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When
a Stimulus Doesn't Stimulate, SPKL's Introspection |
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We
have to give credit where it's due. Spicy
Pickle Franchising Inc. (OTC:SPKL) just gave us a glimpse of what's
going on with the company, warts and all. As you might expect, it's not
all sunshine and roses, but that's ok - nobody really expected greatness
in this environment. What we got was a realistic look at the likely
upside and downside for 2009. There are several things to be optimistic
about. The full company update is below.
In the meantime,
a market update following a disastrous Tuesday (and despite the
stimulus pretty much being a done deal)...
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The
Stimulus: Anything But Stimulating |
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If you're one
of the millions wondering how the combination of an almost-passed
stimulus bill and a specific bailout plan from a Tim Geithner-led
Treasury only managed to send the market more than 4% lower on Tuesday,
you're not alone. We've got a handful of possible reasons for the lousy
response. More importantly, we've got some perspective on what it all really
means to you right now.
First and foremost
though, why is this news so bad? Here are a few potential reasons.
 1)
Perhaps it's not that things were perceived as being so bad on Tuesday,
but rather, things were artificially good over the six trading days prior
to Tuesday.
With January
being just brutal for stocks, there's a good chance there were a lot of
open short trades. However, at the end of President Obama's second week
in office it also became pretty clear a stimulus bill would be passed.
Nobody knew what it would look like, but it was coming one way or another.
Rather than
risk being on the wrong side of a stimulus-inspired rally, all those
short trades could have been covered last week (thus pushing stocks higher).
If the market now doesn't think the bill is 'stimulating', or doesn't think
that the credit market will actually thaw out - a real possibility -
then fundamentally speaking, stocks were overvalued at last week's levels.
Thus, the shorts went back to work again.
2) The bill
actually hasn't been passed yet.
Something very
close to the current bill that came out of the Senate will likely become
law, but the House has to approve the Senate's edits. Then President
Obama has to sign off as well. That could all happen in a day, but who
knows how long it will actually take? It could be several days until
it's a deal everyone is happy with.
3) The final
price tag of this bill, last October's approved bailout money, and the
Treasury's recovery plan is approaching $3 trillion.
Between this
bill and October's, taxpayers are on the hook for close to $1.6
trillion. The Treasury's creation of up to $1 trillion worth of loan funding
doesn't put the government's hands right in our pockets, but printing more
money makes our cash worth less. There may be serious doubt about whether
or not the economy can actually get $3 trillion worth of good out of a
$3 trillion investment.
 4)
The Treasury's plan is still vague, and may or may not actually accomplish
anything; it's not even clear if Geithner knows what the plan is or what
it's supposed to do.
For those who
watched Treasury Secretary Timothy Geithner's first public Q&A session
as head of the Treasury, you probably didn't sense much confidence. You
did
experience, however, a lot uncertainty. Is enough money being devoted
to the lending market? How do we know? How do we insure that the money
is actually turned into loans? That's the point - nobody seems to have
any real answers. In short, there just aren't enough details yet to
call it a real plan.
The only thing
that seems fairly certain is that Obama ultimately wants to give bankruptcy
judges the right to alter loan agreements to stave off foreclosures. That's
great, except for lenders ... and possibly home-owners who can't afford
their home no matter what the terms become.
Ironically,
the one thing that could help shore up banks problems was the one
thing not really discussed ... the way mortgage-backed securities
are valued by "marking them to market". Basically, they're assets that
are worth more than the banks' books say they are, which is why those books
look so awful right now. It's not like all problems would be washed
away if these mortgage-backed investments were assigned meaningful values,
but it would help considerably.
Anyway, the
Treasury's plan so far is meaningless.
So do we
follow the market's lead and start to panic? Not yet. Tuesday hurt
to be sure, but we're only back to where we were in mid-January and early
February. The world didn't end. In fact, economically speaking,
things are no different now than they were a month ago ... we know a
recovery is going to cost a fortune, and we know there's no choice
in the matter.
 Since
it's still crazy to (1) try and determine the market's actual value, and
(2) try to determine if the market's going to trade at its actual value,
then the best course of action may just be to stay on the sidelines with
your current cash, and keep a short leash on your current trades. We see
nothing in particular to suggest another plunge is a foregone conclusion
though.
Instead, we'll
reiterate the point we made this weekend ... that charts are as important
as values.
For the S&P
500's chart, our primary concern is continued support at 800. That was
January's low, and almost a multi-year low (we briefly visited 741 in November).
As long as the bulls hold the line there, the market isn't yet KO'd.
Here's the Spicy
Pickle update. Some good stuff is still happening, particularly with the
Bread Garden chain.
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Spicy
Pickle 2009 Corporate Update
Denver, CO - February
11, 2008 - Spicy Pickle Franchising, Inc. (OTCBB: SPKL) fast casual restaurants
serving all natural premium meat and poultry and other fresh products provides
this update on current business activity in both its Spicy Pickle and Bread
Garden Urban Cafe chains.
Development has
slowed considerably for the Spicy Pickle chain in the United States, but
some expansion possibilities continue to exist. Bank financing for new
franchise opportunities is simply not available in the current climate,
and expansion will continue to be limited until capital becomes more readily
available.
The following
is a summary of existing expansion possibilities for the remainder of 2009
and possibly into 2010:
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Our Houston franchisee
has signed a lease for their first site and is actively pursuing additional
locations. The first site will open in the spring of this year.
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Our Las Vegas franchisee
is finalizing lease negotiations for a second location.
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After a long negotiation
our San Antonio franchisee terminated their first lease when the landlord
refused to accept the previously agreed to terms, and is actively looking
again for a first location.
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Our Los Angeles franchisee
continues to seek a first location for this market.
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The Naperville Illinois
franchisee has signed a lease and has architectural drawings underway for
the location which will open in the late spring.
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The Chicago location
in Lincoln Park, which was a Company owned restaurant was sold to a new
franchisee, and they are now operating that location with improved sales
due to the local ownership.
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The restaurant that
closed in Sioux Falls, South Dakota is still in an operational state, and
an interested party is negotiating with the bank and landlord to reopen
the location if their offer is accepted.
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A new franchisee
is in the Denver area is in training and plans to relocate an existing
restaurant that will offer a breakfast grab & go menu due to its location
near the light rail which is Denver's commuter rail system.
2009 Contraction
Development and Possibilities Include the Following:
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The franchisee in
Indianapolis has ceased operations and will not continue with any further
development.
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The franchisee in
San Diego has slowed development and will not move forward with any additional
new restaurant locations for the time being. Currently, there are two stores
operating in the San Diego area.
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The New York franchisee
is working on an agreement to terminate their tenancy and close the restaurant
due to its proximity to the Wall Street financial district, and is looking
to possibly to transfer to another location on Long Island.
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One store in Colorado
Springs has closed as a result of layoffs in its immediate vicinity.
The Bread Garden
Urban Cafe chain in Vancouver is not experiencing the same credit barriers
to expansion, and is therefore positioned for more rapid expansion. The
following is a list of Bread Garden activity in the Vancouver area:
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A new Bread Garden
Urban Cafe will open at the University of British Columbia no later than
mid March.
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A new space will
be ready for occupancy in the Vancouver airport this spring, and is expected
to open July 1, 2009 in time for the 2010 Winter Olympic Games.
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The concession for
the Kamloops Airport in British Columbia has been obtained, and the existing
restaurant will be converted starting May 1, 2009 into a Bread Garden Urban
Cafe.
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The Bread Garden
Urban Cafe in North Vancouver has closed and was replaced by the drive
through location in nearby Cloverdale previously announced.
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Bread Garden has
signed a lease for the new Canadian Broadcasting Company Building located
in downtown Vancouver which will be ready for delivery this spring.
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We have also signed
a lease at Davie and Hornby streets. Construction will be getting under
way upon delivery to us on May 1, 2009.
The Bread Garden
Urban Cafe chain continues to grow. Existing restaurants are upgrading
and refreshing their menu items.
Corporate Overview
Commercial real
estate prices have come down substantially which bodes well for the long
term profitability of future franchisees. Those with the financial strength
to move forward are now in a position to negotiate very favorable terms
in prime locations. The lack of financing for current and potential franchisees
continues to be a roadblock to more rapid expansion and new franchise sales.
If the new stimulus
package is enacted by Congress and financing become more readily available
at the local level we could return to the previous growth levels we enjoyed
over the past few years. In the meantime we continue to negotiate the best
food costs we can while still maintaining our standard of delivering healthy
and natural products without preservatives, MSG, additives, extenders or
artificial colors or flavor. We are working on menu design that will provide
choices to consumers of combinations and products that provide the same
quality food but a prices that reflect the value that most consumers in
the US are looking for today.
At the corporate
level we continue to crunch numbers to reduce overhead. This included layoffs
in the last part of 2008, restricted travel budgets, and other cost savings
measures that reduce overhead but still leave the core infrastructure in
place.
Our same store
sales for 2008 compared to 2007 were basically flat, down only .02%. However
4th quarter sales were down 8.8%, reflecting the terrible fourth quarter
for retail in general. Our sales statistics calculate sales net of sales
taxes, comps and discounts and are not the only measure of performance
and may not be comparable to other sales figures used by other companies.
Additionally 20 restaurants opened during 2007 alone and therefore are
not included in the yearly same store sales statistics. In our system we
are much more focused on individual restaurants and cost control and marketing
efforts at the local level that will establish the franchisee in his territory
for the long run. Although times are obviously difficult for almost everyone
we believe that times like these are also an opportunity to work hard and
establish a foothold for better times ahead.
Marc Geman, CEO
of Spicy Pickle Franchising, Inc., stated, "These economic times are bringing
a lot of changes. Like most restaurants and other retail operations we
are, for the first time in history, managing through a period of declining
sales. Retail businesses in general will continue to struggle until consumer
confidence returns. In our system many of our franchisees are working harder
and more creatively to enhance sales and catering opportunities. We are
working on efficiencies in the distribution system, store design, operations
and other areas to bring costs down.
"We have reduced
the start up costs for the restaurants going into construction and have
reduced labor costs by reorganizing the kitchen line. The new designs have
been tested in one of our corporate restaurant in Denver and we will continue
to build in efficiencies that will enhance margins to help offset lowered
revenue expectations while maintaining excellent customer service."
Currently, there
are 50 Spicy Pickle and Bread Garden Urban Cafe restaurants operating in
British Columbia and 13 different states.
Our investors
and shareholders are always welcome to call or write in for additional
information.
About Spicy
Pickle(tm):
Founded in 1999,
Spicy Pickle Franchising, Inc. (OTCBB: SPKL) serves high quality meats
and fine artisan breads, baked fresh daily, along with a wide choice of
eight different cheeses, twenty-two different toppings, and fourteen proprietary
spreads to create healthy and delicious panini and sub sandwiches with
flavors from around the world. As a leading "fast-casual" concept, Spicy
Pickle offers menu items that are far beyond traditional fast food but
without the price point of casual dining. The hallmark of a Spicy Pickle(r)
restaurant is quality, service and an enjoyable atmosphere. The company
is headquartered in Denver, Colorado, with restaurants open or under construction
across 13 states and more in development nationwide. Spicy Pickle Franchising,
Inc. also operates as franchisor for Bread Garden Urban Cafes, a concept
with restaurants in the metropolitan Vancouver, Canada area. Bread Garden
Urban Cafes serve coffee, pastries and breakfast items as well as lunch
and dinner along with a wide variety of desserts. To find out more about
Spicy Pickle (OTCBB: SPKL), visit our website at www.spicypickle.com/.
Forward-Looking
Statements:
Certain statements
in this press release, including statements regarding the number of restaurants
we intend to open, are forward-looking statements. We use words such as
"anticipate," "believe," "could," "should," "estimate," "expect," "intend,"
"may," "predict," "project," "target," and similar terms and phrases, including
references to assumptions, to identify forward-looking statements. The
forward-looking statements in this press release are based on information
available to us as of the date any such statements are made and we assume
no obligation to update these forward-looking statements. These statements
are subject to risks and uncertainties that could cause actual results
to differ materially from those described in the statements. These risks
and uncertainties include, but are not limited to, the following: factors
that could affect our ability to achieve and manage our planned expansion,
such as the availability of a sufficient number of suitable new restaurant
sites and the availability of qualified franchisees and employees; risks
relating to our expansion into new markets; the risk of food-borne illnesses
and other health concerns about our food products; changes in the availability
and costs of food; changes in consumer preferences, general economic conditions
or consumer discretionary spending; the impact of federal, state or local
government regulations relating to our franchisees and employees, and the
sale of food or alcoholic beverages; the impact of litigation; our ability
to protect our name and logo and other proprietary information; the potential
effects of inclement weather; the effect of competition in the restaurant
industry; and other risk factors described from time to time in our SEC
reports.
Company Contact:
Marc Geman
Spicy Pickle
Franchising, Inc.
marc@SpicyPickle.com
www.spicypickle.com
(303) 297-1902 |
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
