Given the environment, there was nothing earth shattering from any of these companies. It was notable that the tone was still one of caution.
Burt Vivian started the day off at 8am with his typical dour tone that we have become so accustomed to. He noted that there continues to be small steps of progress being made at the Pei Wei brand. Although the tone at the bistro is the same; weekdays suck (down double digit) with the weekend showing better trends, allowing the overall trend to be down mid single digits. Favorable cost trends remain a big tail wind for the company. Right now PFCB has a 36% short interest; I'm having a hard time seeing what the short story is on PFCB.
JACK presented next with very typical commentary on current business plans. The focus continues to be on the new platforms and refranchising. I'm actually becoming more favorably disposed to JACK as we head toward the back half of its fiscal year. JACK has the potential to end the year with a blockbuster FY4Q09. With Carl's Jr. lost in its premium product strategy, there is some market share for JACK to take in the California market, so sales trends should continue to show better trends as we finish the fiscal year. At the same time, commodity trends will continue to improve for the balance of this fiscal year, with commodity costs down 2% in FY4Q. With JACK trading at 5.5x EV/EBITDA and the group trading at 7.5x there appears to be at least $6-$12 of upside on accelerating business momentum.
CAKE was next with a very solid presentation. I really think Doug Benn adds a lot of credibility to the CAKE cost cutting story. With CAKE generating $90 million in FCF, which will go to reduce the debt on the balance sheet by $100 million, the focus is on cost cutting and the company ability to offset the MACRO environment. The real opportunity for CAKE is to get the average unit volumes back to $11 million from the current run rate of $9.8 million. Barring a big change in sales trends, the CAKE story is solid and with a 14% short interest there is risk to the upside.
SONC was more depressing. Over the past 12-months, the company raised the prices of its combo meals to the point where consumers are now buying more à la carte putting pressure on the average check. According to the company, the fix is to raise prices on the à la carte products to make the overpriced combo meals look better! How does that work? How did such a well run company get so screwed up? SONC has seemed to have lost its way in a very competitive QSR segment, and the short interest only stands at 10%.