First, let me reiterate my approach to my $HABT position. When they came public I said this was going to be a long term position of mine, that I’d buy it once per month for 12 months. Having said that, I have about 8 months left of buying to fill the position. Despite my enthusiasm for the stock, it is in my best interest for the stock to be flat to down, especially as the company executes on numbers.
Both earnings and guidance exceeded expectations, helped by an additional day in the quarter. Wall Street’s response has been negative, sending the stock lower in after-hour’s because the numbers weren’t break out.
That’s okay.
There are two things keeping margins down.
1. Price of beef.
2. Rise in minimum wage in California.
Given the collapse in commodities, it’s only a matter of time before beef costs sink lower, helping the company with inputs. The minimum wage issue will abate, as the company diversifies outside of Cali. They have plans to open more than 25 stores in 2015, many in NJ, DC, Nevada and Florida. Numbers were tempered as the quarter dragged on because they were recently featured in a Food magazine for having “the best tasting burger in America.” Naturally, this free endorsement helped boost sales, which will of course wane as time passes. Nevertheless, the core to the Habit/Shake Shack thesis remains intact, which is to destroy the MCD-Burger King hegemony on fast food hamburger consumption.
Playing casual dining has been a very lucrative place to make money over the past decade. This trend will continue, especially with lower fuel and commodity costs.
Making money in proven themes, like the sale of hamburgers, is fairly straight forward. As store openings accelerate, so will the share price. We’ve seen this play out over and over again in CMG, PNRA, BWLD, SONC and even YUM.
HABT intends to double its footprint over the next 4 years. Based off current guidance, the company is trading 4.5x 2015 sales, a discount to CMG’s 5x sales and way under SHAK’s 20x sales. I don’t like my chances at making money in HABT over the next 4 years; I love it.
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Pair trade vs Shak
MCD and BK customers are not HABT customers. The former simply want cheap and fast. HABT is competing with the dozens of regional and local fast/casual burger restaurants. I do agree that share price can increase along with store openings as long as same store sales increase as well. Time will tell on that front.
I think you need to look at the HABT menu. It is affordable.
Fly, I know you don’t buy in the extended after-hours market, but I just did. Sometimes the after hours trades are too volatile, hopefully the response in the morning will be more muted.
It is very affordable for the quality. I am surprised they were softer in the second half.. They really need to work hard on increasing the number of drive-thru locations, would love to see transaction volume comparables of drive-thru vs. non-drive thru/shared pad.
They have a few drive thrus and said margins were higher there.
HABT will take the banker bucks and destroy every decent mom and pop shop in existence. The food is that good. And apparently some people do not realize how cheap it is. No way a local can compete.
I think I might do the same 12-month purchase of $HABT. My only retail food is $SBUX and I need something else.
There is one point you are missing on, Americans are now Hispanic and Hispanics prefer tacos over the hamburger.
HBP- I lived out i LA for many years and did not notice a proportionately greater percentage of Hispanics in Mexican chain restaurants, compared to the total population.
However, I think it is correct that fast food chain restaurants would have a large percentage of lower income customers. You might be seeing a visual breakout of demographic vs income at fast food restaurants, rather than a food preference.
The future is a HABT in every fucking town. SHAK will only be in the big cities. In and Out is outrageously popular because of price then taste but only serves burgers. There is no comparison in taste between HABT and any of the large dog food mega chains.
Nonsense on the taco thing. People associate America with burgers, especially first or second generation immigrants. If anything burger sales will increase as demography becomes more Hispanic.
He’s a pharmacist. He is high on drugs.
The minimum wage will hurt them in Florida.
Last time I checked it was $1.85/hr.
I am also of the opinion that women and college students under the influence would gravitate to the likes of Taco Bell/CMG/Moe’s rather than a burger joint.
Fly, mind if I ask. If you still have 8 months to add, how can it be one of your largest positions already?
I haven’t tried HABT burgers yet, but so far I’ve been happy with my 5 Alarm Burgers at Red Robins.
Even though it’s my largest position, it is still less than 10% of assets. I intend to supersize it up to 20% within a year.
I think the staff makes a huge difference at these places. As I recall In-N-Out paid their store managers a salary they could actually live on. Both Five Guys locations I go to here have great staffs.
People make a difference in may things, for example the Whole Foods near the office has excellent operating management. The WFM near home has no visible management and it shows, being a inferior WFM location.
A cool staff does not feed the kids of the low middle and poor. Put yourself in the shoes of most Americans. They only have so much money. A ass kissing smile does not pay the rent. Price rules fast food.
Habit’s outlook, like 99.9% of investments, can be summed up in three words: hard to know.