Marshall and Baird,
I think you guys have pretty well put your fingers on the causes for RAINs weakness in price.
1) Making and exceeding estimates for the 3Q is going to be tight. But I'll bet we'll see some one-time licencing fee coming in from the international agreements to put some icing on the cake. However I'm not sure that will be viewed as genuine earnings by the analysts. I haven't dragged out last years 2nd and 3rd Quarter 10Qs yet to see just how big the jump in revenues was as a percent in each store but I do remember it was pretty significant. I will get on that though. I figure we have to add about 900K to the bottom line to get $.22/Sh. Doable but certainly not guarenteed.
2) Next, is the search for the new COO/Pres. There was some speculation at MF RAIN that it could be Debra Smithart who recently left Brinker for an as yet unannounced position. At any rate, RAINs G&A rose last Q to 7.8% of revenues up from a previous 1Q of 6.8%. The stated cause was tightening up the infrastructure and the fact that all seven future Directors of Operations from the units opening this year and also Animal kingdom next year are already on the payroll. Until the units open, their salaries goes under G&A. What occurs to me, is that to keep costs, particularly G&A costs, down this Q the contract for the new COO/Pres is going to have to be pretty low cash-wise and very heavily loaded with options. As Marshall mentioned if all goes well in the 4th Q there should be a big pop in revenues as well as shareprice as some major units open. If the contract heavily option laden, new COO would be raking in lots of equity in the options from things he/she had nothing to do with causing. So actually I'd expect any announcement of a new COO/Pres to be effective 10/1/97 when it won't impact on this quarters earnings. In the 4th Q we could much better afford to pay the new COO/Pres. top dollar which I assume he/she will demand unless we end up hiring a Berman flunky. And frankly I'd rather pay a top COO mostly in cash rather than some option deal which is easy on the balance sheet short-term but highly dilutive long-term.
3) If the openings go smooth here on out the year, I don't think we'll have much trouble meeting 4Q and yearly estimates. We should be seeing the 40's in this case early next year. However if there is no strong COO/pres announced or there is anymore substancial delays in this year openings, we could well begin the year still in the worty twenties.
4) Finally, it strikes me that a body could have been making a nice living for the last year by buying RAIN in the month before earnings and selling it in the month after. And I'm sure a lot of sharp traders are doing just that.
Warm regards to all,
Dennis |
