An Interesting Time for SIRThis firm is run by a very good restaurant veteran in Peter Fowler. Visiting multiple restaurants and speaking to managers suggests good service levels and the importance of spending on renovations to keeps the locations modern and fresh (especially Jack's). Not shy about closing stores when 4-wall economics start to breakdown. The Scaddabush launch has been impressive, especially given the dearth of competitive offerings (Cara's East Side Marios has been struggling for years). With no franchising, tight control over store operations.
With the addition of multiple new Scaddabush restaurants being added to the pool on Jan 1/2018 (more than offsetting tired Fazooli's closures), there will be a natural inertia to comps in 2018, given that Scaddabush is doing mid-teens SSSG. Minimum wage increases will lead to price inflation, which will hurt weaker competitors and their concepts, yet should be no issue for Sir's robust brands. NOt a bad thing for the better restaurant royalty trusts. Recall that SIR ROYALTY only collects a royalty on the top line SALES of Sir Corp, such that cost increases are realized by the Corp. Cost increases are a problem if the stores cannot increase prices to offset without negatively impacting traffic, which, in turn, impacts SALES. I believe the Sir Corp brands are strong enough to continue to pass thru modest menu price increases without torpedoing traffic.
No Western Canadian exposure, limited Maritime/Quebec exposure, and primarily an Ontario firm with, over time, the ability to roll out some of these concepts to new geographies over time. At some point, one or more of their concepts could be franchised, but this requires tight control to maintain brand quality and integrity. The fact that this HASN'T been done should be heartening to investors, given the problems other firms have had with rushing to realize the profit benefits of franchising without recognizing the risks.
With its prime locations, good management and unique competitive positioning, I surmise that Mr. Fowler would have no lack of potential buyers if he entertained bids. Right now, the business continues to run well and distributions should be heading up in 2018.
Historically, this has compounded (capital appreciation and dividend) around 17%, drastically outperforming the broader market. Not a bad time to collect almost an 8% yield and patiently wait...