Wednesday, July 30, 2008

Bennigan's, Stake & Ale Close - File For Bankruptcy Protection

I really need to start a new category for the blog: bankruptcies. It really is a shame these companies are closing their doors in the midst of the long awaited 2nd half 2008 recovery. I mean... it really is a shame these companies are closing their doors as we are looking forward to the 1st half 2009 recovery. However, I don't know what we even have to recovery from since the economy is fine, not in a recession or even close, and its just a few stumbles in an otherwise sound system (source: GWB)

So we'll add these 2 names to our growing list - and trust me a lot of mom and pop type places in strip mall complexes i.e. non chains - are going to be drowning and they won't be getting any press so they'll just go quietly in the still of the night. Because the small business sector is BOOMING if you read the unemployment reports that come out every month (a new chapter of fiction this Friday) - they're adding jobs like mad if you listen to the government report, right OfficeMax?
  • Adjusted earnings beat Wall Street estimates, but executives cited a "difficult sales environment" that hurt results.
  • Small business owners have cut back on spending in the weak U.S. economy, hurting results throughout the office supply sector.
Hmmm that doesn't quite jive with the birth/death model in which the Bureau of Labor Statistics somehow finds hundreds of thousands of "small business" jobs that no one else can find. But I digress - the point is if you think its bad at the retailers and restaurants who at least have some size and scale just imagine what its like at the 1 off mom and pop places.

I've ignored most of the smaller airlines which already went belly up to focus on retailers and restaurants. Ironically I expect these latter 2 groups to have a huge run sometime in the next 6-9 months as the Kool Aid of the economic recovery flows hard and fast. Remember, gas at $3.25 makes all the other problems disappear into the ether - the hedge fund computers say so. Watch for it.
  1. [Apr 11: This Day in Bankruptcies - Another Airline and our First Major Retailer]
  2. [Jul 10: Another Retailer (Canary in Coal Mine Down]
  3. [Jul 21: Add Mervyn's to our Growing List of Retailers Headed to the Great Sunset]
  • National restaurant chains Bennigan's and Steak & Ale have closed their doors and filed for Chapter 7 bankruptcy protection, shuttering more than 300 locations and letting go of thousands of employees. (even more workers for Walmart, healthcare and federal government jobs)
  • It is one of the country's largest restaurant bankruptcies and eliminates two sit-down chains that have been part of the casual-dining landscape for decades. The chains will liquidate and aren't likely to re-open. (riddle me this - these 2 chains have survived for decades in bad times and good, but all government economic reports show things really aren't "that bad" so why would they shut down now.... hmmm... hmmm..... hmmmmMMmMmMmm)
  • Employees were told there wouldn't be enough money to pay them for the rest of the week, these people said.
  • The pub-themed Bennigan's had 310 restaurants in 32 states. It was founded in 1976. It is heavily concentrated in states like Texas, Illinois and Michigan. It posted U.S. sales of $542 million in 2007, according to Technomic Inc., a food-industry research and consulting firm.
  • The filing is the most extreme sign yet of how midpriced sit-down restaurants are undergoing one of their worst periods in decades. High ingredient and labor costs are eating into profits, and several years of rapid expansion by bar and grill chains has left a glut of locations in the market. Pressures on consumer spending like high gasoline prices and dwindling home values have prompted consumers to eat out less often or switch to cheaper fast-food meals. (all conditions we prediced as the blog was launched - 70% of Americans living paycheck to paycheck and used to living in an easy credit, house ATM world with lower inflation would not adjust well to this new era. We're overbuilt - we have enough for a society of 500 million people, let alone 300 million)
  • Earlier this year, the parent companies of the Bakers Square, Village Inn and Old Country Buffet filed for Chapter 11 bankruptcy protection, citing falling sales and rising food costs. (oops I missed those - darn I wondered what happened to Old Country Buffet)
  • A host of other chains -- from Outback Steakhouse to Ruby Tuesday -- are also struggling. (Ruby Tuesday's you say? Yep - nailed 'em --> Jan 11: 3 Months Later Let's Look Again @ Ruby Tuesdays)
See, we were negative on restaurants way back in the day - a few of these on the short side of the ledger sure would of helped propel our fund even higher - but we can't. So we didn't. But we did say it... [Sep 19: Tough Times Ahead - Restaurants?] Remember this was in the era of "no slowdown, just a few blips in the subprime market - the financials have now thrown the kitchen sink quarter out there and we're fine from here".

Just for kicks I looked at Kona Grill (KONA), another smaller chain last night, and according to they pretty much hit the trifecta - misses (current Quarter) guides lower (next Qquarter) guides lower (full Year) - Pretty sweet. Must be a buy since it does not have potash, coal, iron, or natural gas exposure. Those areas "stink". Exposure to US consumers? Not a problem! Gas is going to $3.25 and the world will be fine.

4:02PM Kona Grill misses by $0.01, reports revs in-line; guides Q3 EPS below consensus, revs below consensus; guides FY08 EPS below consensus, revs below consensus (KONA) 7.45 +0.00 : Reports Q2 (Jun) loss of $0.08 per share, $0.01 worse than the First Call consensus of ($0.07); revenues rose 4.5% year/year to $20.2 mln vs the $20 mln consensus. Co issues downside guidance for Q3, sees EPS of ($0.09)-($0.13) vs. $0.00 consensus; sees Q3 revs of $19.5-20.5 mln vs. $22.67 mln consensus. Co issues downside guidance for FY08, sees EPS of ($0.43-($0.58) vs. ($0.28) consensus; sees FY08 revs of $80-82 mln vs. $85.29 mln consensus.

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