In an age when a good number of quick-service restaurants' holding companies are seeking to franchise operations (namely CKE (NYSE: CKR ) and Wendy's (NYSE: WEN ) ), it bears watching when one decides it likes its own food and wants to own its restaurants. Such is the case for Triarc (NYSE: TRY ) , the franchisor behind the Arby's roast beef sandwich restaurants.
The company took its first dip into owning its restaurants when it purchased its second-largest franchisee in December 2002. Buying 233 restaurants must have been a challenge, because it wasn't until July of this year before it really bellied up to the counter and made its second purchase -- RTM Restaurant Group, the largest Arby's franchisee with a whopping 775 restaurants. There are about 3,500 Arby's, so Triarc now owns close to 30% of them -- about the same ownership level that McDonald's (MCD) has of its restaurants.
Before saying "Boring!," take a moment to refresh your memory about Triarc. In 1997, the company purchased the white-elephant beverage maker Snapple from Quaker Oats, now part of PepsiCo (NYSE: PEP ) , for $300 million. Quaker Oats had shelled out $1.7 billion for Snapple, and the experience left a bad taste in its mouth. But in 2000, Triarc announced it would be savoring a more than $700 million capital gain from the $1.45 billion sale of Snapple to Cadbury Schweppes (NYSE: CSG ) .
So, when it comes to buying and building assets, especially food assets, Triarc has a record of success.
Thursday, after the market closed, the company announced it was buying 15 Arby's in the Indianapolis and South Bend, Indiana, markets. The company reaffirmed its desire to grow through acquisitions.
Third-quarter results indicate that Triarc knows something about running a restaurant. While franchisee same-store sales decreased 4% in the quarter, company-owned restaurant same-store sales increased 1%. That 1% gain might look weak, but consider that Wendy's and CKE Restaurants, the owner of the Carl's Jr. and Hardee's brands, both reported negative same-store sales growth at their company-owned restaurants last quarter.
Triarc is also trying to leverage its T.J. Cinnamons gourmet cinnamon rolls and coffees by offering multi-branding opportunities to Arby's owners. It appears to be an excellent way to build morning traffic and give the company a name-brand coffee to offer all day.
Arby's is the 10th-largest quick-service restaurant chain in the U.S. While it may be No. 1 in roast beef, it is still a smaller competitor in a big field.
There are no analyst estimates for Triarc. Insiders own 18.2% of the stock, and over the last six months there have been two insider purchases and no sales. While those are qualities of a prospect, the stock is more than fully priced when compared with its quick-service restaurant peers based on enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization).
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W.D. Crotty
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