Over the past ten years, the world has seen a dynamic shift in the eating habits and dining out possibilities for individuals of different ages. Top rated food chains like McDonald’s (MCD, Financial) and Burger King (BKW, Financial) come to mind when market value and shares are being considered. But recent statistics show that the pizza places might just be stirring more interest slowly but steadily.
One of the major reasons why the fast food chains have been successful in stealing the market value form traditional restaurants is because of their target market being the entire demographic of people aged 18-35.
The Pizza Inn Company profile
Known for its affordable and mouth-watering pizza standards since 1958, the first Pizza Inn (PZZI, Financial) in Dallas Texas became an instant hit amongst the crowd. After the first franchise in 1963, many more international franchises in late 1970s were also equally successful. The company started trading on NASDAQ stock market in 1993.
The PIE FIVE Pizza Co. (RAVE, Financial) opened as a restaurant in Texas in the June of 2011 and has been in the forefront of the rapidly growing fast casual pizza chains.
Profit from the Pizza Trend
One of the more famous and recently trending amongst the fast food chains is Pie Five, a restaurant concept that is owned by Pizza Inn itself. Granted that PZZI is more or less a microcap and comparatively smaller than most companies, but its real value customers and word of mouth has been more than helpful in cementing the foothold of the company in the market.
Pizza Inn anticipates a franchise fee of $20,000with the Pie Five units with their requirement of an all-in investment of $280,000 to $360,000 per store.
Franchise revenue and restaurant sales
All the income figures from the domestic and international royalties and the licensing fees for Pizza Inn have been stable for the last quarter. The decrease in royalties from lower Pizza Inn franchisee retail sales were highly offset in comparison to the increase in that of the new Pie Five franchisees.
Restaurant sales on the other hand have been running in profit due to the opening of two new company-owned restaurants back in the second half of the fiscal year of 2013 and additional four new restaurants in 2014. The number of existing Pie Five locations only represents the 7% count for the company’s year-end location and the remaining 93% would go on to represent the underperforming restaurants of the same company, especially the Buffet units.
Based on its earnings chart for the fiscal year 2014, the company’s namesake Pizza Inn restaurants seem to be struggle and the management might be placing a lot of their cards on the Pie Five’s concept.
Fundamental Strength
Last year saw the company’s revenue increase by 12% and the overall loss stride down to 24% and its established stores also saw a sales expansion rate of 4.6% in the Pizza Inn and 17% in the Pie Five restaurant. The company did see a decline of 0.6% in average Pizza Inn locations but the franchises still saw it suiting to expand the Express locations by 11.6%.
The average Pie Five locations have expanded 69% as compared to its growth same time in the last year and this has helped in boosting the Pizza Inn value simultaneously.
The result of untimely payments to all accounts payable was met with the cash flow deficit of Pizza Inn expanding to a $1.3million as compared to a $708 thousand deficit, same time last year. Bright spot, however small, is the capital expenditure of the company declining by 61% as the emphasis was majorly laid on franchisee expansion.
The Company doesn’t possess any measurable long-term debt so far and with its secondary stock offering in question, Pizza Inn was able to have the balance sheet maintained in a real good shape. Cash balance register of the company that represents a 17% estimate of the stockholders’ equity, shows a figure of $1.9million in the most recent quarter.
Our Take
While Pizza Inn still might need to grow on its revenue and free cash flow, the Pie Five restaurant under the same company seems to be getting there faster. There is no doubt to the fact that the Pizza Inn restaurants, the Pie Five restaurants and many other franchises are soon to grow and retainers in the long haul because of the never-ending demand for fast food chains. Investors who have jumped in with bearable risk appetite, might stand to benefit in the coming few years, as opposed to the conservative investors who consider waiting all along for a better cash flow rate.
Pizza Inn stocks have been mentioned in the list of 10 best stocks for 2015 and more and more stress is being put on the stock not quite being a conservative investor’s cup of tea. Risk adverse investors could wait to see if the company gains more scale and grab market shares accordingly.
