NEW PLAY CEO came up short
The new CEO is 60 days on the job, and his first real conference call did not go well. He came across as unprepared to talk about the business trends.
On the earnings call, the CEO was unprepared or unwilling to provide basic details about quarterly same-store sales or average weekly sales. "Yeah. Look. Unfortunately, we don't have that piece of data with us in front of us on this call." Then there is this "we really don't have a very solid measure of traffic. So we've kind of refrained from having any type of detailed discussions between traffic versus a check." When asked about same-store sales, he said, "The verses 2021 is a little, I'd say, misleading because you had some unusual items that were taking place in that period of 2021 as we were still dealing with coming out of the coronavirus recovery. And then, we were entering into the potential for Omicron. So, from our perspective, we're only comparing everything publicly to the potential from abroad. So, from our perspective, we're only comparing everything publicly back to 2019 for now.
Yet the company reported same-store sales data was in the 10Q! The company reported a 2Q22 SSS of 5.7% (down from 71% in 1Q22) with amusement growth of 2.3% (1Q11 was 66.2%); food up 14.6% (1Q22 was 93.2%), and beverage up 8.6% (Food and beverage sales are benefiting from growth in late night.)
Did the CEO not know that his same-store sales were going to be in the 10Q? Strange move on his part!
PLAY 2Q22 GAAP EPS of $0.59 misses by $0.45 and Revenue of $468.36M (+24.0% Y/Y) beats by $35.44M. Management commented that revenue was above consensus in food & beverage and amusement. If that was truly the case, given the fixed-cost nature of this business, some margin pressure would have been mitigated by the strong sales trends. Obviously, that is not the case, given that store-level operating income before D&A declined 630 PBS YoY to 29.2% vs. estimates of 33.1%. Operating margin declined 890bps to 12.1% vs. estimates of 18.3% and year-ago 21%. Inflation is rampant at PLAY, and sales are decelerating fast! Not a good combination. Amusement same-store sales decelerating to +2.3% is concerning; the amusement business is highly cyclical and likely to slow further from here, bringing down margins and estimates.
After repurchasing $30.5 million in stock, the company burned $28 million in cash. Not a good look for a company that is highly leveraged at 6.0x net debt to EBITDA for FY2022.
California Fast Food War
A newly proposed referendum seeks to block newly signed legislation.
The referendum proposed to hit ballots in 2024 will turn the question of whether to allow the FAST Recovery Act to continue toward implementation or be blocked permanently. and let voters decide whether to permanently block it in 2024. According to the Wall Street Journal, the proposal was filed by state residents Amber Evans and Steven McDermed, who are represented by the law firm Nielsen Merksamer. The challenge comes amid a significant backlash against the FAST Recovery Act, or AB 257, by groups representing the restaurant industry. “Even the Governor’s own Department of Finance said AB 257 would increase costs. This comes at a time when inflation is at record highs, and families are struggling every month,” Michelle Korsmo, President & CEO of the National Restaurant Association, said in a statement shortly before its passage. ''For restaurant operators, the FAST Act threatens businesses already contending with a 16% increase in wholesale food prices and ongoing supply chain challenges. In fact, 45% of California’s restaurant operators report that their business conditions are worse today than they were three months ago.”
YUMC
We added YUMC to the LONG list on 6/7 because of easier comparisons and China opening up. The latter is not happening, so we are removing it from the LONG list as financial recovery will take longer to achieve.
Officials in the city of Chengdu have extended Covid lockdowns indefinitely in the areas that were set to end on Wednesday. According to a report from Nikkei Asia, Chengdu city officials have said the lockdowns will last for at least one week as the city has said it intends to "bring the number of cases down to zero in a week." The report said that only "essential infrastructure" that involves water, electricity, oil, gas, communications, food supplies, and manufacturers that are meeting specific requirements would be allowed to continue operating during the new lockdown. The extension is also going into effect just as the region has begun to come back from a series of electrical outages tied to a drought in the Chengdu area. The shutdown is massive, as Chengdu is home to more than 20M people. The city is scheduled to run two rounds of mass testing on Friday and Sunday, and residents in so-called "high-risk" areas won't be allowed to leave their homes during the lockdown. People who live in what are called "medium-risk" areas won't be able to leave their residential complexes.
