Minyanville takes a look at the fast food industry’s 10 fastest-growing companies in terms of market cap growth over the past 12 months. A great deal of help came from Lynne Collier, a Managing Director of Restaurant Research at Sterne Agee. Collier, who was ranked third in restaurant stock picking in 2007 by Forbes, shared her analysis and outlook on a number of the companies mentioned below.
Carrols Restaurant Group
Leading this list, Carrols Restarant Group (TAST) has seen its market cap swell 38% over the past 12 months to $142 million.
On May 7, Carrols spun off its Fiesta Restaurant Group (FRGI) division via a tax-free dividend of common stock to Carrols' shareholders, issuing one share of Fiesta stock for every share of Carrols stock held at the market’s close on April 26, as reported by Reuters.
Fiesta's 91 Pollo Tropical locations and 158 Taco Cabana locations capitalize on the Hispanic and Caribbean food market, offering authentic ethnic foods at locations in the Southern US, the Caribbean, and Central and South America. Fiesta's stock traded into the $17 range through the summer, until falling back down to levels closer to the $12-per-share price it traded following the Carrols spin-off.
Carrols' stock dropped from just above $15 to below $5 as result of the spin-off, and has remained in the $5-$6 range ever since, recently pushing toward mid-$6 range.
What has Carrols been left with after the split? 576 Burger King (BKW) franchises, 278 of which Carrols acquired in May. Carrols is the largest Burger King franchisee in the world, according to Nation’s Restaurant News. Burger King received $16.8 million in cash in the deal as well as 28.9% equity interest in Carrols.
To fund this acquisition, Carrols not only completed an offering of $150 million in 11.25% senior secured second lien notes, but also entered into a $20 million revolving senior credit facility, according to NRN. The substantial amount of cash left over after the purchase will be used to remodel 450 Burger King locations and refinance existing debts.
[More From Minyanville: Scratching The Surface:Microsoft's Tablet Gets Mixed Reviews]
Since incorporating in 2006, Chuy's Holdings' (CHUY) Tex-Mex fast-casual concept has expanded into 37 full-service restaurants throughout Texas, Tennessee, Kentucky, Georgia, Alabama, Florida, and Indiana. Its market cap has growth 32% over the past year to $384 million.
In July, the Austin-based purveyor of "Chicka-Chicka Boom-Boom Chicken," "Texas Martinis," and signature sauces like "Deluxe Tomatillo," had a more-than-successful IPO, selling over 5.8 million shares at the top of the $11 to $13 range. A steady increase into early October saw the stock nearly triple, before pulling back over the past week. Lynne Collier explained Chuy’s unique position in the current market. "It’s a kid-friendly, Elvis-themed, Tex-Mex restaurant, and it’s one of the few true growth companies in the space, so after it went public it really took off. There’s a lot of excitement about the unit growth potential. Their performance outside of Texas has been very, very strong."
Collier underscores Chuy’s significance as casual-dining Mexican restaurant, explaining that no one has really been able to make Tex-Mex work on a national level before.
This includes previous attempts by restaurant runners like Brinker International (EAT), which dropped its 160-unit On the Border franchise in 2010; DineEquity (DIN)-owned Applebee’s International, which sold its Rio Bravo Cantina chain to Chevys Restaurants at a loss in 1999; and Avado Brands, Inc, which dumped nearly half of its 91 Don Pablo’s restaurants after bankruptcy in 2007.
"A ton of chains have tried to go on a national basis and its been pretty hard. One of the problems with Mexican is the consumer doesn’t want to pay a lot of money for it, and it's hard to have that pricing flexibility on a menu that single restaurants have."
Chuy's has expanded from just 12 locations in 2007, and plans to open at least 50 to 55 from 2012 to 2016, according to Seeking Alpha. Chuy's small hold on the $6 billion Mexican casual dining market (roughly 6% market share) is set to blossom as company is currently targeting a long-term goal of 300 units.
In the same article, Chuy’s is valued trading at 19x 2012 estimated EBITDA, versus an industry group, including Bravo Brio Restaurant Group (BBRG), Chipotle Mexican Grill (CMG), and others trading at 10.3x 2012 EBITDA. (Shares of Chipotle took a hit two weeks ago when investor David Einhorn said the stock was overvalued.)
But, as Collier points out, this rapid growth begs an important question: While Chuy's has done well so far in the short term, is it really going to be the one that makes Mexican fast-casual work on a national scale in the long run, when it hasn't before?
Buffalo Wild Wings
Buffalo Wild Wings' (BWLD) stock took a steep freefall back in July, dropping from around $85 per share to a $68 intraday low on July 25 after a company forecast (despite beating Q2 expectations) exhibited fears over higher food costs in light of this summer's chicken wing shortage. Since then, shares have recovered, now pushing above the mid $80 range. Over the past year, company revenues have increased 29.7%, with a current market cap of $1.6 billion. Of the 829 locations currently operating in the United States, 325 are company owned, while the remaining 504 are franchised. The chain is branded as a family-friendly sports bar, broadcasting games on 50 some-odd TV screens per location, serving chicken wings doused in any one of 14 signature sauces or four signature seasonings. An open restaurant layout allows for more fervid sports fans to stay close to action (and close to the bar), while parents and their kids can sit at tables set back from the carousing.
Investors are looking ahead to BWW's October 23 quarterly earning report, focusing on the increased price of wings, as noted by Market Watch, which has jumped 85% - 95% since 2011. This has driven up prices on menus; at some locations, these prices have jumped as high as 19% since January.
However, Collier tells Minyanville she has confidence in BWW’s performance
"The wing segment has been very strong, and ahead of earnings I'm expecting top line [for Buffalo Wild Wings]. Yes, the margins have been affected because wing pricing has been set so high, but they've put more into menu pricing in August and September, and they are currently testing new ways of selling wings."
Collier is referring to BWW’s pilot program to sell wings by weight versus number, currently in place at select locations.
"The only issue with them is their comparisons on a price-per-sales basis are very difficult over the next couple of quarters, but other than that, I think they’re doing the right thing," Collier says.
Granite City Food & Brewery
It all begins in a production facility in Ellsworth, Iowa, where barley is malted, mashed, lautered, boiled, and then put into travel-sized fermenting tanks and shipped to any one of Granite City Food & Brewery's (GCFB) 28 locations across 11 states in the American heartland, not including the six operating Cadillac Ranch restaurants Granite City has acquired over the past two years.
Granite prides itself on an upscale dining experience and "All-American" cuisine partnered with hand-crafted beers, whose brewing process is completed on site.
Company competitors include the Cheesecake Factory (CAKE), Darden Restaurants (DRI) subsidiary Olive Garden, and Brinker International, Inc. (EAT) subsidiary Chili’s Grill and Bar, among others, according to Reuters.
In August, Granite City reported a 26.4% jump in revenue for the second quarter of 2012, despite still boasting the lowest market cap on this list at $17.2 million.
This follows a $6.5 million equity financing completed with the help of its controlling shareholder, Concept Development Partners, in June. The 3.1 million shares bought by Concept Development Partners helped convince a Nasdaq Hearing Panel to approve continued listing of Granite City a few days after.
[More From Minyanville: Is the Worst Over for the Market?]
Ignite Restaurant Group
Ignite Restaurant Group (IRG) announced the completion of its IPO at $14 per share back in May 2012, raking in over $83 million in proceeds. Over the course of the month (June and into July), shares of Ignite would steadily increase to a high of nearly $20, before the stock took a 26% nosedive on July 19.
Collier explains that long before this public offering, Ignite's Joe’s Crab Shack franchise had been owned by restaurant, hotel, aquarium, and amusement complex operator Landry's Restaurants. Landry's sold off Joe's to private equity before it was launched under the Ignite brand name.
Ignite owns and operates 134 locations throughout 34 states, which include its Brick House Tavern+Tap locations. Its market cap has grown just over 18% during the past 12 months.
The company has recently found itself in the hot-seat after it retracted financial statement in July 2012, claiming non-cash accounting errors that reached back to the company’s founding in 2006. This was promptly followed by an investigation launched by litigators at Bronstein, Gewirtz & Grossman, LLC on behalf of purchasers of the Ignite stock, the first of twenty investigations currently being undertaken to determine the grounds for a possible class action lawsuit.
As of 2011, there were 1,538 Panera bakery-cafe concepts across 42 states, as well as three in Ontario, Canada. 52% of these locations are franchises. Panera supplies all of its company owned and franchised stores through its 24 fresh dough and other products factories.
As recently highlighted by Seeking Alpha, Panera Bread has made a concerted effort to embrace technology, such as self-pay kiosks and mobile ordering, in order to bolster line growth during peak hours. This adds to a track record of leading innovation in the industry: Panera was the first nationwide food chain to voluntarily post calories in all of its company controlled restaurants.
Beyond this, Collier outlines some other innovations driving Panera's growth.
"Panera has been a very consistent company in terms of beating estimates and raising them. Beat and raise, beat and raise, beat and raise. I think one of the reasons for this success is, first, they have a lot of menu innovations."
Among these, Collier says, are pasta menu items currently being tested in Denver, which will likely roll out next year. Collier believes that, as a low input cost item, pasta products should help margins.
"Second, their catering business is really starting to take off. They're catering business is $130 million, or 7% of revenue, but it's growing very fast. And the third thing is they're increasing their marketing, and are beginning to do television commercials."
Panera reports earning after the market closes on October 23.
Cracker Barrel Old Country Store's (CBRL) stock has been on a steady rises since hitting bottom at $11 in November 2008. The company's stock is now pushing toward $70 per share after reporting positive fourth quarter earnings on September 24, and announcing it would increase its quarterly dividend from $.10 to $.50. The company's market cap grew 14% over the past year to $1.6 billion.
Cracker Barrel owns all of its 620 restaurants across 42 states, which serve homestyle country cooking for breakfast, lunch, and dinner. It does not serve alcohol. Locations also feature gift shops, which sell many goodies including Cracker Barrel branded pancake mix and kitchenware, clothing, and even rocking chairs.
The Lebanon, Texas-based restaurant operator was recently at the center of some controversy when US antitrust regulators brought suit against Biglari Holdings (BH), which operates Steak ‘n Shake and Western Sizzlin, for violating premerger reporting laws when it attempted to acquire a stake in Cracker Barrel in 2011. Last month, Biglari agreed to pay $850,000 for the violations. Last week, cautious over Biglari’s intentions, Cracker Barrel urged its shareholders to reject two candidates seeking positions on Crackle Barrel’s board: Chairman and CEO Sardar Biglari and vice chairman of Biglari Holdings, Philip Cooley.
Collier notes that she has seen examples in the past of Sardar Biglari getting involved and making a difference.
"He presses the issues and these companies seem to get their acts together, historically" Collier says. “When he got involved with Steak n' Shake, he revived that."
[More From Minyanville: Facebook: Postmortem for a Bear With Psychological Problems]
Ever since Nathan Handwerker started hawking his famous hot dogs in 1916 from a stand on the corner of Surf and Stillwell Avenues in Coney Island, New York, Nathan’s Famous (NATH) hot dogs have been something of an American mainstay.
Nathan's has since emerged as a global hot dog purveyor, with 225 franchises and five company-owned stores operating in 27 states and eight foreign countries, as well as having branded product distribution through the entire US (including DC) Puerto Rico, Canada, Guam, the US Virgin Islands, and Kuwait. That's not including Nathan's packaged product line offered at nearly 32,000 supermarkets, and co-branded locations with Arthur Treacher menu items at 57 restaurants, and Kenny Rogers Roasters menu items at 42 restaurants.
Sales of hot dogs, which once cost a nickel on Coney Island, helped fuel Nathan's 13% growth in market cap over the past year, now totalling $136 million. Nathan’s reported its first quarter earnings on August 1, with net income up nearly 26%. It releases its second quarter results on November 1.
Starbucks leads with this list's highest market cap at $36 billion, which has grown nearly 13% over the past 12 months. The 41-year-old Seattle-based coffee seller is currently operating or has licensed 17,651 stores (as of July 1) in 60 countries. Known for its higher-end, high-priced products, Starbucks entered into direct competition with fast food rivals like McDonald’s (MCD) and Dunkin’ Donuts (DNKN) in 2010, when it announced its Seattle's Best Coffee brand (which it acquired in 2003) would be sold in roughly 30,000 fast food stores, supermarkets and coffee shops.
The morning brew megabrand has never shied away from breaking into untapped market segments. As recently as last week, Starbucks began selling single serve Verismo coffee and espresso brewing machines. This pits Starbucks against Green Mountain Coffee Roasters (GMCR) and Nestle (NSRGY), whose respective Keurig and Nespresso coffee machines have dominated the single serve market thus far.
Starbucks will release its fourth quarter and fiscal year end 2012 financial results on November 1.
If you're not familiar with AFC Enterprises (AFCE), you're likely familiar with its quick-service franchise restaurant brand Popeyes Chicken and Biscuits and Popeyes Louisiana Kitchen. Known together as Popeyes, the spicy chicken and fried seafood purveyor distinguishes itself with a Louisiana-style menu. Popeyes is the world's second-largest fast food chicken concept, behind Yum Brands' (YUM) Kentucky Fried Chicken. Over the past year, Popeye’s market cap has growth 12% to $619 million.
AFC currently owns or franchises upwards of 2,049 Popeyes locations across 48 states and 25 foreign countries (as of July 8). Last week, the company added to its stock after purchasing 28 unnamed franchise-restaurants in Minnesota and Northern California for $13.8 million, with intentions to convert them into Popeyes Louisiana Kitchens at a cost of $11.5 million. This represents a move into markets where AFC currently has no presence.
AFC releases its Q3 earnings on November 5.