Groove Update – RAVE, JRJR, MARK & INUV

October 3, 2016 at 10:00 am 4 comments

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’s 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.

 

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RAVE Moving Higher on Q Whispers & Boost from Pie Five Price Upgrade RAVE Holds First Ever Investor Conference Call Following Q1 Release

4 Comments Add your own

  • 1. Small cap investor  |  October 3, 2016 at 10:24 am

    JRJR’s only issue is late filings. Very clear it is BDO causing the issues at this point. Execution of the strategy looks strong based on what has been released. It appears to be tracking to $170,000,000 in revenue for 2016. Also looks like they are turning the corner on profitability with all the cost cutting taking place. They were cash flow positive in q4 2015 and we are now entering q4 again.

    It’s important to note that the slow period of q1 and q2 has passed and no capital raise was required. This is extremely bullish. Also the CEO stated at the last conference he is going to buy a lot in the open market as soon as he can and wants no dilution. He wants more of the company back. Extremely bullish.

    Rave is having execution and management issues. I would recommend people to stay away. It will be hard to buy them because competitors would have to retrofit their locations to fit their own style. That would cost a lot of money. Also many of the locations are suspect. I think rave will get bought out but not for a while and it will be at a much lower valuation.

    Reply
    • 2. JTB  |  October 4, 2016 at 10:52 am

      http://investorshub.advfn.com/boards/read_msg.aspx?message_id=125551028

      There are many issues here, the worst thing is the family issues and the dilution. The company just prints stock for any and every purpose. They granted many hundred thousands of shares over the course of this year to give to the family members of the owner, even the one who screwed up the financials so bad. And they print to give the lenders so they can avoid going into default on the loans.

      Reply
      • 3. Small Cap Investor  |  October 4, 2016 at 12:03 pm

        Simply false. Why would they take stock if they thought a default was possible? Real simple. They are very bullish on the company. I bet that many who participated in the Aegis raise have bought more.

        Also they company recalled 1 million shares from a consulting contract in q1. They issued 2 million shares in the form of options. 1 million was to the field as extra incentive. I see no issues with that. Also John Sr takes no salary. So there is nothing out of whack there.

  • 4. JTB  |  October 7, 2016 at 10:15 am

    Are you confusing default on a loan with bankruptcy? Defaulting on the loan only causes the interest to move higher or in some cases causes an acceleration in the payment schedule. The reason the lenders would take stock is that they believe they can sell the stock and still get their loaned money back. When they pay zero for the stock and the company is able to continue to put out information that allows the stock to trade at $1, the lender can sell the stock for the $1. They have been doing this for months and the company loves it because it would be very hard for them to place a stock offering at the current price.

    As long as the company does not file its financials, they are able to convince investors and lenders that things are going great. You should see all the things they post on Facebook about setting new records each month and how they are conquering the world. Looks like they will have to file soon (next Monday) though because the exchange gave them a deadline to file and if they are delisted the days of anyone being able to sell their stock for $1 are numbered.

    I think you are on target about RAVE. They seem to have a good concept but no execution. Their management team has performed as bad as any I have seen in recent memory, almost to the point where you would think they are trying to run the ship aground.

    Reply

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