Archive for August, 2016
Rave Restaurant Group (Nasdaq: RAVE) stock has been moving higher on increased trading volume over the last few sessions and there appears to be whispers about a much improved quarterly report to be released over the next few weeks. Irrespective of whisper numbers moving higher and such, we have seen first hand many things that lead us to believe that the current quarter (Q1 2017 July – September) is going to be even better and most likely substantially better than the four that came before it. Members of the Groove community have visited many Pie Five locations in many states over the last few weeks. We have been surveying restaurant managers on how things are going generally, but most importantly we have tried to gauge the impact of Pie Five’s July price increases on customer traffic and spending. A few key takeaways from these visits –
1) The price increase that went into effect over the first few weeks of this quarter does not seem to have had a negative effect on traffic. We had conversations with managers in key markets just before and after the price increase and all have indicated that they have seen little to no impact from a traffic standpoint and only a few comments from repeat customers.
2) The company is seeing significantly higher volumes in the locations that have opened over the last few months. The range of numbers we are hearing lead us to believe there will be a significant improvement in systemwide AUVs in the current quarter.
3) Competitors (Blaze Pizza, Pieology, Uncle Maddios) entering Pie Five markets are not necessarily a bad thing according to the managers we spoke with who are in markets where this has occured. It appears that they are helping to build a mainstream acceptance of the fast casual build your own pizza concept, all remain more expensive than Pie Five (even after the price increase) and none can move the process from order to pizza in customer’s hand as quickly as Pie Five.
4) New Pizza Inn Buffet opening – new opening for a domestic franchisee Pizza Inn buffet concept last month. It has been awhile since we have seen growth from the Pizza Inn chain and the opening of new restaurants is an encouraging sign.
The bottom line – it appears that Rave’s Pie Five is growing rapidly – not just in new stores (two opened the last two weeks and four more opening over the next month) but also in revenues being generated at existing stores. Pizza Inn is showing signs of growth again. With similarly sized competitors (Mod Pizza) being valued recently at $120m+ in the private equity markets and many indicators suggesting that Pie Five is growing faster than many were expecting, could it be that investors are finally starting to realize that Pie Five is worth 2-3x the current market cap alone and the 200+ store Pizza Inn chain has significant value as well? Or could it be the short sellers are starting to take notice and cover? As of the most recent short interest report, there were over 500,000 shares sold short and the stock had the highest “days to cover” ratio in Rave Restaurant group history, with 18 trading days of 100% buy to cover transactions needed to cover that short position. Suffice it to say that there may be more competition to get a share of the thin float that is traded in RAVE Restaurant Group shares over the coming weeks with increased chatter of strong Q4 results, the potential for a rock star CEO hire and more investors starting to take notice of the Pie Five story and valuation disconnect.
As many of you are likely aware, the author of our Rave Restaurant Group research as well as several other investors who hold significant positions in RAVE stock have made efforts over the last two months to begin a dialogue with management and key members of the board about opportunities to enhance shareholder value. During this time many of us have also been adding to our positions in RAVE stock with the author now controlling just under 5% of the float and several other participants in this community who now own stakes between 1-3% of RAVE’s public float. If you own RAVE shares, could you drop me a quick line at email@example.com to let me know how many shares you own and also if you would like to participate in a private message forum we are creating specifically for the RAVE situation.
We are going to set up a forum specifically for RAVE investors where all who wish to participate can share real time information with the group. For instance, we have participants who have been visiting Pie Five and competitor (Blaze, MOD, Uncle Maddios and Pieology) locations in multiple markets around the country over the last few weeks in addition to speaking with franchisees. Suffice it to say that there are many very positive things that are happening with Pie Five (and some with Pizza Inn too) that are not part of the current investor conversation, possibly due in part to the leadership transition underway at RAVE. Regardless of the reasons, it is time for RAVE investors to use all the tools at our disposal to communicate about the next chapter for Rave Restaurant Group.