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By Bruce Jackson (TMFGoogly)
Many of us have heard about the old adage of turning the stock market off. Well, it happened to me this morning, albeit very briefly. A scheduled weekend Fool HQ power-cut ran over until this morning, leaving the office directionless (which is not actually that unusual) and marketless. We were literally in the dark.
Why is this relevant to the Qualiport, on the day PizzaExpress (LSE: PIZ) reported full-year results? Firstly, I dashed off to the Wise analyst de-briefing this morning without any prior knowledge of what the company had achieved. The first I knew was when I asked the directors of the company how they'd performed. "Oh, more of the usual" was the reply, which was music to my ears. Secondly, because of the Fool HQ black-out, I had no idea how the market had reacted to the results.
But, why should I be worried as to how the market had reacted? Surely if the company has performed as well as I'd expected over the past 12 months, then I shouldn't give two hoots how the market is reacting today. Should I?
Well, it's obviously human instinct to check the share price of companies you own, because you can. Despite that, I still try to think of my holdings as private companies, because it is far better to concentrate on their performance, rather than the performance of the share price. A falling share price is not necessarily an indication of a company in decline, just like a rising share price is not necessarily an indication of a successful company - in the short-term.
Funnily enough, before the power finally flowed through to Fool HQ mid-morning, I expected to see PizzaExpress' shares heading south. Personally, I thought the market would react negatively to the fiscal 1999 like-for-like sales growth of 2.1%. In previous years, PizzaExpress has shown very strong like-for-like sales growth, so this trend is definitely going in the wrong direction.
The Paris restaurant is in the top 5 total company outlets, by turnover.
From the end of November 1999, there were 11 consecutive weeks of negative like-for-like sales growth.
Like-for-like sales growth for the new financial year is running at about 2%. In March this year, menu prices were raised by 2%, meaning like for like volume growth in the new financial year is zero.
The minimum wage will cost the company about £750,000 in fiscal 2000, which is relatively immaterial. Waiting staff continue to receive all tips as part of their salary, meaning they are quite well paid.
In some areas of the country, such as Darlington and Grimsby, a lower-priced menu is in force, where prices are on average about 5-6% lower than other parts of the country. Less than 20 restaurants are in this category.
Most of the original Café Pasta staff have left the company. The format was not living up to expectations, and the management weren't adapting to the slowing of the economy. Only three new Café Pasta restaurants will be opened in this financial year. A new menu and restaurant refurbishments are currently being tested, and if they prove to be successful, a London roll-out of the brand will then occur. The Wimbledon Café Pasta, complete with new menu and refurb, showed a 22% increase in like-for-like sales last week. Management are obviously pleased, but still remain cautious until the concept is really proven.
Operating margins at some restaurants are as high as 40%.
Typical sales growth in the first five years of a new restaurant is 8%, 10%, 10%, 10% and 5% per annum after that.
Average margins in the first 5 years are 14%, 17%, 21%, 23% and 25%.
UK target number of PizzaExpress outlets is 400, up from the 223 in operation as at June 1999. At least 35 new PizzaExpress restaurants to be opened per annum to 2004.
In France, the franchisee (mostly Mark Warner) has another 18 months of exclusivity before PizzaExpress Plc can open company-owned restaurants in that country.
Sales of about £160m are currently forecast for fiscal 2000, a 25% increase over the current year.
In the UK, consumers spend 30% of their food budget in restaurants, whilst it is 60% in the US.
Pizza Hut (part-owned by Whitbread (LSE: WTB)) have a 34% UK pizza and pasta market share, followed by PizzaExpress with 24%. Fastest growing is ASK/iTs Pizza & Pasta (owned by Ask Central (LSE: AKC)), but it still only has a 7% market share.
On ASK, PizzaExpress feel they are "following and copying" and will have "strains on human resources and consistency of the offering" as they expand.
International outlets trade under a few distinct brand names -- Milano, Pizza Milano and San Mazano. The lack of uniformity is either because the PizzaExpress name was not available in other countries, not allowed, or was too close to an existing brand name. The possible re-branding of UK restaurants away from the PizzaExpress name has been discussed.
The average spend in a UK restaurant is £10 per head. In Delhi, where they "can't fit in any more customers", it is £3.
PizzaExpress closed today up 74p to 820p, a rise of 10%. As for the reason, I can only make a few guesses.
- The 1999 results beat market expectations, albeit not by a huge margin.
- Relief that like-for-like sales growth is currently positive.
- A realisation by the market that a company growing consistently at over 20% per annum perhaps deserves a premium rating. Even after today's share price hike, they trade at a forward price to earnings ratio (P/E) of just above 20, compared to a trailing P/E of about 26 for the FTSE All Share index.
- International expansion hopes.
Coming away from the today's presentation, this last point is the one which I'm most excited about. Like-for-like sales growth was 25%, but the contribution to profit was minimal.
The French experience has clearly exceeded expectations, and PizzaExpress can feel a formula roll-out opportunity coming on. They are, however, restricted by the franchising agreement, but they always have the opportunity to try and re-visit that arrangement by potentially negotiating a buy-out. Although there's plenty of potential in France, PizzaExpress can't afford to sit around for the next 18 months, waiting for the franchise exclusivity period to expire, as copycat operators could steal a march.
I've run over today, but the discussions can continue on the PizzaExpress message board. On Wednesday I'll have a closer look at some of the numbers, and some thoughts on the managers of the company, who I saw in action at today's presentation. See you then.
General comments and questions to the Qualiport board, please.
Company Change Bid DELL(US)+0.70 49.40 EMA -0.24 9.98 IIG +0.05 2.93 MSY +0.15 6.30 PIZ +0.75 8.15 RTO -0.02 2.43 ULVR -0.05 5.83 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 27/10/98 755 Indep Ins 2.58 2.93 13.6% 27/01/99 74 Dell (US) 44.63 49.40 10.7% 22/04/99 347 Misys 5.76 6.30 9.4% 04/11/98 245 Pizza Exp 7.93 8.15 2.8% 19/12/97 783 Rentokil 2.55 2.43 (4.7%) 17/04/98 169 EMAP 11.34 9.98 (12.0%) 17/07/98 266 Unilever 7.53 5.83 (22.5%) Last Rec'd Total # Company In At Value Change 27/10/98 755 Indep Ins 1972.64 2212.15 239.51 27/01/99 74 Dell (US) 2007.42 2215.52 208.10 22/04/99 347 Misys 2028.71 2186.10 157.39 04/11/98 245 Pizza Exp 1966.34 1996.75 30.42 19/12/97 783 Rentokil 2046.53 1902.69 (143.84) 17/04/98 169 EMAP 2341.32 2015.96 (325.36) 17/07/98 266 Unilever 2052.00 1550.78 (501.22) Cash: £3,433.46 Current Total : £17,513.41 Total Invested: £18,184.62 Profit/(Loss) : (£ 671.21) Value Per Share Day Month Year Qualiport 1.32% 4.10% -6.87% FTSE 100 -0.36% -1.24% 4.87% FTSE All Share -0.44% -0.88% 8.95%