Chick-fil-A bill (LANC)
New York State is considering a bill that would require restaurants in the highway rest areas to be open seven days a week. The bill would not immediately apply to restaurants currently operating at state rest areas but would impact future contracts. The bill appears targeted at Chick-fil-A, which is the only chain restaurant closed on Sunday. Many Chick-fil-A fans would like to see the restaurant open on Sunday. However, the chain is more likely to leave the seven locations and not bid on new locations that require it to break its founder’s rule about closing on Sunday.
Lancaster Colony manufactures all of Chick-fil-A’s sauces and dressings. Lancaster Colony is the best way for public investors to participate in the growth of Chick-fil-A, as it represents >21% of sales and represents half of its sales growth. Lancaster Colony is a best idea long.
New Year’s Resolutions (HSY)
According to a CivicScience poll, 58% of U.S. adults will be making a New Year’s resolution this year. The #1 category of resolutions this year is improving their food/diet at 31%, up from 27% last year. Better fitness and exercise decreased from 24% of respondents to 20%. January is a popular time for people to make changes to their eating, exercise, and weight management goals. Research by Strava using over 800 million user-logged activities in 2019 showed that most people gave up on their New Year’s resolutions by January 19. Did GLP-1 drugs cause a shift in priorities for people to focus on food/diet rather than exercise?
Take Under (RGF)
On Friday, Kanen Wealth Management wrote a letter to the board of directors of Real Good Foods. The letter warned against a potential “take private” offer at a discounted share price. Kanen Wealth owns 9.2% of the shares outstanding. The fund has a history of activist investments, often in microcap consumer companies.
Real Good Foods has seen rapid growth, but results have missed targets, and the balance sheet leverage has weighed on share performance. The company recently refinanced its debt and issued equity to improve the balance sheet leverage and improve financial flexibility. Despite the moves, the share price is half of what it was prior to the equity sale. Our view of management’s goal was to reach 500M in sales and find a buyer who would pay a multiple of revenue for the growth business. However, the expensive financing is not giving management the time they need to reach their goal. As the activist points out, any sale now will be disappointing to most shareholders.
