With just two analysts, Wall Street doesn't pay much attention to Ryan's Restaurant Group
Before proceeding any further, let's take a look at first-quarter results reported earlier this week. The top and bottom line didn't budge much, as revenues were up a tick to $213.7 million, driven mostly from a same-store sales increase of 1.7%. Diluted EPS dropped a penny to $0.25. Free cash flow soared to $20.7 million from $7 million in last year's first quarter because of a significant drop in capital expenditures.
There are two main reasons I thought a checkup would be worthwhile here. The first is that the company is in the process of adding breakfast service on the weekends in all its restaurants. The capital expenditures for this rollout are relatively small, which should make it a low-risk, high-reward proposition as management tries to get more out of its existing assets. The results have been very positive so far, as average weekly sales were a record high for the quarter and same-store sales moved into positive territory. Sales should continue to benefit throughout the year, as a third of the restaurants have yet to implement the change.
I was also enticed by the plan to decrease capital spending by temporarily slowing new-store growth in order to pay off debt. I discussed a similar situation at IHOP
Still, based on the run rate of free cash flow, the stock is trading at a price-to-FCF ratio of just 6.5. At some point, I expect the company will look to invest back into growth, bringing that number closer to historical levels. In the meantime, investors get a nice glimpse into what cash flow would look like if heavy investment in growth were eliminated.
Fool contributor John Bluis does not own shares of any company mentioned in this article. The Motley Fool is investors writing for investors.