BUNZ still has better fundamentals than most companies in the restaurant business. Just did a quick survey in the industry of things like debt/equity ratio and profit margin. BUNZ looks great in these areas. Many other restaurant companies are mired in serious debt. BUNZ is not. There is absolutely no comparison to Boston Chicken.
The street doesn't like it right now because BUNZ is changing its concept, and it has not yet proven that the new concept works. The last quarter, BUNZ forced some of its franchisees to close shop because their stores were dirty, run-down and ugly. Plus those stores weren't making much money anyway. As far as I'm concerned, this is not a bad a thing.
Some of the new stores I have seen have REALLY impressed me. One store in Dallas has 3 cash registers running at the front of the store, plus a drive through, plus cash register for phone-in orders. And all of them run full tilt at lunchtime. That's 5 times as many cash registers as an old-style store in a strip-center with only one cash register.
Schlotsky's just has to prove that this concept works, and from what I have seen with my own eyes, it is working great. The street is nervous because the street doesn't like to see change without proof that the change works. This past quarter we saw some charges on the balance sheet that reflected the cost of going through this change, and the street has reacted badly.
What I see is a company with great product, great fundamentals, and decent though not spectacular growth, and I see Wall Street analysts running away from the company. Now is the time to buy.
Sure, the new stores are expensive, thats the main complaint right now. But what you end up with is a restaurant more like a Chili's and less like Al's Grease Burger Shack. Schlotsky's image is very important. If you are going to pay $4.50 for a great sandwich vs. $2.50 for a grease burger, your store better be clean and good looking.
I haven't done an industry survey so I'll take your word that despite massive balance sheet deterioration BUNZ is still better off than many restauranteurs. Investors don't care much about numerical snapshots, though, they care about the future. They tend to predict the future by extrapolating trends. BUNZ's trends are all bad.
If investors have tremendous confidence in management or some expectation of a change in the business cycle they'll sometimes buy into the idea that the trend is about to reverse. Neither applies to BUNZ.
Schlotzky's must do more than prove that the new stores work. They must prove they can operate and grow their franchise in a cash efficient manner. There was a time when they were doing it. The last 18 months they have not. If you see any evidence they are back on the right track I'd be delighted to see it. I'd like nothing more than a good reason to load up on the stock (or simply take it private).
What is happening to Bunz stock? Very simple. At this point in time, investors are saying this is the price they will pay for the stock and owners are willing to sell at this price. Why is this? Well, the stock market is tough right now for small companies that don't get as much hype or exposure as bigger more share liquid companies. So companies like Bunz are very dependent on brokerage firms like Raymond James, etc. to strongly recommend them to their customers, which they did at first and some are still doing. However, if you have been watching Yahoo's research page on Bunz you see that in the last 30 days earnings estimates have been coming down. This is reflective of the brokerage companies hearing what Bunz management is saying in the conference calls and probably with private discussions with management and what they are doing with the company. I don't know if others noticed, but when Bunz was saying they were only off 2nd qtr eps estimates by $.01, it was because, according to Yahoo, the analysts had already reduced eps estimates for that quarter. In other words, it appears that they have been guiding analysts to lower estimates. This is not good for the stock. If you look at estimates on Yahoo now they show consensus eps estimates for the fourth qtr to be an increase of only 5.8%. If correct, that is a far cry from the 20+% eps growth they have had in the past.