Third question: Are they taking a break from new store openings?
Please see their press release dated Tuesday December 11, 9:00 am ET
We intend to use the facility to help us complete our 2008 development schedule,” commented Steven J. Wagenheim, President and CEO of the Company. “At present, we intend to open in Orland Park, Illinois, in December, 2007; Creve Coeur (suburb of St. Louis) in mid-January, 2008; Fort Wayne, Indiana, in late January, 2008; Toledo, Ohio, in February, 2008; and three additional stores in mid-to-late 2008 in South Bend, Indianapolis and St. Louis. We may open additional stores in 2008 depending upon the timing of site availability. This facility plays an important role in helping us continue a balanced growth schedule during 2008 while our management team implements initiatives intended to increase the efficiency and profitability of existing locations.”
One other thing to consider with their stock price falling through the floor, is what their debt covenants might be like. If their stock price falls below a certain level spelled out in their covenants they will get tacked on additional % and fees, which is never good for an already struggling company.
There shouldn't be much debt on the books that could trigger any debt covenants. The majority of the debt on the balance sheet is future rents on the stores. Because their lease deal with Dunham is based on a cost plus and they financed 100% of the costs, the leases must be capitalized. (Companies are required to do this so they can't hide debt from the balance sheet by burying it into leases and calling it rent.)
I don't know much about corporate loan structures, but can GCFB refinance their high interest loans into the current lower rates? If so, they should definitely do that. Also, they need to raise their prices to offset the rising food costs. I know they've raised prices a couple times, but it seems to me that they have loyal customers such as myself who won't care about an extra 25 or 50 cents, especially on the mug club beers. Those same size beers go for $5.50-7.00 anywhere else, but GC only charges $3.25. It's great as a customer, but not so great as an investor. As the stock price continues to plummet, I find myself drinking more and more of those delicious Bocks to try to forget about it.
Of course this is all predicated on store level operations. At the annual meeting, they said that Chicago and St. Louis were supposed to open in November, with Ft. Wayne opening up in December. They were originally supposed to open much earier in the year but it's hard to negotiate leases and start construction without any money. Restaurant level margins have been so bad that store openings have had to be delayed.
IMO, the three later '08 openings are in jeopardy if they don't get gross margins back where they should be. This is why they are vague in giving a more precise time frame. (like which quarter)