Based on their current trends and store count, I project Q4 "Gross Profit" will turn slightly negative. It was only $832k in the last quarter. Extrapolating seasonal and recent trends will likely result in total revenues at $20.3 million....lowest in recent history.
Doubt they can make meaningful adjustments to the operating cost structure (not to mention the impact of deleverage due to sales declines). Even adjusting for further G&A cuts, the loss could be $3.5 million vs. last quarter's loss of $2.5 million. This is before any unusual items such as impairment charges/closure reserves (which would be non-cash charges).
In terms of cash flow, the wild card will be how they manage working capital. I suspect they'll pull back on capital expenditures and they'll be below depreciation by $200k. This would put the cash burn around $3.1 million before any changes in liabilities, inventory, etc. You have to believe they'll be stretching payables and shrinking receivables but who knows what they're locked into on that end. So...on the bad end, the cash burn could be $3.5 million and my conservative estimate wold be $2.75 million. Given they ended last quarter at $8.25 million, that's getting awfully close for comfort to fund the normal swings in the business. Not sure how they could raise any more capital if things get tigher. Disclaimer: I don't own this stock...never have.
Think you are spot on here. I held this stock as a small spec. play for a while but exited since things have turned more and more negative. I still watch this stock; but it looks more like a short play right now. My projections show them running out of cash by Q2. I think chap 11 is a very very distinct possibility at this point in time; unless they start slashing everything in sight. No logos on napkins; cups etc, cancel all marketing spend etc. Every .001% of margin matters at this point in time. Betting on a turnaround ignores the fundys here. I still hope they pull something off; but I dont see it myself.
Agree with your note. Hard to tell from the conference calls if the CEO (and team) are still trying to turn the business around by "investing" in marketing or adding labor to improve the experience (they've talked about that) or if they are now looking to save every penny. Frankly, I'm not sure either path would result in a positive outcome. They appear to be too far gone and don't have enough firepower to turn it. Their big issue is revenue and that's hard to grow quickly. It would take a massive redesign of the menu....and then customers would have to be told something's new....and then those customers would have to decide to give it a try. That cycle takes a long time...and...as we both have forecasted...time is not on their side. As I've said before, I don't have some sort of vendetta against this concept....heck, I wish it would turnaround...however, the business model just doesn't seem to work and it's unlikely it will get fixed in time.