ELIGEM,Thanks for bringing the 8/12 Forbes to my attention.I just read both of the Forbes articles that dealt with RAIN and I am amazed at the shoddiness of the journalism.Perhaps these people are related to ex-Chairman Stupak of Stratospere.In the first article,the authors stated "Rainforest Cafe,recently traded at 27&1/16,has a multiple that is off the charts-last year it lost money."First,last year it earned 120,000.And its' current 'P/E would have been 90 according to S&P,Zacks or IBD estimates.Now if the authors didn't even bother to look at the 10K to find earnings,do you think they really investigated any of the places well in person?Two of the 3 people quoted in the gaming places such as DANB were described as 50 yr.old and middle aged.That age group represents maybe 10% of business of those places.I like the DANB one the best.
"Judy Harrington,a middle-aged hospital exec.,drove in from suburban Philly with her with husband,her son and his college girlfriend (for dinner and games)"
The article goes on to say she liked it well enough and it was one of the few things the family could do together but they'd only go about once a year.
Let's consider this.Here's a middle aged parent with a least one college tuition bill to pay (and maybe soon financing a wedding ) thats probably lost about 8-10 percent of their mutual fund retirement savings in the last few months and constantly hearing people like the authors tell them it's going to be getting A LOT worse soon,and she'd like to come back once a year.That sounds pretty good to me.But hey why not ask the kid and his girlfiend how often they'd like to come back since they are more DANBs meat.Nah,that would be too much like pertinent information.
Then the third interviewee whose age isn't mentioned brought his 11 yr. old daughter and her 3 friends to Funscape for her birthday and dropped $100 and thought it was a little expensive because he could have gone to the waterslides for the same money.Again ask the daughter if she'd rather go to the waterslides for her birthday.Want to guess the answer.Think next birthday it will be the waterslides.Hey,I know for the same money he could take them to Whitesox Park,sit in the bleachers and everybody can have one hot dog,one coke and one cotton candy.Sorry,no souvenirs!Or he could leave the kids at home and go to a Bulls game himself.
Next,Pg.156 "Rainforest Cafe earned all of $100,000 last year (and Wall St. valued) as of the June 5 peak (at) $287million.How did it get to 2,870 times earnings?"It should be $120,000 and 2,375 times last years earning at its 6/5 peak but then the statistic is meaningless anyway.Why value a growth stock to last years earnings?What useful information does that tell you?1Q '96 net income was $548,000,alone which has already reduced the multiple to 528.and since that represents 4/30 of expected earnings,our new valuation is 70 times '96 earnings.Gee,what a difference a year makes.
And,now it's my turn to have fun with statistics.Let's project 1997 earnings according to 1Q earnings.You know that quarter that begins right after Xmas and ends right before the tax deadline,when everybodies throwing nickels around like they're manhole covers.Lets assume our percentage of net income from revenues is the same in all of '97 as it was last quarter-9.5% and lets add to that the percent decrease in General Adm. and Dev.Expeenses which management has advised us on 6/4/96 will decrease from 15% of revenues to 5-6% by 3Q of '97.We're doing this because management hasn't steered us wrong yet.Lets see that makes 9.5 plus 9.5=19%.Hey,our profit margin is going to double.Now let's take the increase in total # of restaurant seats from 1Q-720 seats to 1Q'97 [post Taj Mahal] -2,550 (my estimate) thats a factor of a little more than 3.5 and then times that times 4 quarters and we get (using the slowest 1Q net income as our standard).
550,000*2*3.5*4=15,400,000 (or a multiple of 18) given a valuation of $287million
0r
$.04/share x 2(double the margin of profit) x 3.5(the number of seats) x 4 quarters=$1.12/share 1997 earning estimate .
That's my conservative 1997 estimate $.32 above the experts.Conservative because at least 6 other Cafes will be opening during '97 whose revenues I haven't factored in.Also,Disney will vastly outperform beyond a doubt..Places like Vegas and Atlantic City will be suitable for longer hours open per day.Retail sales were down 1Q as a % of revenues because they decreased retail floor space in Minn. to put in more tables and all the later RAIN have greater% retail space to begin with.The synergistic effect on retail sales than RAINs inevitable national popularity will have.Increased efficiency of the system,training and staff in regards to seating and processing diners.Etc ,etc ,etc
Regards,
Dennis. |
