RAVE Announces CEO Transition
Late last week RAVE Restaurant Group announced a transition from CEO Randy Gier to former CEO and top shareholder Clinton Coleman who will serve in an interim capacity. Several contributors to the Groove community had attempted to reach out to former RAVE CEO Randy Gier many times over the last two months to no avail and this announcement only confirms the handwriting that has been on the wall for months now. While Mr. Gier obviously brought some positive things to RAVE from a marketing standpoint, his inability to communicate with existing and prospective shareholders made him unable to serve effectively in the capacity of Chief Executive Officer for a publicly traded company. Additionally, his ability to execute the company’s long term growth strategy was increasingly being called into question as he slipped further and further off the grid. Mr. Gier owned very little stock in RAVE and many shareholders found the combination of these factors increasingly difficult to stomach. The bottom line is that the removal of Mr. Gier is a very positive development for long term shareholders, as the company will now be run day to day by individuals who have a vested interest (they control over 30% of outstanding shares) in seeing the company AND its stock perform well.
We have been expecting RAVE’s 4th Quarter to continue the negative sales trends of the prior quarter and nothing has changed in that regard. However, we do believe that Q1 (started July 1) is showing positive trends based on several new initiatives that began in the first two weeks of the quarter. We note that discussions with managers of several franchisee owned and corporate Pie Five locations suggest that sales are trending positively over these first few weeks of July. While this is somewhat anecdotal and obviously covers only a fraction of the reporting period, we are encouraged because the current stock price appears to price in a continuation of the prior quarter’s negative sales trends and a continuation of the leadership woes that have been dogging Rave. With the combination of Thursday’s announcement of the leadership transition and the positive sales indicators, we believe that RAVE’s operations may have started turning a corner while the stock remains mired near multi year lows. Additionally, now that the owners of 30%+ of RAVE’s shares outstanding are calling the shots day to day, they may prove to be unwilling to hold through a leadership transition with the acquisition activity in the space starting to pick up and much higher valuations being offered for similarly situated companies. It would not be surprising to see RAVE taking bids from the many ready and able buyers who would likely be willing to pay a substantial premium to the current market cap to take down Pie Five and Pizza Inn in one fell swoop, especially given that comparable private market transactions have been valuing Pie Five comparables at more than double the current RAVE valuation.
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