TO ALL:
I HAVE BEEN FOLLOWING THIS STOCK FOR SOME TIME AND CAME ACROSS THIS NEWSLETTER ON YOGEN FRUZ. I POST THIS FOR INFORMATION NOT AS RECOMMEND TO BUY. ALSO LET IT BE KNOWN THAT I AM NOT THE WRITER OF THIS LETTER.
Thanks
Charles
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Your Speculative Pick of the Month: Yogen Fruz World-Wide
Explosive Growth Selling Frozen Yogurt
Yogen Fruz World-Wide (TSE/YF.A, $4.45), is a growth-oriented franchiser of frozen yogurt and ice cream outlets. Over the past two years, YF has expanded, both internally and through key acquisitions, to become the world's largest franchiser of frozen yogurt outlets.
YF can clearly be described as a modern-day success story. After going public in September 1994, YF has experienced extraordinary growth world-wide, accumulating a chain of 4,762 outlets spread across 82 countries, operating under such banners as Yogen Fruz, I Can't Believe It's Yogurt and Bresler's. YF also operates franchises and licenses Swensen's Ice Cream, Steve's Ice Cream and triple trademark frozen dessert stores throughout the United States and other countries.
To further expand its product offering, YF has also entered into the business of gourmet coffees, via its purchase of Java Coast Fine Coffees, a 40-chain gourmet coffee operation.
In addition to its target of becoming the largest franchiser of frozen yogurt and ice cream outlets in the world, YF has also pursued complementary businesses and arranged for co-marketing agreements with some key players within the foodservices industry. In this regard, YF and Pizza Hut Canada have signed an agreement that will see 230 Pizza Hut restaurants in Canada carrying the "I Can't Believe It's Yogurt" brand name.
Pizza Hut is the world's largest pizza restaurant enterprise, with more than 7,000 restaurants and delivery units in the United States, and more than 2,800 in no less than 90 other countries. The deal
should help to expand YF's overall exposure and availability across Canada.
Other co-marketing ventures include a deal signed with Denver-based Pretzel Maker Holdings. This contract calls for some of YF's products to be introduced in more than 200 Pretzel Maker stores in the US and Canada. YF has also signed a co-branding agreement with Pizza Pizza-a strategy that should provide YF with yet another revenue stream and increased exposure.
In a concerted effort to expand its US exposure, YF has made several key purchases. These include Bresler's Ice Cream, a chain of 5 15 franchised and licensed US outlets, along with 22 franchised
outlets in 17 other countries. YF has already begun to open Bresler's franchises in Canada.
YF acquired the Utah-based Golden Swirl frozen yogurt chain for $5.2 million. Golden has 65 corporate-owned stores and six licensed stores.
The company's key US acquisition was Integrated Brands of Ronkonkoma, New York, which was acquired in a stock swap valued at approximately $47 million. Integrated sells and distributes frozen dessert products to supermarkets, grocery stores, club stores, gourmet shops, delicatessens and convenience stores. Its brands include Betty Cracker, Yoplait, Colombo, Trix, Lucky Charms and Yoo Hoo.
This key acquisition should significantly increase the company's US distribution base. It is also expected to result in estimated annual sales of about $1 10 million.
In terms of its Java Coast purchase, YF's strategy will be to focus on international expansion. The company also plans to develop in-house frozen yogurt products for supermarkets and other retailers,
a strategy that we believe is significant in that it will open new growth markets for the company.
The combination of these moves reflects YF's overall desire to expand its product mix, thereby removing the risky element of concentrating on a singular source of revenue. And to this point, YF's financial numbers have been reflective of the company's aggressive growth strategy.
Estimated system-wide sales are close to $500 million on an annualized basis. The company has just recorded its 15th consecutive quarter of record earnings. In the third quarter of 1998 (98Q3), YF reported net earnings of $6.62 million ($0.15 per share fully diluted), versus $2.86 million ($0.09 per share fully diluted) during 9743. Revenues grew by 204%, to $31.53 million.
Despite its sound strategy and progress, this one-time darling of the street has in fact fallen on hard times. After reaching a high of $14.50 in May 1998, YF's share price has been caught in a dramatic
downfall, hitting the $4.00 level before managing a minor rebound.
At its present share price level, we believe this stock offers a good risk/reward opportunity. The company's shareholders appear to be in agreement with YF's recent announcement of a normal course issuer bid. Management believes its shares are undervalued, based on its track record of earnings and revenue growth.
The share buyback program will involve up to 3.28 million outstanding subordinate voting shares, or about 10% of the outstanding public float. All shares purchased under the bid will be cancelled.
We have long been impressed by the financial performance of Yogen Fruz. As such, we recommend the stock as a good buy at current prices. |
