Meritage Hospitality Group, Inc (MHGU) research, news, and more from GeoInvesting

Company description

Fri, 16 Aug 2013 04:00:00 GMT

Meritage Hospitality Group Inc. engages in the operation of quick-service restaurants primarily in Michigan, Florida, Georgia, North Carolina, South Carolina, and Virginia. The company operates Wendy’s Old Fashioned Hamburgers brand under franchise agreements with The Wendy’s Company. It also operates causal dining restaurants under the Twisted Rooster and Crooked Goose brands in Michigan. As of July 18, 2013, the company operated 113 quick-service and casual dining restaurants. Meritage Hospitality Group Inc. was incorporated in 1986 and is based in Grand Rapids, Michigan.

Research

Mon, 21 Apr 2025 17:23:51 GMT

Meritage Hospitality Group Inc. (OTC:MHGU) ($12.32; $81.41M market cap) announced Q1 2025 results:

Q1 sales of $154.5 million vs. $162.8 million in the prior year
Q1 EPS of $(0.44) vs. $0.16 in the prior year

“As previously reported, Company sales and earnings were significantly impacted by atypical weather that impacted all of its markets during the first quarter of the year, with severe weather events in its southern US markets that resulted in decreased consumer traffic and numerous temporary restaurant closures from record snow, ice and floods. Looking ahead, we are reaffirming our 30% to 40% growth in diluted EPS for the full-year 2025, driven by robust new product offerings at Wendy’s in the second half of the year, highlighting protein-led innovations and marketing collaborations”, stated Meritage CEO, Robert E. Schermer, Jr.

2025 Outlook: Better Earnings Outlook Ahead:

Sales growth up to +3%
Earnings from Operations growth of +40% to +50%
Net Earnings growth up to +50%
EBITDA growth up to +15%
Diluted EPS growth of +20% to +30%

“The Company is focused on leveraging its robust operating platform and unique in-house restaurant development expertise to deliver consumers the highest level of quality, convenience, and affordability. Acquisitions, renovations, and new restaurant development are integral parts of our restaurant business model.”

Meritage Hospitality Group Inc. engages in the operation of quick-service restaurants primarily in Michigan, Florida, Georgia, North Carolina, South Carolina, and Virginia.

Research

Fri, 07 Mar 2025 05:00:00 GMT

2024 Fourth Quarter Highlights:

Sales increased 0.5% to $168.7 million compared to sales of $167.9 million for the same period last year.
Earnings (Loss) from Operations were $(0.1) million compared to $4.8 million for the same period last year.
Net Income increased 227% to $5.2 million compared to $1.6 million for the same period last year.
Consolidated EBITDA (a non-GAAP measure) increased 40.8% to $13.7 million compared to $9.7 million for the same period last year.

2024 Full-Year Highlights:

Sales were $668.8 million compared to $672.5 million last year.
Earnings from Operations were $10.9 million compared to $17.8 million last year.
Net Earnings increased 33.1% to $8.0 million compared to $6.0 million last year.
Consolidated EBITDA (a non-GAAP measure) increased 9.0% to $42.4 million compared to $38.9 million last year.
Diluted EPS increased 33.9% to $0.75 per share compared to $0.56 per share last year.

The Company is forecasting substantial earnings growth potential for fiscal 2025, despite an unusual January and February that was dominated with inclement weather, particularly in our southern markets which resulted in temporary closures from record snow, ice and floods. With the first two months of winter weather behind us, restaurant sales are returning to their normalized state and we forecast 30% to 40% growth in diluted EPS for the full-year 2025.

As we move through the remainder of the year, we anticipate Wendy’s restaurant-level earnings growth will be driven by an exciting new line-up of products and menu innovations, as well as continued margin improvements. The Company is in the process of rolling out its first test of Wendy’s Fresh AI – the generative AI technology that brings a digital automated drive-thru ordering experience to the customer. The Company is committed to leveraging technology and delivery options designed to improve customer experience and employee efficiency in the restaurants.

2025 Full-Year Outlook: Accelerating Earnings Growth:

Sales growth of +3% to +5%
Earnings from Operations growth of +40% to +50%
Net Earnings growth of +40% to +50%
EBITDA growth of +15% to +25%
Diluted EPS growth of +30% to +40%

Research

Wed, 21 Feb 2024 16:13:44 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.5; $120.5M market cap), announced preliminary 2023 results and provided 2024 guidance:

Q4 sales of $167.9 million vs $159.4 million in the prior year
Q4 EPS of $0.16 vs a loss of $0.07 in the prior year
Full year sales of $672.5 million vs $626.0 million in the prior year
Full year EPS of $0.62 vs $0.94 in the prior year

“Looking ahead, the Company is forecasting strong earnings growth for fiscal 2024, driven by operating margin improvements as commodity and labor inflation continues to ease. Our new Wendy’s buildings include modernized technology and delivery options designed to improve the customer experience and employee efficiency. We have a strong development pipeline of locations for modernization and new store openings planned throughout the year.”

2024 Full-Year Outlook: Accelerating Earnings Growth:

Sales growth of +5% to +10%
Earnings from Operations growth of +65% to +75%
Net Earnings growth of +145% to +155%
EBITDA growth of +30% to +40%
Common stock dividend growth of +40% to +50%

Keep in mind that the company has had trouble meeting its initial annual guidance for the past few years.

Research

Tue, 18 Jul 2023 12:31:57 GMT

Meritage Hosp Group (OOTC:MHGU) a restaurant operator, reported Q2 2023 results:

Sales of $176.6 million vs $161.0 million in the prior year
EPS of $0.61 vs $0.61 in the prior year

“The increase in sales during the second quarter was driven by a combination of same store sales growth, newly acquired locations, and new store openings. Our restaurant teams continue to focus on managing controllable expenses, while our primary costs are forecasted to steadily improve over the next 12 months as inflation moderates.

The Company recently closed on the acquisition of 25 Wendy’s restaurants in North Carolina and Virginia, which will add approximately $42.0 million in annual sales and be accretive to earnings going forward.”

2023 Outlook: Solid Growth Ahead:

Sales +10% to +20% (same as prior)
Earnings from Operations. +20% to +30% (revised down from prior guidance of 90 to 100%)
Net Income +15% to +25% (revised down from prior guidance of 35 to 45%)
EBITDA +15% to +25% (Revised down from 20 to 30%)

Research

Wed, 10 May 2023 15:23:11 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.65; $121.2M market cap, a restaurant operator, announced the acquisition of 25 Wendy’s restaurants.

“The Company funded the acquisition with a combination of cash, equity and bank financing and expects the 25 additional restaurants to add approximately $42.0 million in annual sales and be accretive to earnings going forward.”

The company provided an updated 2023 Outlook: All figures are the same as the prior revised-down guidance with the Q1 2023 results, except for the EBITDA range, which was lowered again.

Sales +10% to +20%
Earnings from Operations. +90% to +100%
Net Income +35% to +45%
EBITDA +20% to +30% (prior range was +25% to 35%)

Research

Mon, 17 Apr 2023 17:38:00 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.97; $123.3M market cap, a restaurant operator, reported Q1 2023 results:

Sales of $157.7 million vs $145.1million in the prior year
Net loss of $0.15 vs $0.20 in the prior year

“The Company is under a definitive agreement to acquire 25 Wendy’s restaurants. Acquisitions, renovations, and new restaurant development are integral parts of our restaurant business model, as we grow into new, expandable market areas. Newly built Wendy’s restaurants continue to provide the Company with a strong return on investment, as guests reward us for contemporary restaurant designs and digital enhancements,”

2023 Outlook:

Sales +10% to +20% ; Revised up from 10 to 15% in February
Earnings from Operations. +90% to +100%; Revised down from 115 to 125%
Net Income +35% to +45%
EBITDA +25% to + 35%; Revised down from 30+ to 40+%

Should be noted that previously issued guidance included dividend growth of 55 to 65%, which was not mentioned in today’s release.

Research

Wed, 15 Feb 2023 16:02:55 GMT

^{Meritage Hosp Group (OOTC:MHGU) ($19.00; $125.3M market cap), a restaurant operator,}^announced^{Q4 and full year 2022 results:}

^{Sales of $159.4 million vs. $148.5 million in the prior year}
^{Net loss of $0.07 vs. $0.30 in the prior year}
^{Full year sales of $626.0 vs. $577.1 million}
^{EPS of $0.94 vs. $1.81 in the prior year}

^{“Looking ahead to 2023, the Company is forecasting robust earnings growth, driven by new store openings and operating margin improvements throughout the year as cost inflation moderates. In conjunction with our growth plans, we recently signed a purchase agreement on an acquisition projected to close in the second quarter. Today the Company has a record number of new restaurant projects entitled for development and we look forward to opening the newly designed Wendy’s Global Next Gen restaurants. The new building design includes a fully modernized technology architecture with the ability to introduce voice AI and cloud technologies, new data management and restaurant level analytics tools. In addition, our recently opened Taco John’s restaurants are delivering very impressive sales for a newly introduced brand. Company growth plans include developing approximately 15 new Taco John’s locations in 2023.”}

^{2023 Full-Year Outlook: Transformational Growth Ahead.}

^{Sales growth of +10% to +15%}
^{Earnings from Operations growth of +115% to +125%}
^{Net Earnings growth of +75% to +100%}
^{EBITDA growth of +30% to +40%}
^{Dividend growth +55% to +65%}

^{Please note that the company’s earnings guidance just gets the company back to 2021 numbers.}

Research

Wed, 21 Dec 2022 14:17:58 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.45; $121.7M market cap), a restaurant operator, announced it has entered an agreement to acquire a large Wendy’s restaurant portfolio.

Details of the Agreement

Acquisition is scheduled to close in first half of 2023

The acquisition would add approximately $65 million in sales annually

The company plans to use a combination of cash and credit facilities to fund the transaction

“We are very excited by this acquisition opportunity and remain on pace for a record number of new Wendy’s location openings in 2022 and 2023. Acquisitions, renovations, and new restaurant development are integral parts of our Wendy’s restaurant business model as we grow into new market areas. The Company has successfully completed 27 Wendy’s acquisitions over the past decade and remains a leader in new restaurant development within the Wendy’s system. This year the Company was recognized by the Wendy’s brand with the ‘U.S Monument Award for Visionary Growth & Expansion’,” stated Meritage CEO, Robert Schermer, Jr.”
The acquisition would add about 10% to annual sales.

Research

Mon, 17 Oct 2022 15:24:06 GMT

Meritage Hosp Group (OOTC:MHGU) ($20.25; $133.5M market cap), a restaurant operator, announced Q3 2022 results:

Sales of $160.6 million vs $147.5 million in the prior year
Net Earnings were $1.8 million compared to $2.4 million for the same period last year
EPS of $0.18 vs $0.25 in the prior year

“Looking forward, Meritage is forecasting strong sales growth, driven by new Wendy’s and Taco John’s restaurant development, reimagined restaurants and acquisitions. The Company is committed to delivering on its capital allocation strategy of reinvesting in the business to drive profitable growth and return free cash flow to shareholders through a combination of dividend growth and share repurchases.”

We are awaiting the filing of the 10-Q to see if we can diagnose all the reasons for decrease in EPS performance other than inflationary pressures on gross margins, and if any one time gains impacted the results as operating income was up sharply, while net income was down, and EBITDA was flat.

Research

Sun, 17 Jul 2022 04:00:00 GMT

Meritage Hosp Group (OOTC:MHGU), a restaurant operator, announced the acquisition of 6 Wendy’s Restaurants located in Jacksonville Florida.

“The acquisition of the six additional Jacksonville area restaurants is consistent with the Company’s 5-year growth plan to expand its operating base to 400 Wendy’s restaurants. Currently operating 54 Wendy’s restaurants in northern Florida, we will immediately integrate the acquired restaurants into our operating and accounting platforms. The newly acquired restaurants will be added to our Wendy’s remodeling schedule, which is designed to modernize the restaurants and enhance the overall guest experience.

The Company funded the acquisition with cash on hand and expects the six additional restaurants to add approximately $11.0 million in annual sales and be accretive to earnings.”

The company also reported its Q2 2022 results:

Sales of $161.0 million vs $147.3 million in the prior year
Net Earnings were $6.0 million compared to $7.9 million for the same period last year
EPS of $0.61 vs $0.81 in the prior year

“Looking ahead, our development pipeline remains strong, as we plan to build a total of 24 new restaurant locations this year, including our first generation of Taco John’s restaurants. We have laid the foundation for transformative growth and value creation, as we execute building, renovating and acquiring restaurants with our unique operating platform,”

Company 2022 Outlook: Stronger Second Half

Sales growth of +10% to 15%
Dividend growth +10% to 15%

Research

Mon, 18 Apr 2022 11:48:28 GMT

Meritage Hosp Group (OOTC:MHGU), a restaurant operator, reported Q1 2022 results:

Sales of $145.1 million vs $133.8 million in the prior year
Net earnings of $2.2 million vs $6.3 million in the prior year (no 10-Q filed yet to check gains/losses)
EPS of $0.22 vs $0.67 in the prior year

“The Company anticipated a slower start to 2022 as a result of the dynamic inflation experienced in the second half of 2021. Additionally, the Omicron breakout in January 2022 significantly impacted staffing and food costs, but earnings have since stabilized. We expect margins to continue improving throughout the remainder of the year and are thankful for our management teams who continue to successfully navigate the evolving market. Our outlook remains positive as we move forward with new restaurant development, including the Company’s first Taco John’s restaurants scheduled to open later this year,”

Research

Fri, 18 Feb 2022 15:13:17 GMT

Meritage Hosp Group (OOTC:MHGU) ($20.25; $136.0M market cap), a restaurant operator, reported preliminary Q4 and full year 2021 results:

Q4 Sales of $148.5 million vs $140.0 million in the prior year
Net earnings of $3.0 million vs $8.8 million in the prior year
EPS of $0.30 vs $0.91 in the prior year
Full year sales of 577.1 million vs $516.2 million
Net earnings of $18.2 million vs $15.8 million
Full year EPS of $1.81 vs $1.58

“Looking ahead for 2022, we anticipate slow earnings start to the year given the Omicron outbreak impacting staffing and food costs. Predictions indicate this will be followed by sequential improvements and easing of pandemic related cost pressures in the second half of the year. We have started to see the restaurant staffing environment improve. We anticipate a record number of new restaurant development projects in 2022, with the Company’s first Taco John’s restaurants scheduled to open later this year. We are very optimistic about where we are headed over the next couple of years,”

2022 Full-Year Outlook:

“With sales growth predicted between 10% and 15% and the easing of pandemic related cost pressures in the second half of the year, the outlook ahead is significantly more positive.”

Research

Mon, 18 Oct 2021 11:22:55 GMT

Meritage Hosp Group (OOTC:MHGU), a restaurant operator, reported Q3 2021 results:

Sales of $147.5 million vs $136.6 million in the prior year
Net earnings of $2.3 million vs $4.6 million in the prior year
EPS of $0.23 vs $0.47 in the prior year

“Our sales growth in the third quarter was solid, especially on top of the record 9.0% same store sales growth last year. Operational earnings were challenged compared to last year as one-time COVID-19 related operating benefits, including a highly efficient drive-thru only operation, were up against higher labor costs this year. Last year many U.S. casual dining operations were closed or had restricted dining room operations, producing abnormally high demand for drive-thru transactions. This year, we have experienced significant recruiting costs and labor rate increases driven by labor shortages and disruptions from the COVID-19 resurgence with the Delta variant across many of our U.S. restaurant markets. We anticipated a turbulent year, as the restaurant industry reopened, and consumers adjusted to post-pandemic routines. Company sales and net earnings year-to-date through the third quarter are in-line with or above our original financial targets for the year,”

Outlook:

“Meritage is targeting robust growth in 2022, driven by new restaurant development in Wendy’s and Taco John’s, reimaged restaurants, and acquisitions. As we continue to navigate our way forward the Company is committed to delivering on its capital allocation strategy of reinvesting in the business to drive profitable growth and return free cash flow to shareholders over time through a combination of dividend growth and share repurchases.”

We’re aware that this is the first release in some time where the management has not given specific guidance goals. With increased supply costs and labor challenges, we feel organic earnings growth could be challenged in the near term. However, additional Wendy’s rollouts and the Taco John's deal could easily more than offset this risk.

Research

Wed, 18 Aug 2021 15:06:11 GMT

Meritage Hosp Group (OOTC:MHGU) ($20.62; $139.9M market cap), a restaurant operator, announced an agreement with Taco John’s restaurants to build 50 new restaurants by 2026. MHGU estimates it wil invest $100 million in the initial 50 store development agreement through a combination of cash on hand and credit facilities.

In related news, yesterday MHGU announced a special cash dividend of $0.08.

“Today’s dividend of $0.08 compares to $0.00 for the same period last year, as last year we were dealing with many COVID-19 unknowns. Our targeted full-year common share dividend of $0.32 ($0.08 per quarter) compares to $0.14 last year and is consistent with our long-standing shareholder goal to provide dividend growth commensurate with earnings growth,” stated Robert Schermer, Jr., CEO.

Research

Mon, 19 Jul 2021 17:26:25 GMT

Meritage Hosp Group (OOTC:MHGU) ($21.00; $140.1M market cap), a restaurant operator announced Q2 2021 results:

Sales of $147.3 million vs $121.7 million in the prior year
EPS of $0.86 vs $0.66 in the prior year

“Our earnings growth was driven by strong same restaurant sales, restaurant renovations, new store openings as well as real estate sales and development. Company restaurant management teams have done a commendable job of managing operations in a tight labor market as U.S. consumers return to pre-covid activity levels. We have re-opened all of our Wendy’s dining rooms in 16 states, along with six of our independent brand restaurants located in Michigan. Looking ahead, our operating and development outlook remains very strong as we plan to complete 33 renovations and open 15 new Wendy’s locations this year. We have set the stage for future growth, as we build toward our goal of 400 Wendy’s and 600 total restaurants in operation by 2025,”

We are still waiting for the company to release its 10Q to learn more about the quarter.

Maintained full year 2021 outlook:

Sales growth of +10% to 15%
Earnings from Operations growth of +20% to 30%
Net Earnings growth of +20% to 30%
EBITDA growth of +15% to 20%
Dividend growth +100% to 125%

Research

Thu, 15 Apr 2021 16:52:14 GMT

Meritage Hosp Group (OOTC:MHGU) ($20.00; $132.8M market cap), a restaurant operator announced Q1 2021 results:

Sales of $133.8 million vs $117.8 million in the prior year
EPS of $0.52 vs a loss of $0.40 in the prior year

“We entered the first quarter with solid sales momentum which was further enhanced by stimulus-related consumer spending versus government-mandated lockdowns last year. As we head into summer, our operating teams continue to remain focused on hiring new employees and maintaining a high level of customer safety...

We are ramping up our multi-year growth efforts and have allocated significant capital resources to our Wendy’s brand, with plans to build up to 20 new locations and modernize 30 existing locations in 2021.”

2021 Full-Year Outlook: Strong Growth Ahead (same as previous guidance)

Sales growth of +10% to 15%
Earnings from Operations growth of +20% to 30%
Net Earnings growth of +20% to 30%
EBITDA growth of +15% to 20%
Dividend growth +100% to 125%

Research

Wed, 10 Feb 2021 19:39:33 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.75; $120.9M market cap), a restaurant operator announced preliminary full year 2020 results and 2021 outlook:

Sales of 516.2 million vs $467.5 million in the prior year
Net earnings of $15.8 million vs $12.9 million in the prior year
Company provided EPS of $1.55 vs $1.34 in the prior year
Q4 sales of $140.0 million vs $121.2 million in the prior year
Q4 net income of $8.8 million vs $2.4 million in the prior year
EPS of $0.91 vs $0.25 in the prior year

“We achieved record financial results during an unprecedented and challenging year. This was quite an accomplishment given the negative impact from COVID-19 in the first quarter, resulting from mandated closures associated with the pandemic. Our restaurant operating teams and real estate development group finished the balance of the year strong, supported by a resilient Wendy’s brand. As we continue to build on our sales momentum with double digit growth during the first quarter of 2021, we are focused on executing our critical priorities including employee and customer safety while delivering speed, convenience and affordable quality food,” stated Meritage CEO, Robert E. Schermer, Jr.

Full year 2021 outlook:

Sales growth of +10% to 15%
Earnings from Operations growth of +20% to 30%
Net Earnings growth of +20% to 30%
EBITDA growth of +15% to 20%
Dividend growth +100% to 125%

Research

Fri, 09 Oct 2020 15:09:05 GMT

Meritage Hosp Group (OOTC:MHGU) ($15.90; $102.7M market cap), a restaurant operator announced Q3 2020 results:

Sales of $136.6 million vs $117.9 million in the prior year
EPS of $0.47 vs $0.26 in the prior year

With Q3 results, we are adding MHGU to our Favorite Model Portfolio. We continue to believe that shares will rise to at least levels that they were trading at before COVID-19.

Previous to the pandemic, management moved to adopt mobile ordering technology and push the company’s drive-thru business. In fact, drive-thru business was at 71% before the pandemic.

We've always been impressed with MHGU's CEO, Robert Schermer, and his tremendous job of navigating the COVID-19 crisis galvanized this opinion.

Press release commentary relayed:

Our continued strong sales and earnings performance in the third quarter reflect the underlying strength of our Wendy’s franchise and restaurant operating teams. We continue to stay focused on our strategic operating priorities, including employee and customer safety while delivering speed, convenience and affordability,” stated Meritage CEO, Robert E. Schermer, Jr.

“Newly built, reimaged and acquired Wendy’s restaurants continue to perform well and should provide a significant earnings catalyst for 2021, which will be further supported by the Wendy’s breakfast program and new product introductions. Our geographically diverse business structure and strategic operating platform investments have positioned us well for industry-leading returns and long-term value creation for our shareholders and employees,” added Schermer.

2021 Outlook:

Meritage is targeting robust sales growth in 2021, driven by new restaurant development, reimaged locations and restaurant acquisitions. As we navigate our way forward in the new restaurant industry normal, the Company’s goal continues to be rewarding shareholders with dividend growth commensurate with earnings growth.

Meritage continues to distinguish itself as a leader and innovator in the quick service and family restaurant segments, striving for best in class results through a performance based culture committed to operational excellence, strategic acquisitions and real estate development.

Research

Mon, 13 Jul 2020 04:00:00 GMT

Meritage Hosp Group (OOTC:MHGU) ($14.60; $94.0M market cap), a restaurant operator, announced Q2 2020 results:

Sales of $121.7 million vs $118.7 million in the prior year
EPS of $0.62 vs $0.41 in the prior year

“We are very proud of our restaurant management teams who did a superb job of executing at the Wendy’s drive-thru level, while dining rooms remained closed during most of the quarter due to the pandemic. Such robust earnings growth would not have been possible without our employee’s relentless efforts to stay healthy and guests being comfortable with system-wide protective measures. Earnings growth was positively impacted by the new Wendy’s breakfast segment that launched in early March and has continued to outperform internal targets. We successfully opened six Wendy’s restaurants and one new Morning Belle restaurant during the first half of the year. Looking ahead, our operations plan is to remain focused on employee and customer safety, while prudently re-opening dining rooms.

Company 2021 Full-Year Outlook: Robust Growth Ahead

“Continued growth in 2021 is expected to be driven by new restaurant development, breakfast, reimaging and acquisitions. The Company’s goal is to continue rewarding shareholders with dividend growth commensurate with earnings growth, as we navigate our way to a new industry normal.”

The 10-Q has not been filed and the company like usual, does not provide income statements in its press releases. We will like to check the 10-Q to determine if there are any one time gains boosting the quarter’s earnings.

We recently added MHGU to our 8th Buy on Pullback Model Portfolio.

Research

Fri, 26 Jun 2020 19:00:43 GMT

Meritage Hosp Group (OOTC:MHGU) ($14.50; $93.3M market cap), a restaurant operator, announced the results of its annual meeting and offered some comments on its outlook for the rest of 2020 and into 2021.

“The Company today is experiencing strong same restaurant sales and increased earnings trends driven by drive-thru efficiencies. The Company completed six new Wendy’s facilities and one new Morning Belle restaurant in 2020. We believe the Company is set-up for solid operating results in the second half of the year and a return to robust growth in 2021. The forecasted growth in 2021 is expected to be driven by new restaurant development, reimaged locations and acquisitions. The Company’s goal continues to be rewarding shareholders with dividend growth commensurate with earnings growth as we navigate our way to a new industry normal,”

We recently added MHGU to our 8th buy on Buy on Pullback Portfolio.

Research

Wed, 13 May 2020 17:30:31 GMT

Meritage Hosp Group (OOTC:MHGU) ($14.11; $89.5M market cap), a restaurant operator, announced Q1 2020 results:

Sales of $117.8 million vs $109.8 million in the prior year
Net loss of $0.52 vs Adj EPS of $0.16

“The first quarter for the Company’s restaurant business was a tale of two extremes. Early in the quarter, we hired 1,400 additional team members across our Wendy’s restaurant system, preparing for the national breakfast roll-out. We experienced record same store sales growth from breakfast, which continues to perform well in the social distancing environment. The pandemic arrived mid-March, with Government ordered closure of restaurant dining rooms and state shelter-in-place mandates. We closed 335 dining rooms, including 8 restaurants entirely, on a temporary basis,”

Looking Forward: Recovery & Rehiring

“Our Wendy’s weekly sales continue to improve, as many states and communities we serve move toward re-opening. The Company is planning to hire restaurant employees once the closure mandates are lifted and normal dining room occupancy is restored. We believe the quick service restaurant segment and the Company have distinct advantages in a future recovery.

As in past times of economic stress, speed, convenience and affordability have been favorable differentiators in quick service restaurant operations.
Wendy’s restaurants are built for off premise sales, with restaurant drive-thru windows at each location.
The Wendy’s system is expanding digital and delivery options for additional off-premise sales.
Lower gas prices increase consumer disposable income and decrease supply delivery costs.”

Research

Tue, 25 Feb 2020 20:38:17 GMT

Meritage Hosp Group (OOTC:MHGU) ($19.50; $126.8M market cap), a restaurant operator, announced preliminary Q4 2019 results and reiterated its previously 2020 guidance.

As we had conveyed after the company reported its 3rd quarter 2019 results, we are continuing to evaluate our long position in the company.

Q4 Results:

Q4 2019 sales of $121.2 million vs $107.8 million in the prior year
Net income of $2.4 million vs $2.4 million in the prior year
EPS $0.24 vs $0.24 in the prior year

"Our operations and development performance in 2019 represented significant milestones in our 5-Year growth plan, finishing the year strong with 337 restaurants in operation. Despite minor development delays and non-cash impacts to reported net earnings for fiscal 2019, we were pleased with the net results and solid 12.2% EBITDA growth for the year as we developed and renovated a record number of new locations. We continued to transform our restaurant portfolio through the development of new locations and renovation of existing locations, offering both guests and employees more conveniences. Looking ahead to 2020, we are forecasting robust sales growth of approximately $100 million, a transformative year, with the rollout of breakfast in 316 of our Wendy’s locations, new restaurant development, renovations and the continued development of the Morning Belle breakfast/brunch restaurant concept. Operational excellence continues to be our inspiration, leveraging the Company’s best-in-class operating platform and restaurant development expertise, while delivering on the Wendy’s brand promise of quality, convenience, and value,” stated Meritage CEO Robert Schermer, Jr.

The results are preliminary, with no income statements. We need to check for gains/charges that commonly occur on a quarter to quarter basis for this company. It seems like there may have been a gain of $1.5 million in Q4.

We are not too happy with what appears to be selective financial reporting in the press releases. Specifically, it appears that management is highlighting one time charges in the operating income line, but not discussing one time gains below the operating income line.

Reiterates 2020 Guidance:

Sales growth of +20%-25%
Earnings from Operations growth of +20%-25%
Net Earnings growth of +15%-20%
EBITDA growth of +15% to 20%
Dividend growth +17%- 33%

Research

Wed, 12 Feb 2020 18:25:43 GMT

Meritage Hosp Group (OOTC:MHGU) ($19.50; $126.8M market cap), a restaurant operator, announced a special quarterly dividend of $0.07, as well as its new breakfast rollout plans and 2020 full year guidance.

Dividend

“the Company’s Board of Directors approved a special quarterly dividend of $0.07 per share at the February 11, 2020 Directors meeting. The dividend is payable on March 9, 2020 to shareholders of record on February 26, 2020.”

Breakfast Rollout

“The Company is on track to hire additional new team members to help deliver breakfast sales and support market share across our 16 states of operations. Looking ahead, new-build restaurant locations, modernizations, the system-wide breakfast roll-out and additional Morning Belle locations are all contributing to our targeted $100 million sales increase for 2020,”

2020 Full year Outlook

Sales growth of + 20% - 25%
Earnings from Ops growth of + 20% - 25%
Net Earnings growth of +15% - 20%
EBITDA growth of +15% - 20%
Dividend growth of +17% - 33%

Research

Thu, 17 Oct 2019 13:14:24 GMT

Meritage Hosp Group (OOTC:MHGU) ($16.78; $106.2M market cap), a restaurant operator announced Q3 2019 results:

Sales of $117.9 million vs $110.9 million in the prior year
GAAP EPS of $0.27 vs $0.38 in the prior year
Non-GAAP EPS of $0.40 vs $0.38 in the prior year (we are waiting on the 10-Q to confirm our non-GAAP calculations)

“Our increased sales results through the third quarter reflect the underlying strength of the Wendy’s franchise and our ability to perform in a challenging labor environment. We continue to execute our strategic priorities, including new restaurant development and modernization. We believe that this focus will continue to generate long-term, industry-leading returns for our shareholders.

Year to date the Company’s consolidated EBITDA has increased 18.7% over last year, and we expect sale and earnings growth rates to accelerate in 2020 and 2021.

Our newly built, reimaged and acquired Wendy’s continue to provide a significant earnings catalyst, which we believe will be further enhanced by the Wendy’s nationwide roll-out of a new breakfast program during the first quarter next year,” stated Meritage CEO, Robert E. Schermer, Jr.

Full -Year 2019 Outlook

Sales growth of 10% to 20%
Earnings from Operations growth of 10% to 20%
Net Earnings growth of 15% to 25%
EBITDA growth of 15% to 25%
Common stock dividend growth of 50% to 60%

The outlook remains the same from Q2 guidance besides the company raising the net earnings range back to 15% to 25% after lowering it in Q2 to 10% to 20%.

Research

Wed, 11 Sep 2019 17:31:59 GMT

Meritage Hosp Group (OOTC:MHGU) ($16.75; $106.1M market cap), a restaurant operator, announced the acquisition of 5 Wedny’s restaurants in West Texas.

“The acquisition of the five Odessa/Midland area restaurants is consistent with our previously announced 5-year growth plans to expand our operating base to 400 Wendy’s restaurants. We intend to immediately integrate each of the acquired restaurants into our operating and accounting platforms and fold them into our Wendy’s remodeling program that is designed to modernize the restaurants and enhance the overall guest experience,” stated Chief Executive Officer, Robert Schermer, Jr. The Company expects the five additional restaurants to add approximately $9.1 million in annual sales and be accretive to earnings going forward.”

The company maintained its previously announced 2019 full year financial targets.

Research

Mon, 26 Aug 2019 13:42:52 GMT

Meritage Hosp Group (OOTC:MHGU) ($17.2; $116.4M market cap), a restaurant operator, announced the launch of its own newly created breakfast concept “Morning Belle.” The first location will open September 25, 2019 in Grand Rapids, MI. The Company has developed a solid pipeline for new locations and plans to open 35 Morning Belle restaurants by the end of 2025.

“We see great opportunity to leverage efficiencies across the Meritage operating platform including real estate development, human resources, information systems and accounting. The Company plans to invest approximately $70.0 million in the development of the initial 35 Morning Belle restaurants through its related internal cash generation, credit facilities and affiliated real estate entities,” added Rose.

Research

Fri, 19 Jul 2019 14:41:41 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.50; $116.4M market cap), a restaurant operator, announced Q2 2019 results:

Sales of $118.7 million vs $116.9 million in the prior year
GAAP EPS of $0.39 vs $0.57 in the prior year
Non-GAAP EPS of $0.70 vs $0.57 in the prior year (using 9.7 fully diluted shares)

“We are pleased with the successful integration of acquired, newly constructed and renovated Wendy’s restaurants. We continue to focus on executing our 5-year plan, accelerating same-restaurant sales and building new restaurants in order to achieve our long term growth targets...

The Company has committed significant long term capital resources to the Wendy’s brand initiatives, and recently announced an agreement to build 40 new Wendy’s restaurants by the end of 2024 under the Groundbreaking Incentive Program. Same store sales in newly built and re-imaged restaurants continue to deliver strong results as guests are rewarding us for the upgraded facilities and improved overall consumer experience.”

Company 2019 Full Year Financial Targets

Sales growth of +10% to 20%
Net Earnings growth of +10% to 20%
EBITDA growth of +15 to 25%
Common stock dividend growth of +50% to 60%

We noticed two changes to the above mentioned guidance for fiscal 2019. In its previously issued guidance the Company offered income from operations growth of 10% to 20%. The company did not provide this metric in this outlook. The second change is after raising net earnings growth from 15% to 25% in May, the company reduced it back to original levels of 10% to 20%.

The high end of the net income guidance implies a relatively flat Q3 for net earnings and stronger growth for Q4.

One thing we noticed is that even though net income guidance was reduced, management maintained EBITDA guidance. This probably means that the company will be experiencing higher non-cash expenses like amortization and depreciation associated with a planned aggressive expansion of Wendy's restaurants over the next several years. It's worth noting that restaurant valuations are often based on EBITDA, not net income.

The company also has the pending sale of undeveloped land to Disney which we highlighted in an October 2018 note. Since then, there have been no specific details regarding the potential of the transaction. This makes it difficult to calculate the true financial impact of the transaction.

The stock performed nicely, up over 100% since we disclosed our long position, at which time we had simultaneously added it to our Tier One Pink Portfolio in June 2015. However, The company's top and bottom line growth are certainly decreasing since our long disclosure. There are some possible upside catalysts, including the land sale (for which we need details) and the growth impact of the planned expansion of 40 Wendy's restaurants, through 2024.

We are having one of our analysts button up his model showing the financial impact of this expansion. We will publish that model soon.

So far, the CEO of the company has come through by meeting the growth objectives he set for the company years ago. We do think he will continue to grow the company long term and that he will do things to maximize shareholder value. We also believe that the endgame for him is to sell the company.

The dilemma we currently face with maintaining our long position is that even though shares trade at a meager P/E of around 12, the company's growth rate is slowing. Furthermore, we think we have better stocks that we can invest in right now.

To help us with our decision, over the next few days we're going to take a closer look at the company and try to secure a follow-up interview with the CEO. We also plan to perform a valuation analysis based on comparable companies

Research

Mon, 24 Jun 2019 16:00:21 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.50; $116.4M market cap), a restaurant operator, announced it has signed a development agreement to build 40 new Wendy’s restaurants.

"Under terms of the Development Agreement the Company will develop 40 new Wendy’s restaurants by the end of 2024 and receive significant economic incentives provided under the Groundbreaking Incentive Program, which includes royalty and national marketing fee relief. The development and incentive programs are subject to the Company fulfilling its Joint Capital Plan to re-image 10% of its existing restaurants each year and customary Wendy’s real estate approvals. The Company plans to invest approximately $100.0 million in the development of the 40 Wendy’s restaurants through a combination of cash on hand and development credit facilities."

It’s encouraging to see that the company plans to use cash on hand and credit facilities instead of using equity to continue to build out its restaurant portfolio.

We are working on a financial model to provide an estimate of what this new development could mean for sales and earnings moving forward

Research

Wed, 22 May 2019 15:51:04 GMT

Meritage Hosp Group (OOTC:MHGU) ($18.00; $113.3M market cap), a restaurant operator, announced an increase in its common stock dividend and updated its guidance range for net earnings and EBITDA growth. The Company’s Board of Directors approved a special quarterly dividend of $0.06 per share at the May 21, 2019 Directors meeting immediately following the shareholders meeting. The dividend is payable on June 13, 2019 to shareholders of record on June 3, 2019.

“We reported strong earnings growth in the first quarter and believe the earnings growth trend will continue through 2019 and into 2020, driven by new development and reimaged locations. The Company’s goal is to reward shareholders commensurate with earnings growth,” stated Meritage CEO, Robert Schermer, Jr.

During the first six months of 2019 the Company has increased common stock dividends 200% to $0.12 per shares compared to $0.04 last year during the same period.

The Company 2019 Full-Year Outlook: Solid Earnings Growth Ahead

Sales growth of +10% to 20% (same as prior)
Income from Operations growth of +10% to 20% (same as prior)
Net Earnings growth of +15% to 25% (was +10% to 20%)
EBITDA growth of +15% to 25% (was +10% to 20%)
Common stock dividend growth +50% to 60% (did not provide prior)

Research

Tue, 16 Apr 2019 14:50:17 GMT

Meritage Hosp Group (OOTC:MHGU) ($17.10; $107.6M market cap), a restaurant operator, announced its Q1 2019 results:

Sales of $109.8 million vs $99.7 million in the prior year
EPS of $0.40 vs Non-GAAP EPS of $0.19 (using 9.7 fully diluted shares on the net income levels provided in release. No income statement for Q1 2019 yet as the Q has not been filed)

“We delivered a solid earnings performance in the first quarter through our restaurant operations and real estate development business model, despite challenging winter weather conditions and record school closings across many of our markets. Company restaurant operating teams stayed focused on the things they could control in adverse weather conditions, such as food inventory and labor costs. The Wendy’s marketing plan was beneficial to us in the first quarter driving profitable transactions, allowing us to head into the second quarter with a strong underlying business.

We plan to accelerate our capital investment spending in 2019 with 36 restaurants under development, including a record 20 new Wendy’s restaurant buildings scheduled for opening this year. Our new and newly renovated Wendy’s restaurants continue to perform well in the market place, positioning the Company for continued sales and earnings growth ahead,” stated Robert E. Schermer, Jr. the Company’s CEO.

The Company maintained its 2019 growth outlook:

Sales growth of +10% to 20%
Earnings from Operations growth of +10% to 20%
Net Earnings growth of +10% to 20%
EBITDA growth of +10% to 20%

Research

Tue, 05 Feb 2019 17:18:04 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($17.20; $107.6M market cap), a restaurant operator announced its preliminary Q4 2018 results and 2019 outlook.

Q4 2018 sales of $107.9 vs $85.2 million in the prior year
Net income of $2.4 million vs $1.6 million in the prior year
EPS of $0.24 vs $0.16 in the prior year (using 9.7 million shares) The company provides a share count of 6.2 million, but uses basic share count. We believe the fully diluted share count to be approximately 9.7 million shares.

“Our performance in 2018 was strong, resulting in a record year of profitable growth for the Company on all financial metrics highlighted above. We continued to invest and transform our restaurant business through modernization and new locations, offering guests more conveniences. Importantly, our restaurant operations exceeded expectations for the year, a tribute to our 317 general managers and restaurant operating teams. Results included the incremental impact of 10 new restaurant locations, 14 renovations and the integration of 56 restaurants acquired during the year. Looking ahead to 2019, we are forecasting another year of solid sales and earnings growth, driven by people development, guest count growth and restaurant modernization programs. Operational excellence continues to be our primary focus, utilizing the Company’s unique operating platform and restaurant development expertise, while delivering on the Wendy’s brand promise of quality, convenience, and value.,” stated Meritage CEO Robert Schermer, Jr.

2019 Outlook:

Sales growth of +10% to 20%
Earnings from operations growth of +10% to 20%
Net earnings growth of +10% to 20%
EBITDA growth of +10% to 20%

We are still awaiting details of a land sale deal the company announced on October 22, 2018.

Research

Tue, 23 Oct 2018 15:55:05 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($18.10 $113.0M market cap), a restaurant operator which has been one of our disclosed longs since 2015, has announced the pending sale of undeveloped land to Disney.

“On Friday October 19, 2018 the National Economic Council of the Bahamas approved a proposal submitted by Disney Cruise Line Island Development Ltd. to acquire and develop property owned in partnership between the Company and The Related Group.

The Company through an investment partnership managed by The Related Group owns 765 acres of fee property, known as Lighthouse Point, on the island of Eleuthera, Bahamas. The partnership has entered into a confidential agreement to sell a majority of its 765-acre peninsula to Disney, subject to Government approvals as customary in the Bahamas. Disney has previously reported that it is prepared to invest up to $400 million in the property for the development of a cruise ship port facility, in conjunction with plans to double the capacity of Disney Cruise Lines in the next five years.”

Proceeds from the pending transaction will be used for general corporate purposes including new restaurant development, acquisitions, dividend distributions and stock buybacks.

According to its last annual report, MHGU, through its subsidiary RDG, holds a 15% investment in TRG, which owns the 760 acres of land in the Bahamas. Below is a snapshot of the breakdown of the asset:

There are no specific details regarding the value of the transaction, making it a little more difficult to determine its financial impacts to MHGU. However, as you can see above, the company value in the entity that owns the land (excluding the “Other Investment”) is $5.4 million as of the end of 2017.

Research

Fri, 12 Oct 2018 15:34:11 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($17.90; $111.7M market cap), a restaurant operator, announced Q3 2018 results:

Sales of $110.9 million vs $86.6 million in the prior year
Net income of $3.7 million vs $2.6 million in the prior year
EPS of $0.38 vs $0.28 in the prior year (using 9.7 million shares) The company provides a share count of 6.2 million, but uses basic share count. We believe the fully diluted share count to be approximately 9.7 million shares.

“The Company’s record sales in the third quarter were driven primarily by the successful integration of newly acquired and renovated restaurants. The quarter also presented some seasonal challenges, as the extensive flooding from Hurricane Florence closed several of our Wendy’s restaurants for over a week. We believe our newly built, reimaged and acquired Wendy’s will continue to provide significant long-term earnings catalyst, as we execute our 420-restaurant growth plan. During the fourth quarter, we are planning to open a new Wendy’s restaurant every ten days for the remainder of the year,” stated Meritage CEO, Robert E. Schermer, Jr.

2018 full year outlook

Sales growth of 40% to 50%
Earnings from Operations growth of 55% to 65%
Net Earnings growth of 40% to 50% (prior guidance was 45 to 55%)
EBITDA growth of 40% to 50%
Common stock dividend growth of 50% to 100%

Comments & Business Outlook

Tue, 17 Jul 2018 14:42:47 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($17.26; $107.3M market cap), a restaurant operator, announced Q2 2018 results:

Sales of $116.9 million vs $78.7 million in the prior year
EPS of $0.57 vs $0.39 in the prior year (for q2 2018 using 9.7 fully diluted shares as of Dec. 31, 2017)

Quotes from management:

“We experienced strong sales and earnings growth in the second quarter through the successful integration of 56 newly-acquired Wendy’s restaurants. The Company is forecasting continued strong earnings growth for the balance of the year, with contributions from newly built, renovated and acquired restaurants. We continue to focus on people development and customer satisfaction in our efforts to deliver long-term profitable growth,” stated Robert Schermer, Jr., the Company’s CEO.

Full year 2018 Outlook:

Sales growth of +40% to 50%
Incomes from Operations growth of +55% to 65%
New Earnings growth of +45% to 55%
EBITDA growth of +40% to 50%
Common stock dividend growth of +50% to 100%

Research

Wed, 18 Apr 2018 14:33:52 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($19.24; $118.6M market cap), a restaurant operator, announced Q1 2018 results:

Sales of $99.7 million vs $62 million in the prior year
Non-GAAP EPS of $0.21 vs $0.19 in the prior year (using 9.7 fully diluted shares as of Dec. 31, 2017)

Quotes from management:

“The first quarter of 2018 was quite eventful, completing four acquisitions, along with the subsequent integration of 56 Wendy’s located across four states and the opening of seven newly built or renovated restaurants. Our operating teams performed exceptionally well integrating all of these new locations into our operating platform, which resulted in first quarter record sales of nearly $100 million. We plan to accelerate our investment spending in 2018 with a goal of 32 additional reimaged and newly built Wendy’s restaurants. Our new and newly renovated Wendy’s restaurants continue to out-perform, positioning the Company for transformational sales and earnings growth ahead,” stated Robert E. Schermer, Jr., the Company’s CEO.

Full-Year Outlook: Strong Sales & Earnings Growth

Sales growth of +40% to 50% up from prior guidance of +35% to 45%
Earnings from Operations growth of +55% to 65%
Net Earnings growth of +40% to 50% up from prior guidance of +35% to 45%
EBITDA growth of +40% to 50% up from prior guidance of +35% to 45%
Common stock dividend growth +50% to 100%

Research

Wed, 21 Feb 2018 20:18:03 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($20.94; $129.0M market cap), a restaurant operator, announced the acquisition of 12 Wendy’s located in Northern Indiana. Quotes from management:

“We are delighted to have the opportunity to welcome our Indiana team mates, long standing neighbors to our original West Michigan market. We intend to immediately integrate each of the Wendy’s restaurants into our proprietary operating and accounting system, followed by an image activation program designed to update the Wendy’s restaurants and enhance the overall guest experience. The acquisition is consistent with the Company’s underwriting and 5-year growth plan to expand the operating base up to 400 Wendy’s and 20 casual dining restaurants,” stated Meritage CEO, Robert Schermer, Jr.

The company reiterated its 2018 full year outlook:

Sales growth of +35% to 45%
Earnings from Operations growth of +55% to 65%
Net Earnings growth of +35% to 45%
EBITDA growth of +35% to 45%
Common stock dividend growth +50% to 100%

Research

Fri, 16 Feb 2018 19:43:02 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($21.00; $127.9M market cap) - Today, the Wendy's Company (NASDAQ:WEN) announced that its board of directors authorized a 21% dividend increase and a new $175 million share repurchase program. This is significant for MHGU since it is a restaurant operator which owns and operates 245 Wendy’s as part of its portfolio.

This past week we highlighted MHGU, who also increased its own dividend by 100% and offered this bullish outlook for 2018:

Sales growth of 35% to 45%
Earnings from Operations growth of 55% to 65%
Net Earnings growth of 35% to 45%
EBITDA growth of 35% to 45%
Common stock dividend growth of 50% to 100%

The news from WEN adds confidence that MHGU can likely meet or exceed the strong guidance above.

Research

Thu, 15 Feb 2018 18:38:15 GMT

GB Meritage Hosp Group (OOTC:MHGU) ($20.74; $126.3M market cap), a restaurant operator, announced a 100% increase in its quarterly common stock special dividend. The Company’s Board of Directors approved a special quarterly dividend of $0.04 per share.

The $0.04 common stock special dividend represents a 100% increase over the first quarter last year and is consistent with our stated philosophy to reward shareholders commensurate with earnings growth. The Company recently released the 2018 Full-Year Outlook below, along with recent and pending acquisitions. Newly developed and image activated Wendy’s restaurants continue to provide a meaningful earnings catalyst, along with acquired restaurants contributing to overall growth,” stated Meritage CEO, Robert Schermer, Jr.

Company 2018 Full-Year Financial Outlook: Significant Sales & Earnings Growth Ahead

Sales growth of +35% to 45%
Earnings from Operations growth of +55% to 65%
Net Earnings growth of +35% to 45%
EBITDA growth of +35% to 45%
Common stock dividend growth +50% to 100%

Research

Fri, 09 Feb 2018 16:57:17 GMT

GB Meritage Hospitality Grp (OTCQX:MHGU) ($20.79; $126.9M market cap), a restaurant operator announced preliminary 2017 results and 2018 outlook:

Q4 sales of $85.2 million vs $61.4 million in the prior year
Q4 EPS of $0.19 vs $0.23

Quotes from management:

“We are pleased to report the best full-year results in the Company’s history on all key financial line items highlighted above. The results included strong core restaurant operations, the incremental impact of 71 restaurants acquired and modernization of 21 Wendy’s, including 8 new restaurant buildings. Customers continue to reward us for the Wendy’s modernization program throughout our U.S. designated market areas. Looking ahead, we are set-up for a significant growth year in 2018 with momentum in acquisitions, renovations and new construction. Growth within the Wendy’s system provides us the opportunity to leverage our operating systems and restaurant development expertise, capitalizing on Wendy’s distinct brand advantages of quality, convenience, and value,” stated Meritage CEO, Robert Schermer, Jr.

Company 2018 Full-Year Financial Outlook: Significant Sales & Earnings Growth Ahead

Sales growth of +35% to 45%
Earnings from Operations growth of +55% to 65%
Net Earnings growth of +35% to 45%
EBITDA growth of +35% to 45%
Common stock dividend growth +50% to 100%

Research

Thu, 18 Jan 2018 19:03:28 GMT

GB Meritage Hospitality Grp (OTCQX:MHGU) ($20.99; $127.9M market cap), a restaurant operator, announced the acquisition of 5 Wendy’s restaurants located in the Texas market area.

“The Company also reported it has two pending definitive agreements to acquire an additional 50 Wendy’s restaurants located in the Eastern and Mid-Western United States. The pending transactions are subject to customary due diligence and standard approvals, with the remaining acquisitions targeted to be completed during the first quarter of 2018.”

“The acquisition of the five Texas Wendy’s restaurants is consistent with our previously announced 5-year growth plans to expand our operating base up to 420 restaurants. We intend to immediately integrate each of the acquired restaurants into our customized predictive operating and financial suite, followed by an extensive remodeling program designed to modernize the Wendy’s restaurants and enhance the overall guest experience,” stated Chief Executive Officer, Robert Schermer, Jr. The Company expects the combined 55 restaurants to add approximately $100 million in annual sales and be accretive to earnings going forward.

Research

Wed, 06 Dec 2017 18:31:20 GMT

GB Meritage Hospitality Grp (OTCQX:MHGU) ($20.00; $121.8M market cap), a restaurant operator, announced the acquisition and definitive agreement to acquire 57 Wendy’s restaurants located across 5 states.

“The consummation of these transactions is consistent with our stated growth plans and investment strategy of ‘profitable growth’ within the Wendy’s franchise system. Upon closing we intend to immediately integrate each of these Wendy’s restaurants into our unique web-based operating & accounting platform, followed by an extensive remodeling program designed to modernize the Wendy’s restaurants and enhance the overall guest experience”, stated Chief Executive Officer, Robert Schermer, Jr.

The Company expects the 57 restaurants to add over $100 million in annual sales and be accretive to earnings going forward.

Company 2018 Outlook: Robust Sales & Earnings Growth Ahead

The Company’s 2018 financial guidance will be provided with the 2017 fourth quarter and year-end results.

Comments & Business Outlook

Wed, 08 Nov 2017 15:56:07 GMT

GB Meritage Hospitality Grp (OTCQX:MHGU) ($20.00; mc $121.8m), a restaurant operator, announced a 50% dividend increase. Management continues to be consistent with its bullish commentary:

“In the third quarter we delivered strong sales and profit growth from our restaurant operations with sales increasing 40.3% and EBITDA increasing 60.2%. The $0.03 common stock dividend declared is a 50% increase over the fourth quarter last year and represents a 43% dividend increase for the full-year, consistent with our stated philosophy to reward shareholders commensurate with earnings growth. The Company recently increased its 2017 full-year earnings outlook and believes the momentum will continue to build in 2018. Newly developed and reimaged Wendy’s restaurants continued to provide a meaningful same restaurant sales catalyst, along with the integration of acquired restaurants contributing to overall growth,” stated Meritage CEO, Robert Schermer, Jr.

Looking ahead to 2018, the Company has a robust pipeline of new development sites, renovations and acquisition opportunities under consideration. The Five Year Plan includes expanding the business to 420 restaurants by 2021, best in class results through a performance based culture committed to operational excellence, strategic acquisitions and real estate development.”

Research

Tue, 17 Oct 2017 15:23:01 GMT

GB MHGU ($20.94) announced Q3 2017 results:

Sales of $86.6 million vs $61.7 million in the prior year
EPS of $0.35 vs $0.24 in the prior year

Quotes from management:

“The Company’s restaurant sales grew over 40% in the third quarter, a marked acceleration. The quarter also presented some unusual sales and earnings challenges, as the Company had over 50 Wendy’s restaurants and many employees affected, to varying degrees, by hurricane Irma. Company restaurant operators and support teams were well prepared for the storm and managed the disruptions with a high degree of proficiency. Newly built and reimaged Wendy’s restaurants continued to provide a meaningful catalyst to sales growth, along with the integration of acquired restaurants contributing to overall sales growth. Looking ahead, sales remain strong and earnings growth for the year is likely to exceed the high end of the Company’s original 2017 full-year outlook”

Original 2017 Outlook:

Research

Wed, 30 Aug 2017 17:12:17 GMT

MHGU ($20.00) increased its stock dividend to $0.025 from $0.02, and reiterated its fiscal 2017 guidance.

“Common stock cash dividends paid during the first nine months of the year represent a 40% increase over the same period last year, as we continued to build on two key shareholder objectives; profitable growth and dividend growth”

The company reiterated its full year 2017 financial targets:

Sales growth of +30% to 40%
Income from Operations growth of +45% to 55%
Net Earnings growth of +45% to 55%
EBITDA growth of +35% to 45%
Common stock dividend growth of +30% to 40%

From our point of view, the main takeaway from the press release was management's commentary regarding its new five year business plan. The plan includes the goal of operating 400 Wendy’s restaurants by 2021. While this goal was stated before, this verbiage from the release is new:

“Management believes delivering on the plan will result in significant sales and EBITDA growth over the next five years.”

Research

Wed, 19 Jul 2017 14:57:22 GMT

MHGU ($18.50) - Shares of MHGU continue to hit new highs. Shares have more than doubled since we initiated our long position and coded MHGU as a Tier One Pink Sheet stock on June 18, 2015 when the stock was trading at $7.90. We then coded MHGU as a GeoBargain on June 17th at $8.50.

Yesterday, during the trading day, MHGU reported strong Q2 2017results:

Sales of $78.7 million vs $58.6 million in the prior year
EPS of $0.39 vs $0.26 (based on fully diluted shares of 8.2 million)
EBITDA of $8.8 million vs $5.5 million

Quotes from management:

“The Company experienced strong sales and earnings growth in the second quarter, partially driven by the successful integration of 57 newly acquired Wendy’s restaurants into our operating platform late in the period. The Company is forecasting earnings acceleration from 69 newly acquired restaurants in the second half of the year, and believes that the Wendy’s brand presents a compelling long-term growth opportunity for the Company, as indicated by the continued improvement in our system brand metrics

Research

Thu, 18 May 2017 15:24:22 GMT

MHGU ($16.90) announced the acquisition of 57 Wendy’s restaurants located in Arkansas, Missouri, Mississippi and Tennessee. We believe this closes the remainder of the 69 Wendy’s locations originally announced on February 9, 2017. Management re-stated its 2017 outlook and added A GOAL TO INCREASE ITS common stock dividend growth by 30% to 40%. The initial outlook that management provided on May 16, 2017 stated guidance assumes completion of pending 57 restaurant acquisition.

Research

Wed, 17 May 2017 17:10:17 GMT

MHGU ($16.25) shares hit a new 52 week high yesterday on its initial 2017 outlook. We issued the following tweet during yesterday’s trading session:

The company also announced a special cash dividend of $0.025 per share.

We initiated our long position and coded MHGU as a Tier One Pink Sheet stock on June 18, 2015 when the stock was trading at $7.90. We then coded MHGU as a GeoBargain on June 17th at $8.50.

Comments & Business Outlook

Tue, 18 Apr 2017 17:06:22 GMT

First Quarter 2017 Reuslts

Q1 sales of $62.0 million vs $54.1 million in the prior year
Net income of $1.9 million vs $0.54 million in the prior year

Quotes from management:

“The first quarter earnings results were robust, driven by our restaurant operations focus on guest satisfaction and controllable costs. Customers continue to reward us for reimaged Wendy’s restaurants. The reimaged restaurants continue to produce record restaurant-level sales for Meritage in both newly constructed and renovated locations. The Company plans to accelerate its Wendy’s reimaging campaign in 2017 with 30 restaurants under development and 57 additional restaurants to be acquired. We believe these investments will provide a multi-year catalyst for earnings growth, as the brand transformation journey continues,” stated Robert E. Schermer, Jr. the Company’s CEO.

The Company’s 2017 financial targets will be updated following the 57 restaurant acquisition to reflect the impact of a combined 69 restaurants acquired during the first half of 2017, which is anticipated to be accretive to earnings and accelerate the five-year growth plan.

Research

Thu, 13 Apr 2017 14:08:21 GMT

MHGU ($13.70) announced the acquisition of 4 additional Wendy’s restaurants. The Company has now closed on 12 of the 69 Wendy’s restaurants it intends to acquire by the end of Q2 2017. The Company has stated the acquisitions of the 69 restaurants will add approximately $90 million in annual sales and be accretive to earnings. MHGU plans to update its 2017 outlook with its second quarter results.

Research

Tue, 28 Mar 2017 16:16:40 GMT

MHGU ($12.99) announced the acquisition of 8 Wendy’s restaurants. We believe this is part of the previously announced 69 store Wendy’s acquisition the company announced in February. This may be the closing of the first tranche of restaurants, we will look into this matter further. The company reiterated that it plans to update guidance with its second quarter earnings release but anticipates that the acquisitions will be accretive to earnings and add approximately $90 million in annual sales.

Research

Thu, 23 Feb 2017 15:40:33 GMT

MHGU ($13.20) - Reported preliminary Q4 2016 results during the trading day yesterday.

Q4 sales of $61.4 million vs $59.2 million for the prior year
Non-GAAP EPS of $0.35 vs $0.28 (based on fully diluted shares of 8.2 million)

Chief Executive Officer Robert Schermer, Jr., stated,

“During the year we completed the renovation and modernization of 15 Wendy’s restaurants, opened 4 new locations and secured a new $97.0 million credit facility in anticipation of a multi-year acquisition run. The Company’s new Five Year Plan targets expansion of up to 400 restaurants by 2021. Our core strategy remains focused on “profitable growth” driven by acquisitions, renovations and new development, allowing us to leverage our unique operating systems and performance based culture.”

The company plans to update its financial targets at the end of the second quarter to reflect recent acquisition of 69 Wendy’s which is slated to add $90 million in sales and be accretive to earnings.

This morning the company announced a special cash dividend of $0.02 per share.

Research

Fri, 10 Feb 2017 15:58:58 GMT

MHGU ($11.91) - Yesterday during the trading day, GeoBargain MHGUannounced a definitive agreement to acquire 69 Wendy’s restaurants located across 5 states. The deal spans three different transactions, all of which are expected to close during the first and second quarters of 2017. The company expects the 69 restaurants will add $90 million in annual sales and be accretive to earnings.

TTM sales are $210 million, and the acquisition adds nearly 50% to the top line. While the company states the acquisition will add to revenue, it is unclear if it will be immediately accretive. We expect that the company may offer stock to complete the transaction.

With a trailing P/E of 10.8 and a history of special dividends, MHGU is an ideal Growth + Value play.

The company plans to issue updated 2017 guidance with its Q2 results. The press release states that the 2017 outlook is for robust sales and earnings growth. The stock was trading at $11.25 at the time of the release, and we subsequently issued the following tweet:

Shares gained 7%, hitting a new 52-week of $12.00. We initiated our long position and coded MHGU as a Tier One Pink Sheet stock on June 18, 2015 when the stock was trading at $7.90. We then coded MHGU as a GeoBargain on June 17th at $8.50. You can see our full research coverage here.

Research

Wed, 09 Nov 2016 16:46:49 GMT

MHGU ($10.95) announced the board has approved a special cash dividend of $0.02 per share, a 33% increase over the same period last year. Quotes from release:

“Meritage released its new five-year business plan for 2017-2021, which management believes will result in significant sales and earnings growth over the next five years. The Company believes it is in the early stages of a major consolidation and investment cycle driven by Wendy’s acquisitions, restaurant renovations and new locations.”

While the increase is not significant in actual value, it shows confidence in their growth plan, which as you see above are very bullish.

Deal Flow

Fri, 21 Oct 2016 14:35:24 GMT

MHGU ($10.90)announced a new $97 million credit facility for future Wendy’s acquisitions and development. Quotes from management:

“This new credit facility will save the Company approximately $1.0 million annually in interest expense and significantly increase our renovation and new build restaurant development capacity with an increased flexible development line of credit.

The $1.0 million in annual interest expense savings could lead to approximately $0.13 in EPS accretion based off the fully diluted share count of 7 million.

Comments & Business Outlook

Fri, 14 Oct 2016 04:00:00 GMT

Q3 2016 Results

Sales of $61.7 million vs $53.3 million in the prior year
Net earnings of $2.0 million vs $1.5 million in prior year

Quotes from management:

The Company released its business plan for 2017-2021 which, it believes, will result in significant sales and earnings growth over the next five-years. Management is preparing for a major capital investment and earnings cycle driven by Wendy’s acquisitions, renovations and new restaurant development. The Company continues to seek Wendy’s franchise opportunities where it can add value using its operating acumen, systems and restaurant development expertise.

Research

Wed, 10 Aug 2016 18:38:47 GMT

MHGU ($10.90) announced the acquisition of 10 Wendy’s in Oklahoma City. This is apart from the June announcement of 8 Wendy’s restaurant acquisitions, also in the Oklahoma City and confirms their stated intentions. With the closing of this transaction, MHGU has acquired 18 Wendy’s in the greater Oklahoma City market area.

The company expects that these 10 newly acquired restaurants to add roughly $13.8 million in annual sales and to be accretive to earnings.

Quotes from management:

“We are excited about the opportunity to continue expanding our footprint in the Oklahoma City area with a seasoned portfolio of Wendy’s restaurants. This transaction represents our sixteenth Wendy’s acquisition in the past five years and is consistent with our investment criteria. We intend to immediately begin the integration of these Wendy’s restaurants into the Company’s unique web-based operating & accounting systems platform, followed by an extensive remodeling program”

Comments & Business Outlook

Thu, 21 Jul 2016 17:25:14 GMT

MHGU ($10.87) - Yesterday via premium tweet we stated MHGU reported second quarter 2016results: (results released during the trading day yesterday)

Sales of $58.6 million vs $51.0 million in the prior year
EPS of $0.28 vs $0.13 in the prior year

Quotes from management:

“Our restaurant teams delivered a very solid performance for the quarter and first half of the year, staying focused on customer service and systems integration. Our earnings from operations were notably stronger in the quarter. The Company continues to invest substantial resources in Wendy’s restaurant brand initiatives, including restaurant re-imaging and opening new restaurants in acquired market areas. Same store sales in newly re-imaged Wendy’s restaurants continue to outperform expectations, as customers reward us for the improved experience. We are forecasting a continued acceleration in sales and earnings growth for the second half of the year and fiscal 2017, driven by the integration of newly opened, renovated and acquired restaurants,” stated Meritage CEO, Robert E. Schermer, Jr.

Research

Thu, 21 Jul 2016 17:24:35 GMT

MHGU ($10.87) - Yesterday via premium tweet we stated MHGU reported second quarter 2016results: (results released during the trading day yesterday)

Sales of $58.6 million vs $51.0 million in the prior year
EPS of $0.28 vs $0.13 in the prior year

Quotes from management:

“Our restaurant teams delivered a very solid performance for the quarter and first half of the year, staying focused on customer service and systems integration. Our earnings from operations were notably stronger in the quarter. The Company continues to invest substantial resources in Wendy’s restaurant brand initiatives, including restaurant re-imaging and opening new restaurants in acquired market areas. Same store sales in newly re-imaged Wendy’s restaurants continue to outperform expectations, as customers reward us for the improved experience. We are forecasting a continued acceleration in sales and earnings growth for the second half of the year and fiscal 2017, driven by the integration of newly opened, renovated and acquired restaurants,” stated Meritage CEO, Robert E. Schermer, Jr.

Acquisition Activity

Wed, 08 Jun 2016 17:40:17 GMT

GRAND RAPIDS, Mich., June 08, 2016 (GLOBE NEWSWIRE) -- Meritage Hospitality Group Inc. (OTCQX:MHGU), one of the nation’s premier restaurant operators, today announced it has completed the acquisition of 8 Wendy’s restaurants located in the Oklahoma City designated market area. The Company also reported it has signed a definitive agreement to acquire an additional 10 Wendy’s in the Oklahoma City designated market area, with the transaction closing planned for late summer.

Chief Executive Officer Robert Schermer, Jr., stated, “We are very excited about the opportunity to expand our footprint west of the Mississippi river with a portfolio of Wendy’s restaurants which have a long operating history and a market area with new restaurant growth opportunity. This transaction represents our fifteenth acquisition in the past five years and is consistent with our past acquisition underwriting criteria. We intend to immediately begin the integration of these 8 Wendy’s restaurants into our web-based operating & accounting systems platform with 10 additional Wendy’s to follow later this summer.”

The Company expects the 8 restaurant acquisition to add approximately $11.5 million in annual sales and be accretive to earnings. The transaction was funded with a combination of cash-on-hand and debt financing provided by Mercantile Bank.

The Company continues to make significant restaurant investments in 2016 with the renovation of 18 existing Wendy’s locations utilizing the new image activation design standards and developing new casual dining restaurants. The Company also reported that it has withdrawn from a previous purchase agreement to acquire 19 casual dining restaurants and continues to seek Wendy’s and casual dining acquisition opportunities where the Company believes it can add value using its web-based operating and accounting systems.

Research

Thu, 21 Apr 2016 14:08:22 GMT

GeoBargain $MHGU ($11.55) - MHGU is a premier restaurant operator. The Company reported Q1 2016 results yesterday at the open.

Q1 2016 sales of $54.1 million vs $46.5 million in the prior year
Non-GAAP net income of 1.7 million vs $1.1 million
EPS of $0.23 vs $0.15

Quotes from management:

“The reimaged Wendy’s building design continues to produce record restaurant-level sales for Meritage in both newly constructed and renovated restaurants. The Company is planning to complete 18 reimaged restaurants in 2016 and believes the investment will continue to provide a multi-year catalyst for sales and earnings growth as the brand transformation journey accelerates.

Meritage continues to distinguish itself as a performance leader and innovator in the quick service and casual restaurant segments, achieving best in class results through strategic acquisitions, real estate design and development innovations, and the development of people committed to operational excellence. The Company continues to evaluate acquisition opportunities where it can leverage its unique, web-based operating platform.”

With trailing non-GAAP EPS of $1.03, we think shares could trend to $15 in the near term. While we would normally apply a trailing P/E of 25 valuing shares at $25.75, we used a conservative trailing P/E of 15, given that the stock trades on the Over the Counter Market. An additional positive catalyst to shares could occur once the company closes on an agreement to acquire 19 casual restaurants.

Acquisition Activity

Mon, 22 Feb 2016 16:25:29 GMT

GRAND RAPIDS, Mich., Feb. 22, 2016 (GLOBE NEWSWIRE) -- Meritage Hospitality Group Inc. (OTCQX:MHGU), one of the nation’s premier restaurant operators, today announced it has entered into a definitive asset purchase agreement to acquire a portfolio of 19 casual and polished-casual dining restaurants located in the Midwest and Mid-Atlantic states.

The transaction is subject to customary due diligence including debt and equity financing arrangements. The closing is anticipated to occur in summer 2016.

Chief Executive Officer Robert Schermer, Jr., stated, “We are very excited about the opportunity to expand our growing and profitable casual dining segment with a unique portfolio of high quality brands which have a long operating history and strong operating culture. This transaction will represent our fifteenth acquisition in the past five years and is consistent with our past financial underwriting criteria. Post-closing we intend to integrate the restaurants into our unique internet-based operating & accounting systems platform.”

Company 2016 Outlook: Continued Sales & Earnings Growth

The Company’s 2016 operating targets will be updated near the end of the second quarter to reflect the acquisition, which we anticipate will be accretive to sales and earnings growth.

The Company is planning to accelerate restaurant capital investments in 2016 including new casual dining restaurants and the renovation of 18 existing Wendy’s locations utilizing the new image activation design standards.

Comments & Business Outlook

Wed, 10 Feb 2016 16:24:17 GMT

MHGU ($10.59) reported preliminary 2015 results and 2016 outlook:

Q4 2015 sales of $59.2 vs $43.9 in the prior year period
Q4 net income of $2.3 million vs $0.56 million in the prior year
EPS of $0.31 vs $0.07

2016 growth outlook:

Sales growth of 5% to 10%
Earnings from Operations growth of 10% to 15%
EBITDA growth of 5% to 10%

Quotes from management:

Chief Executive Officer Robert Schermer, Jr., stated, “Our results for the year achieved many of our operational goals, including a strong contribution from newly built and acquired restaurants, culminating with record earnings in the fourth quarter. During the year, we experienced a number of positive factors including lower food costs, high same store sales growth and several beneficial real estate transactions. Our proprietary casual dining brands continued to grow with earnings increasing 26% for the year.

2015 represented our fifth consecutive year of sales and restaurant growth, which exceeded our original five-year plan submitted to shareholders. We accomplished these results through financial discipline, our unique operating & accounting platform and a service culture in our restaurants,” added Mr. Schermer.

Comments & Business Outlook

Wed, 11 Nov 2015 16:33:21 GMT

GRAND RAPIDS, Mich., Nov. 11, 2015 (GLOBE NEWSWIRE) -- Meritage Hospitality Group, Inc. (OTCQX:MHGU), one of the nation’s premier restaurant operators, today announced that the Company’s Board of Directors approved a special dividend of $.03 per share at the November 10, 2015 Board of Directors meeting. The dividend is payable on December 8, 2015, to shareholders of record on November 26, 2015.

“The dividend represents a 100% increase over last year’s special dividend from the same period and is consistent with our stated philosophy to reward shareholders with cash dividend growth commensurate with the Company’s earnings growth,” stated Meritage CEO, Robert Schermer, Jr.

The Company successfully completed its five year growth targets, which resulted in significant sales and earnings growth through acquisitions, new restaurant development and renovations. The Meritage Wendy’s restaurant renovations continue to produce strong sales increases and enhance the overall guest experience. The Company casual restaurants earnings have continued to grow and we have new locations planned for opening in 2016 and beyond.

Company Updated Full Year 2015 Outlook

Sales growth of 25% to 30%
EBITDA growth of 85% to 90%
Net Earnings growth of 110% to 115%
Dividend growth of 100%

Research

Tue, 13 Oct 2015 14:34:57 GMT

Maintaining Our Long Position in GeoBargain MHGU

MHGU ($8.95), which wecoded a GeoBargain on June 17th at $8.50 per share, announced strong Q3 2015 results.

Sales of $53.3 million vs $40.7 million in the prior year
Net income of $1.5 million vs $800,000 in the prior year
EPS of $0.20 vs $0.11
EBITDA of $4.2 million vs $2.3 in the prior year

MHGU raised full year guidance for 2015:

EBITDA growth of 85% to 90% from prior guidance of 55% to 65%
Net Income growth of 110% to 115% from prior guidance of 100%

Quotes from management:

“During the third quarter and nine months we experienced significant earnings growth which is running ahead of our net earnings and EBITDA guidance for the year. Positive business issues contributing to the results include: lower food costs, restaurant acquisitions, new locations and strong sales associated with Wendy’s restaurant renovations.

The Company continues to focus on its people development and the integration of operating and accounting systems in newly acquired Wendy’s restaurants. We are making major capital expenditures in existing locations using new design standards for Wendy’s restaurants. Our new locations and newly renovated restaurants are providing guests with a contemporary restaurant experience, and they are rewarding us for the Wendy’s investment upgrades,” added Mr. Schermer. In addition, the Company’s chef-casual restaurants are performing well with new restaurants and renovations scheduled for 2016.”

We need to confirm current fully diluted shares outstanding with management, as it is unclear if a recent private placement or changes in exercisable options had any effect on the fully diluted shares outstanding.

Research

Tue, 29 Sep 2015 14:47:41 GMT

Added to our long position in MHGU ($8.95) ahead of Q3 2015 earnings

Yesterday via premium tweet we stated we were adding to our long position ahead of upcoming Q3 earnings. While there is not an announced date, we believe Q3 results will be reported in the next two weeks. Please Read our initial researchhere.

Acquisition Activity

Wed, 29 Jul 2015 13:53:41 GMT

MHGU ($8.95) which we coded a GeoBargain on June 17th at $8.50 per share announced this morning that it has acquired 15 new Wendy’s Restaurants in Toledo, Ohio. Recall, the company’s ongoing task of transforming its current holdings of Wendy’s to updated designs was one of the points we noted in our bull case on MHGU on July 17, 2015. From the press release:

“The Wendy’s restaurants were acquired from a Wendy’s franchisee and are semi-contiguous to the Company’s existing Wendy’s operations extending down the I-75 corridor from Michigan to Florida. Commenting on the acquisition Robert E. Schermer, Jr. CEO stated, “This transaction represents an important building-block in our stated growth strategy to create long-term shareholder value through new restaurant development and consolidation within the Wendy’s franchise system.”

“The Company estimates the acquisition will add approximately $19.0 million in annual sales and be accretive to consolidated earnings and EBITDA going forward.”

“The Company plans to install POS upgrades and transition the back-of-house systems over to the Meritage operating and accounting system protocol. The Wendy’s restaurant system is going through a major brand re-imaging and new building design termed “image activation” with the goal of having 60% of the system renovated by the end of 2020. Image activation includes major interior and exterior restaurant upgrades aimed at creating “A Cut-Above” guest experience.”

The MHGU press release states that the acquisitions should be immediately accretive and will add about $19 million to the top line annually. The company now owns a total of 167 quick service and casual dining restaurants in the U.S.

We estimate the following based on available information:

For the fiscal year ending December 2015:
- Revenue - $218.8 million vs previous high end guidance of $208.3 million.
- Adjusted EBITDA - $17.9 million vs previous high end guidance of $14.5 million.
- Net income - $6.7 million vs previous high end guidance of $5.5 million.
- Fully diluted EPS - $0.89 vs previous high end guidance range of $0.73
- Valuation at 15X multiple of fully diluted EPS - $13.35 vs previous price target of $10.95
Twelve months forward run rate assuming no further acquisitions:
- Revenue - $230 million
- Adjusted EBITDA - $23 million
- Net income - $8.1 million
- Fully diluted EPS - $1.08

Our 2015 assumptions include the high end of guidance modestly adjusted for performance in the first half of the year running ahead of guidance and the impact of the 15 newly acquired restaurants in the second half of the year. The twelve months forward estimates are based on the most recent quarter’s run rate, impact of 15 new restaurants and modest growth assumptions. Our estimates do not include the impact of future acquisitions. We will adjust our valuations if necessary, after we determine how management financed the acquisition.

Reasons For Tracking

Wed, 15 Jul 2015 04:00:00 GMT

Buying MHGU Before Rest of Market Discovers This Undervalued Gem

Meritage Hospitality Group Inc. operates quick-service (Wendy’s) and casual dining restaurants. As of April 17, 2015, it operated 151 restaurants in Florida, Georgia, Michigan, North Carolina, South Carolina, and Virginia.

On June 1, 2015, we alerted GeoInvesting premium members that we initiated a moderate sized long position in MHGU and coded the stock a GeoBargain on the Radar when trading at around $7.90. Our action was based on a robust fiscal 2015 growth outlook and a 100% increase in its previous special dividend announced on May 20, 2015.

On July 14, 2015 MHGU reported strong fiscal 2015 second quarter results:

Q2 2015 sales of $51.0 million vs $40.5 million in the prior year period
Q2 2015 net earnings of $2.2 million vs $1.2 million
Q2 2015 EPS of $0.29 vs $0.16

Quotes from management:

“Our newly renovated Wendy’s restaurants are generating compelling double digit same-store-sales increases along with high customer satisfaction. The system goal is to have 60% of the restaurants image activated by the end of 2020, and we are currently on schedule for 10% of our restaurants to be image activated by year end,” stated Meritage CEO, Robert E. Schermer, Jr.

“Additionally, the Company is developing a multi-year project pipeline for expansion in its uniquely branded chef-casual restaurants, which we believe will continue to enhance operating margins,” added Mr. Schermer.”

Management stated the Company is currently performing ahead of its 2015 earnings guidance listed below:

Sales growth of 25% to 30%
EBITDA growth of 60% to 65%
Net Earnings growth of 100%
Special dividend growth of 100%

Valuation metrics and scenarios

The GeoTeam interviewed CEO, Robert Shermer, on June 17, 2015, and promptly coded MGHU as a GeoBargain at $8.50. Our key takeaways from the interview include:

The key driver of MHGU’s business is its 146 Wendy’s franchised restaurants. Wendy’s is a 45 year old brand with 6,500 restaurants and over 300 franchisees. The average age of a Wendy’s franchisee is 65 and they own 6 restaurants. Wendy’s has embarked on an “image activation” campaign that will systematically force franchisees to either upgrade their restaurants or sell them to others who will. The average cost to update the Wendy’s restaurants is $500,000 to $720,000 and it is assumed only about a third of franchisees will do so. That means larger franchisees like MHGU will have ample opportunities to acquire additional restaurants as Wendy’s franchises move from weaker to stronger hands. Wendy’s hopes to ultimately reduce the number of franchisees from 300 to 30.
MHGU’s has had excellent results acquiring and upgrading Wendy’s franchises. Typically, restaurants are acquired for 5.5 to 6.25X adjusted EBITDA. On average, the restaurants MHGU has acquired to date had around $490,000 trailing EBITDA. MHGU has been able to leverage its IT platform and operations and administrative resources and infrastructure to nearly double the EBITDA of acquired restaurants. Further, MHGU’s restaurants that have had image activation makeovers are generating 25% to 33% more revenue than before meaning there is substantial upside potential in the company’s existing holdings. Management expects to have 14 additional newly built restaurants in service by the end of 2015.
MHGU’s net income of $2.8 million for 2014 fell well short of management’s guidance of $4.3 million for understandable non-elective and elective reasons. The cost of beef far exceeded expectations during the year but has since fallen back. Profits were also temporarily impacted by lost revenues and preopening costs of restaurants acquired in Atlanta. 2015 operating results will be greatly augmented by those restaurants that were placed back in service in January.
Management is projecting 2015 revenues of $205 million, EBITDA of $14 million, and net income of $5.4 million or nearly $1.00 per share. Longer term, they expect to have 250 restaurants generating $500 million annual revenues by 2020.

Caveats:

While quarterly revenues are expected to grow steadily, quarter to quarter net income is likely to be volatile. The key swing factor is preopening costs that are recognized in full when restaurants are placed in service. There is an ebb and flow to deals so which quarters will be impacted and by how much is somewhat unpredictable. Investors should keep in mind that preopening costs are positive expenditures for the business since more restaurants are being upgraded or newly built and placed in service benefiting future periods. We encouraged management to consider reporting both GAAP and non-GAAP earnings so investors can readily see the impact of preopening costs.
Input costs such as beef can be volatile and the ability to pass along price increases to consumers is limited. A material increase in the minimum wages of workers could also impact operating results.
MHGU has a material debt burden of around $42.4 million and a low current ratio of .33. Note, however, that the company generated $8 million cash flows from operations in 2014 and has a favorable debt amortization schedule. Giving further comfort is the rapid growth of EBITDA that at the midpoint of guidance for 2015 would be $14.3 million and $20.8 million for the next twelve months if Q 2’s EBITDA is annualized.
Management missed 2014 guidance due to the delayed timing of acquired/renovated restaurants coming online in Q 4. Q 2 operating results are running ahead of guidance.

Comments & Business Outlook

Tue, 14 Jul 2015 14:52:26 GMT

Second Quarter 2015 Results

Q2 2015 sales of $51.0 million vs $40.5 million in the prior year period
Q2 2015 net earnings of $2.2 million vs $1.2 million
Q2 2015 EPS of $0.29 vs $0.16

“Our restaurant operating teams delivered a strong financial performance for the quarter and first half of the year, staying focused on customers, costs and systems integration in newly acquired or newly constructed restaurants. The Company continues to invest substantial resources in the Wendy’s restaurant brand initiatives, including the restaurant re-imaging program termed “image activation”, as well as developing new restaurant locations and acquisitions. Our newly renovated Wendy’s restaurants are generating compelling double digit same-store-sales increases along with high customer satisfaction. The system goal is to have 60% of the restaurants image activated by the end of 2020, and we are currently on schedule for 10% of our restaurants to be image activated by year end,” stated Meritage CEO, Robert E. Schermer, Jr.

The Company is currently performing ahead of its 2015 earnings guidance listed below:

Sales growth of 25% to 30%
EBITDA growth of 60% to 65%
Net Earnings growth of 100%
Special dividend growth of 100%

Research

Thu, 18 Jun 2015 12:05:54 GMT

Initiating long position in Tier One Pink MHGU ($7.90)

A robust Fiscal 2015 growth outlook for MHGU and a 100% increase in its previous special dividend announced on May 20, 2015 will prompt us to initiate a moderate sized long position in the stock. We believe shares could double. (However please be sure to read the associated caveat at the end of this note which we need to address before being more aggressive with our purchase)

On April 17, 2015 MHGU reported strong Q1 2015 results:

Sales increased 32.1% to a record $46.5 million from $35.2 million for the same period last year.
Net Income increased 446.3% to $1.1 million compared to $197,000 for the same period last year. EPS of $0.20 vs $0.04

Quotes from management:

“The new Wendy's standard design termed "image activation" continues to produce record restaurant-level sales increases for the Company in both new and renovated restaurants. Meritage is planning to complete 14 image activated restaurants by the end of 2015. We believe the new image activation Wendy's restaurants will provide a multi-year catalyst for sales and earnings growth as the brand transformation journey continues.”

The Company reiterated its 2015 Outlook: Robust Growth

This included the following year over year financial expectations:

Sales growth of 25% to 30%
EBITDA growth (a non-GAAP measure) of 60% to 65%
Net Income growth of 95% to 100% (roughly $1.00 in EPS based on 5.5 million outstanding shares)

Caveat:

Investors should note that we first began tracking MHGU on February 18, 2014 on strong 2014 financial guidance. MHGU had expected net income to grow 50% to 55% compared to 2013. However, net income for the year ended slightly down when compared to 2013. We will track this company closely to determine why the the company missed its prior guidance and if management can stay on track to meet expectations provided for 2015.

Comments & Business Outlook

Fri, 17 Apr 2015 04:00:00 GMT

First Quarter 2015 Results

Sales increased 32.1% to a record $46.5 million from $35.2 million for the same period last year.
Earnings from Operations increased 132.6% to $1.8 million compared to $766,000 for the same period last year.

The significant growth in sales and earnings was generated by a number of positive factors, beginning with 32 newly built or acquired restaurants coming on-line using our back-of-house operating and accounting systems. Our managers in both the Wendy's and casual restaurant segments did a great job managing food and labor costs during the first quarter" stated Robert E. Schermer, Jr. the Company's CEO.

The new Wendy's standard design termed "image activation" continues to produce record restaurant-level sales increases for the Company in both new and renovated restaurants. Meritage is planning to complete 14 image activated restaurants by the end of 2015. We believe the new image activation Wendy's restaurants will provide a multi-year catalyst for sales and earnings growth as the brand transformation journey continues.

Meritage has distinguished itself as a performance leader and innovator in the quick service and casual restaurant segments, achieving best in class results through strategic acquisitions, development & design innovation, and people committed to operational excellence. The leadership in our restaurants and throughout our company is not only providing strong performance in the short term, but is developing the leaders we will need to accommodate our growth well into the future. We believe these pillars of our growth strategy will continue to yield double-digit growth rates and shareholder returns" added Mr. Schermer.

The Company reiterated its 2015 Outlook: Robust Growth

This included the following year over year financial expectations:

Sales growth of 25% to 30%
EBITDA growth (a non-GAAP measure) of 60% to 65%
Net Income growth of 95% to 100%

Comments & Business Outlook

Fri, 18 Jul 2014 04:00:00 GMT

Second Quarter 2014 Results

Sales increased 15.4% to $40.5 million from $35.1 million for the same period last year.
EPS of $0.22 vs $0.20 in the prior year

"We are pleased with our operating results for the quarter and the performance of our renovated and newly constructed Wendy's restaurants. The Company has allocated substantial resources toward Wendy's restaurant growth initiatives, including the restaurant re-imaging program termed 'Image Activation,' as well as construction in new retail trade areas.

"Our proprietary casual dining restaurants continued to perform well in the second quarter with net earnings growth of 560% over the same period last year. We have an exciting project pipeline for both Wendy's and our casual dining restaurants in 2015 and 2016, which we believe will accelerate our sales, EBITDA and earnings growth rates going forward," stated Meritage CEO, Robert E. Schermer, Jr.

Comments & Business Outlook

Wed, 16 Oct 2013 04:00:00 GMT

Third Quarter 2013 Results

Sales increased 43.4% to $35.8 million compared to $25.0 million for the same period last year.
Net Income was $303,000 compared to $845,000 for the same period last year -- which included non-recurring tax benefits.

"Company sales exceeded $100 million during the nine months period, a company milestone, but most importantly the quality of our earnings before income taxes has continued to improvement significantly throughout the year," stated Meritage CEO, Robert E. Schermer, Jr. The new Wendy's Pretzel Bacon Cheeseburger and Pretzel Chicken Pub sandwiches have been extremely well received by our customers, driving sales and transactions. Meritage continues to invest substantial resources into the Wendy's brand transformation, including major restaurant property improvements known as "Image Activation."

"We have three Image Activation restaurants under development and remain highly confident that with our demonstrated history of operational excellence and commitment to the Wendy's brand transformation we will continue to drive higher sales and create greater guest satisfaction in our Wendy's restaurant portfolio," added Mr. Schermer.

The Company's proprietary casual dining restaurants which feature unique "made from scratch" recipes using locally sourced ingredients, reported 14% same store sales growth over the nine months period.