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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: James Clarke who wrote (29255)	12/14/2007 2:18:57 AM
From: Paul Senior	Respond to of 78825

I'll pass on KONA. "$5.5 million of revenues per unit at a 22% cash flow margin at the unit level. You won't find many restaurant chains with those unit economics. CAKE is one." Operating margins though at the corporate level are negative. If CAKE's like KONA,l'd rather have CAKE. And do. At higher prices sadly. Very positive two articles on CAKE in this month's SmartMoney mag. I may add at current price. Places I see are still crowded. KONA may have some sort of theme that's unique - as I scan, it seems Happy Hour and big fish tanks and sushi --- other than that, it looks like any other dishes that could be copied by anybody else. Maybe though, it's like ROY's, Hawaiian themed which was bought out. For me, for themed, I'm sticking with BJ's Restaurants (BJRI), another fast grower (increasing store count), that's come down in value. Also am holding GRIL (Daily Grill), and I am in the fry pan too with Ruth Cris (RUTH), whose stock has been about halved this year. RUTH discussed here: biz.yahoo.com It's possible maybe likely that KONA will add add stores and also see revenue/store increase. In the current environment though, I suspect KONA will not see earnings/sh growing and maybe not even positive. There are too many other growing chains, other well-financed chains, other managements who are flexible and used to competition. I say it's debatable whether the novelty of a new upstart (KONA) will keep attracting customers. finance.yahoo.com People here who have no exposure to the restaurant business and would like some, well KONA could work for them. For me, I'm more willing to up my bet the RUTH survives to better times. And I'm willing tu up my shares of CAKE, which I consider a proven performer that has several options to improve its performance in the restaurant competitive landscape.

To: James Clarke who wrote (29255)	12/14/2007 8:20:09 AM
From: Mark Marcellus	Read Replies (1) \| Respond to of 78825

KONA looks very much like PF Changs when it had 20 restaurants. There was a five year huge growth curve after that where early investors made a lot of money. Thats why you don't want to wait until the concept is proven. I think that Peter Lynch's advice about not investing in the "next" anything applies here. I don't doubt that their concept is good, if it wasn't they probably wouldn't have made it this far. However, every region has "concepts" that work (Long Islanders can point to Green Cactus Grill or Ayhan's Shish-kebab but there are literally hundreds if not thousands of examples). The question if you're going to invest in them as a growth story is how well they can manage expansion. With Kona there are a lot of question marks, and the fact that the founder/creator is in charge of operations may be more of a hindrance than a help. The person who created the concept is usually not the right one to move it to the next level. That's been true from McDonald's on. Just out of curiosity I went back and took a look at the 1998 10-k for PF Chang's (at which point they had 23 restaurants). First of all, take a look at the difference in the 10-k. It is well written, well prepared, and clearly explains their concept and strategy. The best way to describe Kona's 10-k is "sloppy". Also note that PF Chang's already had in place a well thought out expansion plan with a formalized management structure that created a bunch of employee "partners" from the regional down to the restaurant level. I don't see that at Kona. Kona may very well prove to be a winner, and I'm certainly going to keep an eye on it. I also agree that the economics look good for a restaurant concept at this stage of development. However, when I invest in growth I'm investing in management more than anything else. Right now I don't have confidence that Kona's management is ready for the big leagues.