By: Connor Konicke, AIM Student at Marquette
University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Bojangles,
Inc. (NASDAQ: BOJA) is a holding company that operates as a fast food
restaurant chain in the Southeastern region (North Carolina, South Carolina,
Georgia, Virginia, Tennessee, Alabama, Florida, Maryland, Kentucky,
Pennsylvania, and Washington D.C) of the United States. As of year end December
2016, BOJA had 716 restaurants as of December 31, 2016, of which 309 were
company-operated, while the other 407 were franchised.
• Founded in Charlotte, North Carolina in
1977, BOJA offers a cajun inspired menu and is most famous for their
hand-breaded chicken, made-from-scratch buttermilk biscuits, legendary iced tea
and breakfast daypart.
• As of year end December 2016, BOJA has
experienced 27 consecutive quarters of system-wide comparable restaurants sales
growth which is attributable to BOJA’s iconic brand and cult like following
from their Bo Fanatics.
• BOJA’s iconic brand has built a
cult-like following (Bo Fanatics) by providing differentiated, craveable food.
Key
points: BOJA’s has experienced significant growth throughout
the southeastern region of the United States and will continue to do so
throughout 2017 and 2018 as they have recently signed two new restaurant
development agreements. On March 22, 2017, BOJA entered into a development
agreement with VABO, Inc. to open four new restaurants in the Chesapeake,
Portsmouth and Virginia Beach regions of Virginia. As of April 26, 2017, BOJA
entered into an agreement with new franchisee MSR Restaurants, LLC. to open
multiple restaurants over the next several years in the metro area of
Washington D.C. Washington D.C has seen tremendous growth, with a 79,000 resident
increase since 2010, averaging 900 new residents per month. Virginia has grown
5.1% since 2010 reaching an estimated population of 8.4M by July 2016.
BOJA’s breakfast daypart segment continues
to show dominance as consumers eating habits are more habitual than other meals.
From September 2010 to September 2016, breakfast dollars spent rose at a CAGR
of 4.6%, from $57B to $75B. In addition, BOJA’s quick service restaurant (QSR)
morning meal daypart has grown at a 6.1% CAGR from $39B in September 2010 to
$56B in September 2016. What will continue drive BOJA’s breakfast daypart
growth is the changing consumer preferences of millennial’s. Millenial’s desire
value, convenience, and variety, all of which is incorporated in BOJA’s
business model. BOJA includes extensive menu items, variety of limited time
offers, all at the convenience of the customer.
BOJA brings the most competitive
characteristics of quick service restaurants (QSR) and fast casual dining by
providing customers quality food with speed, convenience and value. As BOJA
faces headwinds from sluggish restaurant sales, BOJA is well positioned as they
continue to tailor to changing consumer preferences and look to increase
convenience by adopting to mobile order and payment solutions.
What
has the stock done lately?
Since the start of 2017, the stock has
traded up 17.96% to $22.00 per share as BOJA’s stock price has exceeded analyst
expectations of $21.18 per share. BOJA traded down ~9% in after hours today,
May 2, 2017, after reporting earnings. BOJA exceeded EPS expectations by $0.03,
but missed revenues by $1.76M. Despite
first quarterly revenue misses, BOJA’s quarterly revenue increased ~3.0% YoY.
Past
Year Performance: BOJA has increased $4.39 or 24.93% in
value over the past year. BOJA 52-week H/L ranged from $14.55-$22.35. This appreciation
in value is driven by store expansion into high population growth states (North
Carolina, South Carolina, Georgia, Virginia, and Washington D.C), along with 27
consecutive same store sales growth. BOJA
currently trades at 22.0x P/E which is significantly below comparable peers of
32.2x.
Source: FactSet
My
Takeaway
Despite recently surpassing their price
target of $20.20 and headwinds from restaurant sales, I believe BOJA’s
expansion into high growth regions in Virginia and Washington D.C. and
tailoring to millennial preferences will continue to drive growth. Successful
implementation of mobile order and payment solutions in 2017 and high demand
for limited time offer menu times will continue to drive demand for BOJA’s.
Source: FactSet
