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I listened to the conference call. Here are a few
interesting points and some reading between the
1) 1 reason for $.22 vs. expected $.24
They made the statement that there was a non-recurring
charge to g&a expenses this quarter, towards the end of
the quarter. I'm still unsure as to exactly what this
expense is, but it seems to be associated with the 15
store closings this quarter?? The extra charge to g&a
was the most alarming number to me. up 25% or like
$700,000. I still don't have a clear picture as to why it
was up that much. None of the other numbers really
bothered me as much as this one.
2) The 15 stores
that closed were stores that didn't meet bunz quality
standards, so bunz forced them to close... there was talk
that some of these closed stores supposedly will be
3) There was talk about the tv advertising campaign.
It sounded like the franchisees weren't 100%
supporting the campaign because they didn't put up
billboards and stuff inside or outside the stores to
reinforce the tv commercial. Probably the franchisees
didn't want to pay for billboards for a tv ad they
thought was stupid. I don't blame them. Certainly if the
commercial had the appeal of the "Yo Quiero Taco Bell"
chihuauha, we would be seeing signs up everywhere around the
stores supporting the tv campaign.
4) someone on
this message board complained about labor costs being
up 90%. This was part of company owned restaurant
ops. Notice that company owned restauraunt sales were
up over 100%, i think.
I bought Bunz after the "restatement debacle"
because I thought the story was a good one. The restated
earnings did not refect the fact that whether or not
certain assets were described as a reserve against
defaults on the turnkey operations the fact was that money
was coming into the company. I stayed with the
company through the "lawsuit fiasco" because I was
persuaded that it would blow over and have no effect. I was
probably right about both of these
However, both theories ignore signs that management didn't
have a firm grasp. It became impossible to ignore this
fact with the latest earnings report. System wide
sales are going up dramatically, but earnings showing
3% growth. I believe a big piece of the puzzle is
that management has decided to own more company
stores, which tend to operate at about break even. How
many stores do they need to train people at? In
theory, overhead should not increase that much for each
franchisee added. How much more does it cost to collect
royalties from 701 stores, than it does from 700? But
overhead keeps going up, and profit margins go
If I wanted to own a store, I would buy a franchise.
What I really wanted was to own a company that
franchised stores which made great sandwiches.
experience has somewhat soured me on the restaurant industry
although I like the Papa John's I own. (PZZA). However, I
took all of my money from Schlotsky's and put it into
VAR-L. I encourage others to look at this excellent
manufacturer of electrical components for
It has been swell chatting with all the thoughtful
people on this board. I'll check back again to see what
others think, but don't expect to see me here much
Out of control SG&A;
Drivers have accasionally fallen asleep in their
Chef Wooley, we (shorts) praise your
Mr. "savvy" Scam.
Change starts at the top.
He has done enough
damage to the shareholders.
It is time for a
But alas he is more than likely a dictator with a yes
man Board of Directors..
So life goes on and
bunz shares lose more value.
(Excuse me for this aside) Enjoyed your comments
BigMitch. Best of luck to you! PS what symbol is VAR-L?
Also, noticed you were on the GNCMA board- do you still
like that stock? Can't blame you for selling- a buy
and hold on this stock hasn't exactly done as well
as, say, AOL over the same time frame, eh? MC
The biggest surprise for me this quarter is that
anyone was surprised. The stock's drop shows people
expected better results, but I can't imagine why. The
company's direction has been clear for six months. Here's
my take on the numbers and the CC.
Horrible unit growth. Fewer openings and more closings
than prior years. Focus is on "quality" vs.
"quantity". This means expensive freestanding stores which
Mom and Pop can neither afford nor operate. BUNZ is
therefore pursuing higher quality franchisees with ads and
headhunters. Could be trouble if they were adding 100
stores/year, but with cash stunting growth they'll find enough
qualified franchisees. Current goal is 100 "store events"
this year: 75-80 openings plus 20-25
2. 18% systemwide growth is way down from prior
years, but same as Q1. Encouraging, but too early to say
the patient is stable. Royalties also up 18%, but net
royalties (what counts) were up 31% due to AD buybacks.
Most of the buyback gain today is lost to interest and
amortization, but over time will it show up on the bottom
3. Turnkey still bleeding. One analyst finally
asked; Monica blew her off by saying developer fees and
turnkey combined are slightly positive. Only an idiot
would buy into this. Developer fees have nothing to do
with turnkey. The analyst didn't press the issue as I
would have (gee, wonder why they don't let me ask
questions :-). BUNZ has a ton of cash tied up in turnkeys.
Dumping turnkey assets at a loss is scary. They need to
tell us how long it will continue and what the final
tab will be. Stretching the loss out over multiple
quarters and offsetting it with an separate and irrelevant
source of non-recurring revenue is at best a shell game,
at worst outright fraud.
4. Forgetting about
the shameless attempt to tie them to turnkey, the
developer fees are good news. BUNZ is getting new ADs to
buy previously unsold areas at a 1.25% royalty rate.
They credit the TV ads, a plausible
5. Higher G&A came from anticipated higher costs,
quality audits, and two AD buybacks. The ADs will take on
the quality audits in the future. I previously wrote
about booking AD buybacks as assets, a practice I
consider shady. Despite the EPS hit I'm glad to see them
expense some of these costs.
6. Company stores (13
now) doing a lot better. Used to be breakeven
operationally, now a 400K op profit. Probably still breakeven on
an EPS basis (due to interest and depr), but a big
improvement. Profitable company owned stores are good in too
many ways to enumerate. I always said when growth
slowed they could continue to improve financials by
owning more stores. At the time I didn't expect growth
to slow for many years, but it's good to see them
7. Store closings are still bad. More subterfuge
here, as BUNZ implies the closees flunked the quality
audit. This is pure crap. An owner of a profitable store
will jump through any hoop to keep his franchise and
will sue if terminated. These owners are walking away
because the stores are failing. The quality audit is just
a smokescreen. Poorly managed expansion is coming
back to haunt us. We need to keep an eye on this one.
One good side effect of the current slow expansion is
(hopefully) better site and franchisee selection will result
in fewer closings down the road.
income indicates cash situation still deteriorating.
We'll have to wait for the 10Q to learn
Overall it's like I said - no big surprises. I really
don't know what the market expected. The key challenge
is still to increase profits in a slower growth
environment. BUNZ is doing some good things (AD buybacks,
improving restaurant ops) but it isn't hitting the bottom
line, probably because of continued turnkey fallout.
Managment needs to come clean on this and put an end to the
shell game, but don't hold your breath.
A general bloodbath in the market today, a heck
of a drop yesterday noted on BUNZ, and another dip
into the single digits.
Looks like I'm not the
only curious onlooker on the message
Good luck to all, regardless of your position or lack
for your well-reasoned commentary on the
disappointing earnings report. I for one very much appreciate
your analysis. It helps me see the potential
positives, as well as the certain negatives, in the earnings
report. Much more helpful than the "this stock/management
sucks, sell now"-type posts. Like you, I will wait to
see the 10Q and what they have to say about the
situation (assuming I can figure it out, of course, and I
look forward to your help in that one,
Thanks again for sharing your knowledge,