Archive for October, 2016

Groove Update – RAVE, JRJR, MARK & INUV

RAVE Update –

Rave Restaurant Group reported earnings last week that fell short of expectations on the top and bottom lines. While we were expecting Q4 to be very challenging, we were surprised at the degree to which same store sales declined (-12%) and even more surprised at the size of the decline in average weekly sales (-14.5%). While the same store sales figures are entirely based on corporate locations, the average weekly sales figures include franchise locations and we expected the sales results from non corporate locations to have more of a positive impact that they did. While the figures released did not allow for that level of granularity, we believe that those AWS figures were most heavily impacted by the sub-par corporate locations, some of which were closed during the period. While RAVE management held up a slight same store sales increase at Pizza Inn as a positive, the overall tone of the report was quite gloomy given management’s outlook on the current quarter where they indicated that Pie Five “… continued to experience difficult sales trends” and “Many of the newer restaurants that enter the comparable store base continue to experience a decline in sales from their initial year, particularly in the case of those stores that opened with very high sales volumes. The Pizza Inn system’s sales trends have been flat in the current quarter.”

In summary, Q4 was very disappointing and management did not give shareholders much reason for optimism based on current quarter-to-date trends or really much of anything. While we believe that the Pie Five concept and the product offered there are very good and among the best in the space, RAVE stock continues to languish due to poor execution and what appears to be a leadership vacuum. While this is obviously reflected in the trading of RAVE shares as they have continued to hit new multi-year lows in the trading sessions since the release, we remain bullish on the long term outlook for Pie Five and RAVE based on the strength of the concept as proven by multiple successful franchisees whose revenues dwarf those produced by corporate owned locations. We also believe that the rising tide of strong valuations in the fast casual build your own pizza space will eventually cause RAVE’s valuation to be pushed higher as Blaze, MOD, Pieology and others continue to bring the concept mainstream and extend valuations that are already multiples of the relative valuation for RAVE’s Pie Five. Additionally, we believe that the valuation for RAVE has fallen so low that it may start to attract attention from non strategic buyers in addition to restaurant industry players looking to take down two demonstrably good concepts that appear to be valued substantially below their industry peers.
JRJR Update –

We continue to get queries from Groove participants about JRJR Networks. We believe investors should avoid JRJR for a number of reasons, the most obvious being that the 4th quarter of 2016 just started and the most recent financial data that JRJR has filed with the SEC covers only until the end of the 4th quarter of 2015. There is no good way to gauge where the company currently stands with regards to the fundamentals that determine whether the company’s stock is trading at a level that represents an attractive valuation and management has continued to issue stock at implied prices that suggest they see a much lower valuation than the market currently does. While the company did release some preliminary numbers for its quarter ended March 31, 2016, they still haven’t filed the 10Q for that period that was due by May 16 and the company is now just two weeks from the NYSE Mkt imposed deadline for filing that is necessary to keep their shares listed. If JRJR does not meet that deadline and moves to the OTCBB or Pink Sheets, we believe the stock would fall substantially from current levels. While we would like to believe that the company would go to great lengths to avoid that result, we also note that the company recently issued over 100,000 shares of stock to the holders of its 9.756% debentures to get a default waiver that would allow them until December 31, 2016 to file.

Additionally, we note that the company recently filed an 8k to warn investors not to rely on any of its quarterly filings in 2015 and that the Company‚Äôs internal control over financial reporting and its disclosure controls and procedures were not effective as of December 31, 2015 and all quarterly periods of that year. This calls into question JRJR’s financials going back to the beginning of last year, which could lead to lawsuits from investors who bought shares in reliance on those filings. Given the continued lack of transparency, the historical results that suggest the company will likely need to raise capital in the very near future and management’s demonstrable indifference towards the negative impact of dilution for current investors, we recommend that investors avoid JRJR if you do not own it and that Groove participants who still own the stock take advantage of the current $1.15 – $1.25 trading range to take their money off the table.

Remark Media Update –

We continue to be intrigued by the developments at Remark Media, though we are still unsure exactly how to value this company as it evolves into a very different animal than what we were originally hunting. The recent closing of the China Branding Group acquisition goes further down the path of growth in a direction that seems very different from the previous transformative acquisition (Vegas.com). As the company continues to pour resources into content and the development of the Kan Kan platform, the opportunity for growth appears to be enormous, almost to the degree that it is hard to fully grasp in the context of its being addressed by a company the size of Remark. While the dilution and material change to the company’s capital structure that has accompanied these acquisitions requires us to take pause in recommending that investors buy the shares, we do believe that Groove investors who still own “house money” shares may want to hold and watch to see how this develops.

Inuvo Update –

Great article on Inuvo out last week that has brought some positive attention. Much of the focus was on the transformative potential of Searchlinks. We agree wholeheartedly with this thesis generally and while the very low valuation makes it tempting, we are not yet seeing the traction from Searchlinks that we believe to be necessary to see the stock continue to rally significantly absent some additional catalyst.

 

Advertisements

October 3, 2016 at 10:00 am 4 comments


Enter your email address to follow this blog and receive notifications of new posts by email.