-owned stores and 19 franchises were closed.
At least there's been some progress in reopenings, but my heart goes out to the mom and pops, and single restaurant owners that might not be able to reopen.
