Back in August, my Foolish buddy Nathan Parmelee took a swipe at small burger joint Steak nShake
While Nathan and I seem to disagree completely on the quality of the food, I'm not so sure we disagree on the appeal of the stock. Much as I like the place, I'm not quite sold yet on its prospects as a long-term winner.
In the company's fiscal fourth quarter, sales rose about 8%, but same-store sales were down 3%. Even adjusting for an extra week, comps still declined by 0.6%, and full-year comps were only up 2.9%. Traffic was apparently down about 4% for the quarter, which didn't help ease my mind. While management pointed out that restaurant-industry surveys suggest that performance isn't too bad (as corroborated by chains like Ruby Tuesday
What's more, management's guidance for the next fiscal year fell below the average expectation, suggesting annual earnings growth of only about 5%. Even if you believe in management's vision for eventual long-term growth of 15%, we're certainly not there yet.
Speaking more broadly, though, I'm worried about whether or not this chain will ever stand out from the crowd. The food is great and the service (in Burlington, at least) is usually pretty good. But the decor is nothing special, and I'm not sure that there's a "hook" here that will lure hungry diners away from other eating concepts. In other words, I could see this chain continuing to do profitable business from regulars who know the food is good, but I'm not sure the concept will ever catch on like Red Robin
I know there is a core investor base here that believes in management's long-term, steady-as-she-goes expansion plan. That's fine, but I just don't see the earnings, cash flow, or same-store momentum to make this a really interesting stock for new money. After all, I prefer to invest with my head -- not my stomach.
Further foodish Foolishness:
CEC Entertainment and Buffalo Wild Wings are Motley Fool Hidden Gems recommendations.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).