Stiff competition in the restaurant business has tanked the share price of Recipe Unlimited, the former Cara Operations.
Recipe operates and franchises 1,382 restaurants across Canada under banners such as Swiss Chalet, Harvey’s, Montana’s, East Side Mario, The Keg, Kelsey’s, Original Joe’s and New York Fries.
At a current $12.83 shares are at the lowest in more than 10 years with a year high of $27.71.
Financial results for the nine months ended September 29, 2019 show a continued lower trend in sales.
The benchmark same restaurant sales (SRS) data for restaurants open one year or more was down 3.2 per cent for the last quarter. More noteworthy, SRS have been negative for the last four quarters.
The company cites a variety of factors contributing to lower SRS sales. The restaurant business has become more competitive with increased seats.
Staffing is a concern with pressure on wages from the country’s lowest unemployment in four years.
And climbing costs reduce margins.
Eighty per cent of restaurants are in three provinces: 55 per cent in growing Ontario, 13 per cent in Quebec and 12 per cent in Alberta.
Price increases, small as they may be, have driven some customers to lower-end outlets.
The company will close 29 underperforming restaurants, about three per cent of the total, and franchise some of the 207 company-owned outlets.
Financial statements indicate a search will continue to acquire other restaurant groups. Acquisition last February of the 105-unit Keg chain was about the only bright spot in financials. The Keg added 3.2 per cent to sales.
Recipe created concerns about the next year with a plan to assist financially challenged franchised outlets on items like royalties, rent and renovations.
While cash flow, the money left over after all day-to-day expenses, of $110.9 million increased 27 per cent for the three quarters, this company is in the wait and see category.
Recipe is not alone in this state of finances.
The 395 restaurants paying royalties to the Boston Pizza Income Fund showed a 2.2 per cent decline in same restaurant sales last year.
Boston Pizza blamed higher minimum wages, higher consumer debt and store locations in the oil patch for reduced SRS.
At $10.19, BP shares have dropped 55 per cent in the last year and yield 12 per cent.
The A&W Royalty Fund turned in SRS of negative 1.9 per cent for the last quarter of 2019 after posting 9.8 per cent increase in 2018 and 4.1 per cent plus in all of 2019.
A&W shares at $30.19 are down 46 per cent and yield six per cent.
The potential impact on these three companies from an oil-price induced recession, temporary as it might be, and from the coronavirus scare are uncertain. One can reasonably assume both will impact sales.
Investors would be prudent to wait for better times for these stocks.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
