Actually, in this case, Mr. Market should probably cut the company some slack, since the miss came mostly from what should be one-time expenses: a "make whole" payment of $33 million in the third quarter to those holding options and restricted stock, and a management termination fee of $30 million in the fourth quarter. The former payment was primarily to senior management, according to the pre-IPO proxy, and the latter was paid to the sponsor group as part of the IPO. There were several other one-time charges, including a severance payment to former CEO Greg Brenneman and charges involved in reorganizing its international units.
Without those one-time items, the company would have made about $0.10 diluted EPS for the quarter and about $0.55 diluted EPS for the year (net of 42.5% assumed tax rate). While these levels are still a miss, they're not as bad as a quick glance at the bottom line indicates.
Another reason to cut the company some slack is that management is making all the right noises at the moment. It has paid off more than 22% of its debt since a year ago, reducing debt to $856 million. Yesterday, it paid off an additional $50 million. It has also improved franchisee retention rates by 25% and made changes to improve its tax situation.
According to comments made in the conference call, historically, the company has paid about 40%-45% in taxes. Management has made some changes in the way foreign operations are organized, such as moving a couple of regional headquarters, to take advantage of some U.S. tax-law provisions. Starting this month, tax rates should be a much more reasonable 37%-38%. The changes cost money up front, but should be well worth it in the long run.
Investing in IPOs is often a risky business. Sometimes you hit it big, as with Chipotle Mexican Grill
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