Archive for May, 2017

Bullish on RAVE Restaurant Group

Rave Restaurant Group reported Q3 earnings this week and the numbers were about in line with what was expected by analysts and the Groove community. While total sales in both Pie Five (+1%) and Pizza Inn (+2.9%) were up during the quarter, overall sales trends were negative as Same Store Sales continued to show weakness as Pie Five had a decline of 15.8% and Pizza Inn was essentially flat.

Despite the negative sales figures, the overall tone of management on the conference call was actually quite positive and optimistic. Pizza Inn seems to be on an upswing and many of the changes implemented over the last 12 months are starting to show up in the top and bottom lines there.  The discussion about Pie Five also had a positive tone all things considered.  During the quarter RAVE management moved aggressively to close lagging corporate locations and several under-performing franchise locations were closed as well. While this will obviously have the impact of reducing total sales, we think this movement away from unprofitable stores and markets will be a very big positive for shareholders over the long run. On this point, we note management’s comments in the 10Q, where the decline in store count is described as an “aberration primarily attributable to overly aggressive expansion in certain isolated markets” and stated further that they “..expect the overall trend of net increases in Pie Five stores to resume in future periods, although at a moderated pace with respect to Company-owned stores.”

These comments in addition to several made by new CEO Scott Crane on the quarterly conference call leave us with the impression that several new initiatives are showing significant promise. We note that the store closures occurred the last week of the quarter and that many of Scott Crane’s open market stock purchases occurred as the stock fell below $2 in the weeks after the closures and the end of the quarter. Mr. Crane’s recent investments in RAVE stock and convertible notes over the last three months total about $475,000. Given Mr. Crane’s knowledge of the industry, his expertise with store level operations and taking into account the obvious fact Mr. Crane would want to pay the lowest price possible for his stock, we believe that the quarter just reported will likely represent a trough in Rave Restaurant Group’s performance.  As such, we believe investors would do well to use the earnings related weakness as an opportunity to buy RAVE shares and note that as of this writing shares can be acquired very close to the average price Mr. Crane was buying his shares.

May 12, 2017 at 2:36 pm 1 comment


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