Yes, I was disappointed in today's action. Order
imbalance at the open caused a delay, then it was almost
straight downhill from $24 after a couple of failed
attempts to stay above $23. I expected a lot of selling
into strength, but I didn't think it would close at
the low of the day. Still, it was a tough day in the
market, and an even worse one for restaurant stocks,
which got hammered.
JITB jumped fries and drink prices to extreme
levels, as well as super-sizing as a means to maintain
margins. Since fries/drinks prices have no more upward
room to go, any increased labor costs must come out of
the bottom line unless 99 cent products become a
thing of the past. That can only happen if the
competition takes the lead. That means
P.S. Were you as surprised as I was that JBX closed at
the low of the day? Volume dried up after lunch and
the price faded. Looks like somebody is still
unloading. It's beyond me why.
"As long as it continues to cost 45 to 55 cents
to make a Jumbo Jack"
It's been about 18
months ago but at that time the Jumbo Jack cost 28
I'll bet the container costs more
than the contents. 25 cents is WAY too high. 3-4 cents
is more like it.
For the past couple of years, I have repeatedly
asked whether there were any future plans to increase
prices, especially on the Jumbo Jack, and have always
gotten the same response. NO.
I know JBX has done
pricing tests in the past to see what would happen if
they raised prices, and they probably still run them
from time to time. I take it that these tests continue
to prove it isn't a good idea. The 99 cent Jumbo
Jack is here to stay for a while. JBX must consider it
is a vital part of their game plan.
I goofed and meant to say "As for WEN, they have
about $250M in cash and equivalents, which is about the
same amount as they hold in long term
As always, do your own research
(especially if you're numerator-challenged from time to
(( Since X percentage of the industry is probably
already paying, or is on
track to exceed, the current
min wage, it appears to give the
open door to do something to make them look good to
potential voters. ))
This, I think, is
the most telling statement in your strong post about
min. wage. In fact, I was just reading that the US
Senate passed the GOP min. wage bill but Clinton has
already said he'll veto it if it gets to his desk (which
won't happen until next year, if at all).
was attempting to do with my earlier post was just
try to explain the unexplainable: Why institutional
investors would be dumping JBX last week despite its strong
growth over the last 5-plus years and in advance of a
year-end result everyone expected would be strong. The
ghost of minimum wage hikes was my theory; hopefully,
with today's Senate action, that ghost is
As for the rest of your post, as a customer I
wouldn't mind if JBX inched up its 99 cent menu to $1.29
or $1.59 because I go to JBX for the quality of food
(which is a bit pricier). As a stockholder, I like the
idea of a slight increase, but I worry that the JBX
99-cent menu draws people who might have otherwise gone
to another QSR for its cheap menu. As long as it
continues to cost 45 to 55 cents to make a Jumbo Jack, I
say keep the price of it down and make up for it on
the 15-cent fries or the 25-cent sodas that cost
We had a couple of messages about the Min Wage on
CKR board but never tore the subject apart, and
several months ago there was some discusion about
increased labor requirements at MCD with their Made For You
assembly procedures. But Min Wage wasn't really visited
except in passing. It has to be a big part of increased
food quality and service.
More labor needs +
higher min wage = higher labor budgets. Since MCD still
makes half it's earnings from the US, why didn't it hit
the market leader too? Why would it affect one
player, but not all? I don't know the answer.
CKR post says the labor budget is usually NOT
increased after an increase in the min wage. I wonder what
affect that has on an organization. That link to the one
I'm referring to is:
I get the impression that a great part of the
country that entry level labor is already a little higher
than their states current minimum wage.
percentage of the industry is probably already paying, or is
on track to exceed, the current min wage, it appears
to give the politicians an open door to do something
to make them look good to their potential voters.
They are probably just coming up behind the wage
number that the market has already determined staffs the
The real problem I see is the affect on
those employees that are currently higher than the
current wage, but par with the proposed minimum wage.
Wouldn't you feel good making $1 more than the current
minimum (with your experience) only to find out some off
the street now earns the same. So on one hand I see
The ability to absorb or pass
on the increases in the form of price increases or
the market power to pass on the increases seems key
to this industry.
Does this mean a bigger
organization is better, where the larger the player, the lower
the costs, and the better to deal with labor cost
pressures. What if the larger player want greater market
share? No price increases?
JBX, if I recall, was
able to institute a 2% average price increase at the
last min wage increase in CA initially. However, if
you watched their pricing, you might get the
impression they back tracked a little. If I recall
correctly, one or two low-cost items were pulled back to
their previous price levels after they upped the price.
The 99c value chicken sandwich comes to mind as one
JBX success to absorb labor pressures
appear to be in their menu board presentation and
ability to upgrade or add on to an existing orders. The
new boards appeared to increase the average
transaction by encouraging more transactions to be meals than
previously. Their order screen may have told the customer
that they can spend a little more. If they had $5 in
their pocket, and they spent 3.87 (confirmed by the
screen), maybe they would add another dollar item to their
order. These increases may have allowed to JBX to
absorbed some of the increases by making each transaction,
on average, more productive.
something has to give. The 99c menu has to be in target. I
would hope the entry-level menu would fall closer to
$1.59, or if desperate, $1.29. Not 99c.
further thoughts on if the min wage discusion in DC
contributed to JBX's decline?
in North America. From their 11/9 press
"In Quick Service Restaurants, comparable restaurant
sales for the period are down by 3% in North America.
This was expected as comparable restaurant sales
growth in the prior period was 6%. Comparable restaurant
sales are up 2% in the Rest of the World with continued
strong performance in Europe and Latin America. 160 new
restaurants have been opened in the first quarter and system
sales have increased by 4%."
sales are also flat. KFC and Taco Bell's YTD sales are
flat. Carl's Jr. is in the toilet.
where JBX is getting its PSA increases from?
always, do your own research,
Thomson's I watch at this moment is showing
several "super sell messages" between 22 1/8 and 23 1/4.
It would seem that some institutional player is
looking to put their money to work elsewhere. Hard to
believe, based on results, that there is any hidden issue
within the business. I can relate however to what might
be sector rotation, since technology looks like the
hot sector for the likely short and medium term
(1.infrastructure 2. business to business 3. consumer...in that
order). Nice to take a breather, though, and put the
money into a friendly under 12 PE stock for a while.
Burgers aren't "breakthrough," but they're
With heavy volume, half of it today being
institutional, this market action has to be showing some
"choreography." Trying to read how these big guys play poker, how
they mask or telegraph their intentions. Don't have
Level II so also trying to learn how to use the tools
If I was Jim Cramer for
instance, or had several million in my trading account, my
access to the brokers could provide "a little" more
insight into what's being played out. Cramer (who
generally trades on business fundamentals, rather than
"technicals" and just like everyone sometimes gets blindsided,
hence the title of his column at thestreet.com: "Wrong!
Rear Echelon Revelations") trys to infer what kind of
weight is behind selling or buying by watching "the
tape," seeing how the bid and ask adjust to price and
volume. Aw, that's too cute for me, I just need to pick a
good company and try to ignore the daily ebb and
Question to observers of market makers: what does it mean
when there are 5000 shares on the bid, and only 100
shares on the ask? Does that imply the MM is defending
the price (ie. accumulating by not dropping the price
to pick up the bid)?
This MM is moving some
volume today...watching the orders at Quote.com live
charts, I'm seeing the majority of trades being 1000 or
more shares. I'm thinking this isn't hundreds of
retail buyers opening or closing their entire positions,
but rather large pieces being added to, or whittled
down, in many slices.
Oh well...what's for
lunch? *smile* ~Geo.
Yes, it's a comforting sight to drive by almost
any JITB from San Diego to Palm Springs and see cars
in the drive-thru lanes at any time of day or night.
But it's obvious they're doing well, since PSAs
continue to move UP, this quarter up 9.3%--pretty
incredible when you consider how long most of the JITB
restaurants have been open in their mature, highly
As for WEN, they have about $2.5B
in cash and equivalents, which is about the same
amount as they hold in long term debt. Book value is
around $9/share. These fundamentals are much higher than
JBX, so that could account for the difference in how
they're valued. WEN's chart shows a similar drop, from a
high of $31 11/16 to today's price of around
Checking my Yahoo! quote list of restaurant stocks shows
that with the sole exception of JBX, it's a bloodbath.
Most are down 3-5% right now. I think we are looking
at a sector that is continuing to fall out of favor,
You can bookmark my Yahoo! quote list of restaurant
stocks if you like:
As always, do your own research,