CHEF goes overseas; why?
CHEF is the best-positioned food distributor rolling up small assets in the US. So why go after a business in the middle east? CHEF is buying the Gulf-based Chef Middle East from the alternative asset management firm Gulf Capital. The acquisition is expected to generate between $160M and $180M in annual sales and $11M to $14M in EBITDA for the company. Does the company need to have an "international" growth story element? Is the US roll-up story slowing? We see this as a signal CHEF is likely to make more international acquisitions, which come with more risk, given the company's lack of international experience.
RRGB Earnings
There is no path for this company to survive.
Red Robin Gourmet Burgers reports 3Q22 EPS ($1.03) ex-items vs. year-ago ($0.88) and Revenue, $286.9M vs. year-ago $275.4M and FS consensus, is $282.1M; Adjusted EBITDA, $4.0M vs. year-ago $8.3M FS (A)EBITDA consensus, is $6.5M; Comparable restaurant revenue increased 5.3% and 5.9% compared to 2021 and 2019, respectively FY Guidance (Dec 2022): Due to higher commodity and operating costs, and strategic investments, the company is updating its guidance as follows: Adjusted EBITDA $53M-58M vs. prior guidance at least $65M FS (A)EBITDA consensus is $62.3M; Pricing in the mid-single digits; Mid-double digit commodity cost inflation; Mid-to-high single digit restaurant labor cost inflation.
CMG'S LTO TREADMILL
The failure of the BOORITO LTO is the second example in two weeks of how CMG is now on the LTO treadmill. The price of the BOORITO LTO has gone up over the years; from Free in 2016 to $3 in 2017, $4 in 2019, and $5 for the online-only promotion in 2021, and now in 2022 it was $6.
Chipotle Rewards members in costume who scan their Rewards member ID receive one (1) entrée item for $6. The CMG CEO on the last earnings call said the average burrito price was $9, so putting on a costume to save $3 or less was just not worth it in 2022! According to a story in Insider, which most likely came from Reddit, seven workers told Insider that their stores were slower than expected. A quick look at the CMG Reddit threads, it's obvious the promotion was a failure. Many said it was completely different from last year's digital orders rush. "There was a lot of prep done and a lot of people staffed, but the customers just weren't coming in," one Reddit thread said. Another said that his/her store didn't meet even 75% of its sales projections. The company spin was "Halloween was the single highest rewards enrollment day of 2022, a Chipotle spokesperson told Insider, but declined to comment on sales numbers. Some workers speculated that the slow traffic was partly due to the "chaos" of last year when lines extended outside stores at many locations, and customers didn't want to deal with it. Many others noted a significant decline in food quality at CMG, and saving $3 was not worth it.
CMG is currently trading at 4x NTM sales. A 25% decline in the stock price takes it to 3x NTM sales and a 50% decline to 2x 2023 sales. At the low in March 2020, the stock traded at 2.75x NTM sales.
