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July Newsletter
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The Hottest Industry:
Restaurants  

Shake Shack executives ring the bell at the New York Stock Exchange.  The stock, SHAK, is up 270% since going public in January.  

Restaurants continue to reward initial investors handsomely as 2015 looks to be another massive year for returns on Wall Street.  8 restaurant companies have gone public since January 1, 2014, providing a combined 57.2% growth after day 1 and a total return of 107.6%.

Why are restaurant stocks so attractive to investors and why over the last few years have they outperformed most other sectors?  First, they have a business model that is very easy to understand and simple to project top-line sales.  A restaurant chain has an Annual Unit Volume (AUV) which is the average unit sales across all locations open for a designated time prior to the period measured.  This is in contrast to a technology company that can release products with an unproven track record and at inconsistent time schedules.  Second, same store sales have a large impact on the value of a chain.  As companies grow, they need to continue to expand their same store sales growth meaning each individual store is experiencing an increase in growth, like Chipotle (CMG) did in fiscal 2014 by posting a 16.8% increase.  Some restaurant stocks have stumbled in this category and have experienced a large hit in their stock price.  They have propped up their top line growth by building stores but have seen AUVs shrink through their expansion.  Taking these two factors into account, margins are what separate a successful restaurant group from an unsuccessful chain.  The company that can best control their food costs and labor costs will ultimately drop the most revenue to the bottom line. 


Restaurant IPOs since January 2014 (total return since IPO date in bold)*:
  • Wingstop (WING): 61%
  • Bojangles' (BOJA): 36%
  • Shake Shack (SHAK): 268.76%
  • The Habit Restaurants (HABT): 93.77%
  • Dave and Busters Entertainment (PLAY): 124.06%
  • El Polo Loco Holdings (LOCO): 37.66%
  • Papa Murphy's (FRSH): 66.54%
  • Zoes Kitchen (ZOES): 168.53%
Consumer discretionary stocks continue to do well in this market.  Gas prices are down, the unemployment number continues to shrink while the job market heats up, and wages are showing signs of improvement.  These external market conditions allow restaurants with great management teams and practices to experience rapid growth. 

 
Please reach out with any questions by emailing contact@blackandredd.com. 

*Courtesy of IPO ETF Manager, Renaissance Capital

Recent News

A Look Back: Reed's Q1 Results 

Reed's, Inc. announced their quarterly results in mid-May reporting a record 19% sales growth of $10.6 million.  Reed's Ginger Brew saw 33% gross sales growth contributing to 44% of total sales.  Chris Reed, Founder and CEO, states, "Our momentum continues as evidenced by our twenty plus quarters of double digit sales growth.  Consumer demand is strong across all channels of our premium craft sodas and we are capitalizing on these opportunities.  The beverage market continues to trend in our favor as major retailers look to Reed's to supply the next generation of all natural GMO-free premium sodas."
Reed's has chosen Black & Redd Solutions to expand into international markets including Asia.  With the high ginger consumption and focus on healthy alternative beverages; Reed's is positioned in an emerging segment.  Reed's is targeting their largest year yet with $50 million in projected net sales with moderate profitability as they continue to aggressively reinvest in the business.

Please reach out with any questions by emailing contact@blackandredd.com. 


Singha Hatches FFC with $3 Million Investment

 
As discussed in the Black & Redd Solutions June Newsletter, Fine Food Capital is entering the United States through B&R.  Fine Food Capital was launched by Singha, one of the largest alcohol providers in the world, as they see a slight decline in alcohol consumption.  Singha has not been in the food market in several decades but are now focused on leveraging its existing distribution channels to grow their non-alcohol operations up to 30% in total sales.  $3 million dollars was invested into the Fine Food Brand alone in 2014 after being launched in September.  
 
Under Fine Food Capital is the labeled brand, That's Asia, which will be launched in the United States and Scandinavian region first and was produced with the intention of being an export product from Thailand.
 
To contact Black & Redd about this opportunity, please email contact@blackandredd.com.

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Black & Redd Solutions is a U.S. based consulting company that specializes in assisting companies to capitalize on opportunities. We focus on U.S. based companies looking to expand either within the U.S. or internationally through our resources abroad, and brands abroad that are looking to take a diligent and strategic path into the U.S. Core competencies include a high-quality network in foreign markets, product/business expansion within the U.S., and in-depth market research to make decision making easy. 
*Disclaimer

1. Notice Regarding Franchise Offers and Sales

a. This information is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for information purposes only. There are approximately 14 countries and 15 US states that regulate the offer and sale of franchises. The countries are Australia, Brazil, Belgium, Canada (provinces of Alberta and Ontario), China, France, Indonesia, Italy, Japan, Malaysia, Mexico, Russia, South Korea, Spain, and the United States of America. The US states are California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin. If you are a resident of one of these states or countries, are receiving this message in one of these states or countries, or intend to operate a franchise in any of these states or countries, we will not offer you a franchise unless and until we have complied with any applicable pre-sale registration and/or disclosure requirements in the applicable jurisdiction.

b. This offering is not an offering of a franchise. In New York (USA), an offering of a franchise can only be made by a prospectus that has been previously filed and registered with the Department of Law of the State of New York. The application for registration of an offering prospectus or the acceptance and filing thereof by the Department of Law as required by the New York law does not constitute approval of the offering or the sale of such franchise by the Department of Law or the attorney general of New York.
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