|
|
|
|
|
|
Tuesday, May 13, 1997
Manhattan Bagel
Inc. HOW DID IT FIND TROUBLE? The mad dash to cook up profits in the expanding bagel market sent Manhattan Bagel from $5 a share in early 1994 to a high of $29 1/2 last June. This hot growth story was spoiled when the company announced that a firm it had recently acquired had some serious bookkeeping problems. The shares plummeted to $13 3/4 and have charted a bearish course ever since. Fast-growing chains that depend on franchising or the acquisition of smaller chains often run into trouble when management can't keep up with the growth. That seems to be the case here, as two major West Coast acquisitions made during January 1996 quickly proved disastrous, with both businesses being written off or put up for sale. The result was a $3.1 million charge in the third quarter. Even before the charge, net income was spread thin at a tasteless $28,000 for the quarter as operational troubles and higher cost of goods ate away at the profits. The company took more charges in the fourth quarter. BUSINESS DESCRIPTION Based in Eatontown, New Jersey, Manhattan Bagel manufactures bagel dough and blends a variety of cream cheese spreads that are distributed to its 310 franchised, licensed, and company-owned stores throughout the U.S. The bagels are first boiled and then baked in the traditional "New York" style. The company has manufacturing facilities in New Jersey, South Carolina, and Alberta, Canada, plus five additional distribution facilities throughout the U.S. America's #3 bagel company, Manhattan Bagel has more than doubled its size during 1996 and has over 100 new stores in development. Current manufacturing facilities can supply 425 stores and a new plant is being built in Los Angeles. The company is also expanding its business through co-branding arrangements with regional chain stores and in-store kiosks at third-party retail outlets. Bagels have been flying off the shelves the last few years. The market has grown from just $429 million in annual sales in 1993 to $1.6 billion in 1995, and then up to $2.3 billion last year. Grocery stores still account for the majority of sales. Still, retail competition has been heating up. Market leader Bruegger's already has 450 stores and plans to open over 100 more this year, and number two bagel-maker EINSTEIN-NOAH BAGELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENBC)") else Response.Write("(Nasdaq: ENBC)") end if %> has 315 stores with plans to double its outlets in 1997. FINANCIAL FACTS Income Statement* 12-month sales: $36.9 million
12-month income: ($7.48 million)
12-month EPS: ($1.02)
Profit margin: N/A
Market Cap: $35.4 million
(*Includes non-recurring charges and a tax benefit)
Balance Sheet
Cash: $1.6 million
Current Assets: $19.1 million
Current Liabilities: $9.1 million
Long-term Debt: $3.9 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 0.95
HOW COULD YOU HAVE SEEN IT COMING? At the June highs, these shares were trading at something like six times sales, a pricey multiple for a restaurant chain. When Manhattan Bagel announced in June that a big deal had gone sour, that should have been enough to alert investors to growing pains ahead. Even after the massive sell-off in June, a short seller could have found some sizable crumbs to lick up. WHERE TO FROM HERE? Analyst estimates punch in at $0.12 per share (range $0.04 to $0.20) for FY97 and $0.29 (range $0.17 to $0.40) for FY98. The range makes these numbers look stale, even though they're down from $0.35 and $0.60 just two months ago. Besides, the PEG and YPEG don't work for a company with a recent loss. Still, the company did put in back-to-back quarters of $0.12 cents per share last year before the debacle. Pre-tax profit margins were then running around 18%. If Manhattan Bagel could do as well on an annualized basis, the shares would now trade at just 11 times earnings. That's a big "if," particularly since competition is heating up. But at the moment, the giants are still focused on gobbling up the mom and pop outfits, and the overall market is still healthy. Manhattan Bagel's same-store sales rose by 4.3% during the fourth quarter. The company is beefing up its management team. On March 10, it announced that James J. O'Connor, Nabisco's assistant corporate controller, with 31 years experience, will be its new CFO. The company also recently announced two financing deals for franchisees. While these shares have been creamed of late due to some sour results, the future does hold turnaround possibilities that might make the forthcoming earnings report worthy of close attention. -Louis Corrigan ([email protected])
|
|||||
|
|||||||