Spicy Pickle's Annual Numbers: Apples to Oranges
From.. MicroCapPress
For what it's worth, Spicy Pickle Franchising unveiled their Q4 and full-year numbers a few days ago. We pose it like that just to make this point - the 'then and now' snapshot doesn't necessarily have a lot of meaning.
Say what?
Don't get us wrong...in the end it's always about results. Our message is just how this franchise model - in its early growth stages - doesn't exactly lend itself to meaningful comparisons.
We'll look at the numbers today, and even add in the context needed to give them some meaning.
Spicy Pickle's Annual Numbers
Before assigning any meaning to them, let's just summarize the key highlights from Spicy Pickle's (OTCBB: SPKL) recently-filed 10-K.
For the year-ending on December 31st 2007, Spicy Pickle generated $1.27 million in revenue, versus $892K for 2006. The net loss came in at $3.6 million (which was no surprise), compared to a loss of $1.8 million in 2006.
The details, though, tell the true story.
Expenses went up fairly evenly across the board, save one...'investor relations' was an all new category. Spicy Pickle spent about $731K in investor relations - a good expense in the grand scheme of things.
And, the company had bakery and company-owned-restaurant sales in 2006 that they didn't have in 2007....a $360K hit on the sales total.
If the total loss seems intimidating, don't let it. This is all pretty typical for a young company that only recently went public. In fact, the most recent fund-raising effort largely negates our big worries. They've now got $5.4 million in cash, compared to $1.2 million in cash at the end of 2006. This should be plenty of money for them to go the distance between now and the point in time when they can start creating a positive net cash flow.
By the way, the reason we're hesitant to make a 'then and now' comparison...they had 36 stores up and running as of the end of 2007, but only about half that number at the end of 2006. They could reasonably double the number again in 2008. Overhead and fixed costs, however, should roughly stay the same.
Spicy Pickle's Quarterly Numbers
Another reason a 'then and now' comparison is tough to come up with is rooted in when the company books franchise fees (not royalties) as revenue. They don't count them until that store is actually open ...either a $17K or $35K bump. That's a one time event though, and could overstate things if assumed it was recurring revenue.
On the other hand, once a store is open - even if in the middle of the quarter - it does produce recurring revenue. If the restaurant wasn't operating as of the first day of the quarter, recurring revenue may be understated for the time period.
Both are good to have, but for last quarter, the company is booking a big chunk of change from franchise fees rather than royalties - thanks to rapid expansion. As more units are added, the bulk of sales will migrate over to the royalty side of the business.
Just for a little perspective on how fast Spicy Pickle is growing quarter by quarter...
As of the end of March 2007, there were 19 operational restaurants. By the end of June there were 24. They started October with 30 stores up and running, and ended December with 36 operational restaurants.
Remember, the average store contributes about $50K in revenue each year, and it's high-margin revenue. The build-up of recurring revenue centers is more important than the top line between then and now. With that in mind...
A Meaningful Valuation
If you're looking to compare Spicy Pickle to other companies on the basis of its sales totals, you may not find a very helpful comparison. Even compared to similar organizations (restaurants), the company's top line will never look quite high enough...that's just the nature of a franchise model.
The key here for investors is the bottom line. Those royalties are usually very high margin contributions. Once fixed costs are met, most everything else in the way of cash flow is very profitable. So again, earnings are the key.
The company isn't there yet though, so even that's tough to do right now. Give it sometime ...perhaps by the end of the year, or even sooner, for a positive cash flow. It takes a little conjecture, but that's what we've been doing since September.
As for the stock in the meantime, SPKL has fared about as well as the rest of the market.
The bulls seem to have drawn their short-term line in the sand at 80 cents; the stock has made lows for four of the last ten trading days there. That's not to say the final low and rebound point will be 80 cents - just a notification that we've seen an interesting amount of support around that mark.
Many traders would look at this chart and actually say the 71 cent mark is a likely low point. Why? There's a lingering gap there way back from September 24th. Charts have a way of cleaning up untidiness, and from the current trading level it wouldn't take much more to clean up this last little bit.
Of course, the move may well also be a buy-trigger for those same traders.
Regardless, while properly timing any entry for an investment is the equivalent to winning a battle, winning the war will eventually depend on the company's success and longevity. The progress (i.e. store openings, which intrinsically means cash flow) of Spicy Pickle is still the key.
To that end, they've got 36 stores open now, and 92 more on the way within the foreseeable future.
Coming Soon
The end of the quarter - which was today - is a great time for us to update our economic charts and sector rankings. Look for that edition later on this week. .
AI
