JAX J. Alexander’s Holdings
Sector financial performance:
This company, who owns and operates upscale dining restaurants including J. Alexander’s, Redlands Grill, Lyndhurst Grill and Stoney River Steakhouse and Grill, has been grouped into American menu and steakhouse fine dining restaurants sector in foodservice industry.
Data indicates the average increase in comparable sales all across this sector went down from around 1.7% of 2015 to around 0% of 2017 and then went up to 1.2% in 2018. Correspondingly, traffic all across the sector decreased 0.5%, 0.5%, 1%, and 1.5% in 2015, 2016, 2017 and 2018 respectively. It seems that slowing down traffic contributes the downturn in comparable sales of fine dining restaurants between 2015 and 2016. However, the accelerating decline in traffic since then has been completely offset by more spending per customer.
Generally, impacts of unfavourable climate of restaurants industry to traffic since 2015 seem to be less significant to this sector than to casual restaurants as indicated by their numbers of decrease in traffic. For some companies, reduced menu prices help slow pace of decrease in traffic while caused decrease in sale simultaneously.
Unlike in QSR where companies use franchise as buffer, companies’ margins in this sector declined as traffic and thus sales slowing down. However, to retain traffic and as well because of small space to allow price to go up, few companies in this sector improve their margin and sales by significantly raising menu price. In fact, since 2017, it seems companies started more aggressively promote menu to offset the decline in traffic. Most of companies experienced shrinking gross margins (12%) and operating margins (4%) in 2018.
According to our analysis, the current companies’ enterprise price/EBI ratios (or /sales) is average 24 with an interest/EBI ratio of 14%.
The average cash flow/share of companies in this sector presents decrease of 10% and 4% for 2017 and 2018.
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Company performance:
It seems that the demand for both American food and steak house service/products of this company has been strong and has no significant impact from the whole climate of restaurants industry in the past three years, as indicated by increase in both traffic and menu price for most of time since 2015 while traffic need to be boosted by lower price for some of time. However, it seems that the traffic went down suddenly in 2018 from its steak house but traffic continued to grow for its American food restaurants.
For the first six months of the fiscal 2018 compared with same period of 2017
Alexander’s / Grills
Comparable sales increased by about 1% attributable to the increase of 2.5% in check size (estimates, 1.8% in menu price) and decrease of 1.4% in traffic (estimated).
Stoney River restaurants
Comparable sales increased by about 6% attributable to increase of 7.2% in traffic offset by decrease of 0.8% in check size.
The fiscal 2017 compared with 2016
Alexander’s / Grills
Comparable sales increased by about 3% attributable to the increase of 2.6% in check size (estimates, 1.9% in menu price) and increase of 0.3% in traffic (estimated).
Stoney River restaurants
Comparable sales increased by about 3.8% attributable to increase of 5.5% in traffic offset by decrease of 2.4% in check size.
The first nine months of fiscal 2017 compared with the same period of 2016
Alexander’s / Grills
Comparable sales increased by about 3.2% attributable to the increase of 2.6% in check size (estimates, 2.1% in menu price) and increase of 0.5% in traffic (estimated).
Stoney River restaurants
Comparable sales increased by about 2.2% attributable to increase of 4.3% in traffic offset by decrease of 2.6% in check size.
Fiscal 2016 compared with 2015
Alexander’s / Grills
Comparable sales decreased by about 0.5% attributable to the decrease of 1.3% in check size (estimates, 0.4% in menu price) offset by increase of 1% in traffic (estimated).
Stoney River restaurants
Comparable sales increased by about 0.3% attributable to increase of 0.4% in traffic offset by decrease of 0.1% in check size (estimated, 0.3% in menu price).
Fiscal 2015 compared with 2014
Alexander’s / Grills
Comparable sales increased by about 3.7% attributable to the increase of 3.8% in check size (estimates, 2.9% in menu price) and the increase of 0.1% in traffic (estimated).
Stoney River restaurants
Comparable sales increased by about 6% attributable to increase of 1.5% in check size (estimated, 2.8% in menu price) and increase of 4.4% in traffic.
Its gross margin (operating mainly) was flat at around 13-14% in the past several years. Its G&A as percentage of sales has gone up to about 8% in 2018 from about 7% of 2014 as a result of increase in share-based compensation. Its operating margin went down to 5% in 2018.
Stock price
This stock currently has an enterprise price/EBI ratio of 23. We think that its stock is being relatively slightly overvalued considering its slowing growth in traffic.
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