|
|
|
This Feature |
|
Related Items |
|
Tuesday, March 17,
1998
Rock Bottom Restaurants
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BREW)") else Response.Write("(Nasdaq: BREW)") end if %>
Phone: 303-664-4000
Price (3/16/98): $6 1/2
HOW DID IT FIND TROUBLE?
It was the kegger that couldn't. For Rock Bottom Restaurants, living up to
its moniker with a rock bottom share price has been a sobering experience.
Over the past few months, management shuffles, margin contraction, and eatery
closures have plagued the company's fiscal performance.
Happy Hour ended too soon for the company that many figured would ride high
on the popularity of microbreweries when the chain went public in 1994. For
a company whose original concept challenged patrons to return to sample 110
varieties of beer, the attraction was as strong as the stock offerings for
the likes of Boston Beer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAM)") else Response.Write("(NYSE: SAM)") end if %> and Pete's Brewing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WIKD)") else Response.Write("(Nasdaq: WIKD)") end if %>, craft brewers of Samuel Adams Lager and Pete's Wicked Ale, respectively.
The companies came public with high expectations and even higher multiples.
The microbrewers
crashed
when, despite profitability, the market gave them a more fitting multiple.
Rock Bottom, the once hot offering, was served a frosty cool mug of reality.
Despite bringing in a seasoned restaurant veteran to oversee the once ambitious
expansion plans, unit operations were sluggish, and that seasoned restaurateur
tendered his resignation late last year. However, investors had paid their
tabs and left long before that. The excitement had grown flat and the shares
went bottoms up.
BUSINESS DESCRIPTION
Colorado-based Rock Bottom has an interest in 40 Old Chicago restaurants
and 25 brewery restaurants, primarily under the Rock Bottom Brewery name.
The company operates all but six of the brewpubs, which are run by Trolley
Barn -- in which it has a 50% stake.
FINANCIAL FACTS
Income Statement
12-month sales: $150.2 million
12-month income: ($4.7 million)*
12-month EPS: ($0.58)*
Profit Margin: N/A
Market Cap: $52.7 million (on 8.1 million shares)
(*Includes charges)
Balance Sheet*
Cash: $0.5 million
Current Assets: $8.5 million
Current Liabilities: $13.2 million
Long-term Debt: $2.4 million
(*As of Sept. 28, 1997)
Ratios
Price-to-earnings: N/A
Price-to-sales: 0.35
HOW COULD YOU HAVE SEEN IT COMING?
It is easy to fault the sluggish restaurant sector with Rock Bottom's
demise, but it makes for a loose-fitting scapegoat. Fellow casual dining
chains like Brinker <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EAT)") else Response.Write("(NYSE: EAT)") end if %> and Darden <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DRI)") else Response.Write("(NYSE: DRI)") end if %> have
seen their shares double while Rock Bottom has gone the other way. Even the
similarly themed Hops has been faring well. It was named a Nation's Restaurant
News Hot Concept last year and has been so good to parent Apple
South <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSO)") else Response.Write("(Nasdaq: APSO)") end if %> that the company is selling off its flagship Applebee's
franchises to concentrate on proprietary expansion, including Hops.
For Rock Bottom it was simply a case of a company stumbling operationally
as it expanded out of its Colorado stronghold. With falling same-store sales
figures and shrinking margins, the company began reporting flat earnings
per share despite decent expansion-induced sales growth.
The rut began shortly after the excess of 1995, leaving ample time for
shareholders to park elsewhere as the stock fell -- even from the $12 level
it commanded just last year.
WHERE TO FROM HERE?
So, what's on tap for Rock Bottom? The company has closed four locations
that were showing negative operating margins. While the pair of Old Chicago
and Rock Bottom Brewery boxes were closed earlier this year, the one-time
charge was taken in last year's fourth quarter so margins should show some
improvement with the sandbagging quadruplets out of the picture.
Shareholders are hoping for a brighter Day. Frank Day created the company,
then let Tom Moxcey take the reins when the company demanded an experienced
CEO to guide the company through its expansion. Now Day is back and the company
will focus on getting the chains running smoothly before multiplying with
the voracity of yesteryear. While the company opened 14 units last year,
this year's plans call for only 6 openings -- and no Old Chicago eateries.
The cautious company is reflecting the cautious analysts who are projecting
meager earnings growth over the next two years. However, selling at book
value and just 11 times this year's pessimistic earnings estimates, while
the upside may not be immediate, at least the downside seems as sturdy as
a beer coaster on a flat bar. Sometimes, rock bottom can be a good thing.
-Rick Aristotle Munarriz
([email protected])
Check out the Daily Trouble Message Board!
|