Post of the Day
March 25, 1998

From our AOL
Rainforest Cafe Board

Subject: Re: Info
Author: IdidMrsA

"With their reduced building in Q1, do you, as the respected number cruncher on this board, think the company had a cash flow positive first quarter? Do have any idea what the company's capital expenditures were this quarter? Since your numbers were more optomistic than mine, I am naturally curious about your take on this subject."


My assumption is that RAIN will not have been cash flow positive for the quarter for a number of reasons, one being that it spent around $8-9 million on the share repurchases. But leaving that aside, I would guess not only that RAIN shelled out the bulk of its cash for Disney and Palisades this quarter, but was perhaps also still making payments for the work on Aventura and/or MGM. If you've been reading any of the fine stuff going up in the Cash-King folder about flow ratios, (hmmm, that's not fair, hold on a second and I'll see if I can't find a link.........Cash-King Investing Step 7), one sign of a company's strength is its ability to pay its bills a little late. I expect that when RAIN is having a unit built, RAIN gets billed every month or every couple of weeks or every certain percentage of work that gets done, and then has 30 days or so to pay. My guess is that even if some of the work for Palisades and Disney was completed as of the end of the 4Q, that very little had actually been paid for. (I would make different assumptions if, for instance, Disney itself was doing the construction at A.K., but since it was not Disney, but rather probably an independent contractor, I expect RAIN was in a position to pay after the completion of the work.)

So in running my numbers, I assumed subtracting $8.5 million for share buybacks, and, I can't completely remember now, but about $20 million for construction costs (basically A.K. plus Palisades). Also the initial inventories for those two units is another million or so, and the pre-opening costs that wouldn't yet have been amortized. At any rate I see just over $90 million left going into second quarter.

It does look like the second quarter should be cash flow positive though, which reminds me of something I wrote off-line a while ago, and didn't get around to posting because it's not that good, but here it is anyway:

Top Ten Reasons RAIN Might Not Be Too Expensive At These Prices

  • 10.Approximately one month away from potentially announcing, as it does every quarter, record sales, record operating earnings, record net earnings, and earnings per share.
  • 9.Although it's already got the third highest grossing restaurant in the country, RAIN just opened an even bigger one in what might be an even better location. Oh yeah, it's going to be open more hours per day, too. At this time next year, RAIN may have two of the top five grossing restaurants in the country, or maybe even three (Times Square).
  • 8.RAIN pocketed more just on premiums from selling puts on its stock this quarter than Planet Hollywood earned operating all of its restaurants last quarter. (Not entirely sure that's really such a great sign, but it sure sounds impressive.)
  • 7.At less than 20x this year's earnings, RAIN is basically trading at the market multiple, and its concensus expected growth rate, although now down to about 35%, is still quite a bit higher than the market's.
  • 6.Next quarter: RAIN maybe (temporarily) goes cash flow positive.
  • 5.If the stock price really is being held down at all because of market suspicions about the empty President's chair, well, someday maybe that chair's going to get filled.
  • 4.Problems in Asia? Nothing but good for RAIN: cheaper to build the planned units, cheaper to buy the Asian sourced goods, and if the Asian currencies ever improve over what they trade for now, that will improve earnings.
  • 3.You know how every quarter (except the last) the earnings announcement would say, "We beat expectations, everything's going well, but oh, a couple of the units won't be opening as soon as we thought" so the next quarter's estimates would get cut? Hey, this time RAIN's actually saying that a unit opened early (A.K.), and, I guess they're going to announce that K.C. is being added to the end of the year. (Won't have any positive impact on earnings though, in fact now, with the new pre-opening costs not being amortized, restaurants open at the very end of the year hurt earnings.)
  • 2.Locations to be announced in the next earnings release: Montreal, Ontario (2), Kansas City (this year), Houston, plus whatever else we haven't yet heard about.
  • And the Number One Reason RAIN Might Not Be Too Expensive at These Prices:

  • 1.You're going to tell me that there's actually a cheap stock left in this market?

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