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Bojangles’ stock skyrockets despite weaker sales

Discounting by competitors takes toll on traffic, but company response gets traction

Bojangles’ stock skyrocketed on Thursday, despite slowed sales in the fourth quarter, after the Charlotte, N.C.-based quick-service chicken chain beat Wall Street earnings expectations.

The company reported net income of $7.8 million, or 22 cents per share, in the quarter ended Dec. 25, a decrease from $7.9 million the previous quarter, before the chain’s May initial public offering. Still, it bested analyst expectations. 

The company’s stock rose more than 16 percent in Friday morning trading.

Bojangles’ reported same-store sales growth of 0.6 percent for the quarter — a slowdown that the company blamed on flooding in the Carolinas, along with growing discounting by other quick-service chains. 

“I have not seen this kind of discounting since the burger wars in 2009,” Bojangles’ CEO Clifton Rutledge said during the company’s earnings call Thursday.

The 660-unit chain went public in May, and has been among the most volatile stocks in the restaurant business since. The stock was up nearly 50 percent from its $19 per share offer price at one point, before ultimately falling to below $14 a share. It had been down about 20 percent from the offering price going into Thursday trading. 

Executives stressed during the earnings call that despite the recent slowdown, Bojangles’ sales remain higher than average for quick-service chicken chains, at more than $1.8 million.

They also noted that on a two-year basis, same-store sales rose 7.7 percent, and increased 10.6 percent on a three-year basis. 

Bojangles’ said that the number of transactions per restaurant fell 1.6 percent in the fourth quarter, while consumers also ordered cheaper products, which mostly offset higher prices of 3.2 percent. 

Executives on the earnings call had expected a slowdown, given difficult comparisons in the previous year. 

They also said that “catastrophic flooding” in the chain’s home markets in the Carolinas resulted in a 4-percent decline in same-store sales the first week of the fourth quarter. At the same time, McDonald’s introduced all-day breakfast, competing more directly with Bojangles’, which serves its popular breakfast menu all day.

Yet it was the discounting that took its toll, executives said. “As the fiscal quarter went on, we saw more aggressive discounting from our competitors,” Bojangles’ CFO John Jordan said on the call.

The chain modified its promotional strategy and offered more discounts, he said. Bojangles’ offered 99-cent sausage biscuits in some markets, and in others offered 99-cent steak biscuits. 

“Because commodities have come down, it allows us to be able to do some deeper discounting,” Rutledge said. 

Bojangles’ transactions improved as the company offered those discounted products, and so far in the first quarter same-store sales have increased 2 percent, despite a decline of 16.5 percent in the fourth week of the quarter, when a snowstorm ravaged the East Coast. 

Executives also said that transactions were positive in the first 10 weeks of the current quarter. 

Bojangles’ is planning net unit growth of 8 percent, executives said during the call. The chain has 100 restaurant sites either approved or under construction, and plans to open 60 to 65 locations.

The company plans to focus development in existing and contiguous markets, “not jumping over states,” Rutledge said. Bojangles’ expects that it can reach 1,400 locations in its existing markets.

Executives said that restaurants in core markets exceed those in contiguous markets. Restaurants in contiguous markets average $1.5 million unit volumes. “We get more impact in adjacent markets,” Jordan said. “Brand loyalty is not quite as strong.”

A franchisee in Orlando, Fla., closed eight locations there late last year. Executives said there are no plans for the moment to reopen those locations or return to the market, largely because it doesn’t fit Bojangles’ development plans.

“The Orlando market was open before we reset how we grow, with stores in contiguous markets,” Rutledge said. “We jumped all the way down there. Are we going to reopen? We’re not going to reopen. We love Florida, but we won’t be down there anytime soon.”

Contact Jonathan Maze at [email protected]
Follow him on Twitter: @jonathanmaze

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