After its IPO, Domino's reported a decline in second quarter earnings with net income of $15.9 million, compared with $17.5 million from the second quarter of 2003. Despite increased cheese costs, Domino's did not attribute the decline to higher operating costs but rather to increased interest expense from a debt incurred from the company's recapitalization in 2003. According to Domino's, the increase in cheese costs is generally covered by increasing its product prices to its franchisees, who then raise the pizza prices to consumers.
Tom Higgins, the President and CEO of Best Western, announced that he would not renew his contract in August. Higgins would only say that he decided to move on to new challenges. Best Western has named David Kong, the Executive Vice President of International Operations, acting president and CEO while it conducts a nationwide search for a new executive.
Wendy's announced that it would close several Baja Fresh restaurants Charlotte, Atlanta and Tucson, trying to stem losses the company faced in the second quarter. This article in the Wall Street Journal (subscription required) reports that Baja is expected to lose between $5 million and $6 million this year.
As discussed in the blog entry of July 2, the buyout firm of Clayton, Dubilier and Rice has agreed to pay Veolia Environnement $610 million for Culligan International, one of the leading U.S. suppliers of bottled water and water filters. According to this article from Reuters on MSN Money and CNBC, CD&R plans to build on Culligan's existing dealer network and its brand name.
Charged by sales of premium salads and new breakfast offerings, McDonald's posted a 25% profit in the second quarter according to this article in Forbes.com. Although the company has had a difficult year -- with the death of their CEO Jim Cantalupo in April and the diagnosis of cancer in Charlie Bell, Cantalupo's replacement, just weeks later -- the company is enjoying this period of growth, attributing it to improved operations, longer operating hours and the installation of credit/debit technology at the restaurants. McDonald's press release and the supplemental information for the period ended June 30, 2004 can be accessed here and here.
The Denver Business Journal reports that the Boulder-based restaurant chain, Noodles & Co., is considering going public next year. CEO Aaron Kennedy says that although there are no definitive plans for the company to go public, there is the possibility that it will do so next year. He also explains that the restaurant industry remains strong since the market downturn and that the timing could be right to launch an IPO.
Last year, Noodles launched its franchise program. It entered into agreements with five multi-unit franchisees who plan to build 141 Noodles & Co. stores nationwide. In the nine years that the company has been in operation, it has built 90 company-owned restaurants in nine states.
In a rather graphic article, the New York Times reports that PETA has released a videotape showing slaughterhouse workers for one of Kentucky Fried Chicken's suppliers repeatedly engaging in the inhumane treatment of chickens. According to the article, the video shows the workers kicking and stomping the birds. The mistreatment of the animals was videotaped during a covert operation by one of PETA's investigators. In response to the video, the supplier has suspended the workers involved (who may face criminal charges of animal cruelty). KFC has announced that it will buy no more chickens from the supplier unless the supplier assured KFC that the abuses had stopped. KFC also plans to inspect supplier slaughterhouses more frequently to ensure that KFC chickens are treated humanely.
In a shareholder call on Wednesday, Yum! executives announced same store growth of 6% for its Pizza Hut restaurants. Yum! also owns the Taco Bell, KFC, Long John Silver's and A&W brands and has been co-branding the Pizza Hut brand with Taco Bell and KFC. The multi-branding experiment has been so successful that Yum! intends to move the concept into its Canadian restaurants. While Pizza Hut's second quarter success was celebrated at the company, its Chief Financial Officer, Dave Deno, cautiously noted that the restaurants will likely be affected in the third quarter by rising commodities costs -- particularly the increased costs of meat and cheese.
After months of touring the country and speaking to children about healthy eating habits, Jared Fogle, the Subway spokesman who lost 245 pounds eating all-vegetable and turkey Subway sandwiches, will appear in a new ad campaign for Subway highlighting the success of three children who improved their diets and became more active. Subway plans to spend up to $35 million on local and national ads for their Fresh Step campaign.
Continental Airline executives are finding a place in franchising. Last month, former Continental Airline Senior Vice President, David Samuel Coats, was named interim CEO at Schlotzsky's in Austin. Today, Burger King announced that Gary Brenneman, the former Chief Operating Officer of Continental Airlines, would fill the CEO position recently vacated by Brad Blum. Brenneman is credited with turning Continental Airlines around. He has also served as the CEO of PricewaterhouseCoopers Consulting and, more recently, as the chief executive of a private equity firm, TurnWorks, Inc.
On its first day of trading on Wall Street, Domino's Pizza stock disappointed investors, falling 4% from the $14 price of the private stock offering that closed Monday. Domino's raised $339 million from the IPO, although it had initially estimated that the IPO price would be set at $15 to $17 per share. On Tuesday, the stock closed at $13.50. According to the company filing with the SEC, the IPO funds will be used to, among other things, pay down a portion of the company's long-term debt which is now in excess of $900 million. The chain's founder, Tom Monaghan (who bought his brother out of the business in 1965 for a VW Beetle), owns 6.3% of the outstanding shares.
Joe Gold, the founder of Gold's Gym and World Gym, died in Los Angeles on July 12. He was 82. Gold was responsible for two fitness chains, as well as the design of a line of fitness equipment. In the mid-1960's, Gold opened Gold's Gym in Los Angeles only to sell it, along with the name, six years later. The new owners franchised Gold's Gym and opened hundreds of sites. In 1977, Gold founded World Gym and began franchising the concept. It grew to more than 300 locations.
On July 2, Brad Blum, Burger King's ninth CEO in 15 years, resigned from his position after 18 months on the job. Although same store sales rose in May, the company experienced a decrease in same store sales in 11 of the last 12 months. Business Week Onbline reports that many restaurants are struggling with substantial debt service and the owners of more than 600 Burger King restaurants are in financial distress. Analysts are now speculating that Wendy's (with sales of $7.35 billion last year) may soon overtake Burger King in the number 2 position for burger chains in the U.S.
In just six months from January 2004 through June 2004, Assist-2-Sell added 70 franchises to its chain. The Reno, Nevada-based franchisor of discount real estate services now has 368 franchises in the U.S. and Canada.
The Herald Tribune reports that a Massachusetts bankruptcy judge has awarded the franchise rights for the Ground Round chain to a group of its franchisees. Although a Dallas real estate company submitted a higher bid (by $2 million) for the debtor's assets, the judge accepted the lower bid of $4.5 million based on the debtor franchisor's recommendation. The acceptance of the lower bid avoids more than $40 million in potential claims filed by Ground Round's franchisees against the bankrupt franchisor.
After converting more than 3,000 Mail Boxes Etc. stores in the United States to UPS Stores, UPS is now facing a lawsuit from 150 franchisees that refused to change. In early 2003, UPS launched the UPS Store program and in mid-2003, 150 franchisees filed a lawsuit alleging damage from the chain's conversion. While UPS says that franchisees' sales have increased under the UPS brand, those franchisees who refused to convert to the UPS brand have said that UPS now only advertises UPS stores and this marketing strategy has cost them business.
Last week, Inno-Pacific Holdings, the Singapore-based franchisor of Shakey's Pizza, announced that it was selling the franchise company to one of its franchisees. Jacmar, Inc., the owner of 19 Shakey's Pizza restaurants and a large shareholder in Chicago Pizza & Brewery, Inc., will pay $4.5 million for the company and has negotiated with the plaintiff class of franchisees to end the litigation against Inno-Pacific. The details of the negotiation were not disclosed but at least part of the deal requires that Inno-Pacific and its chairman no longer have any stake in Shakey's. Based on the reaction of the class leader, the franchisees appear to be optimistic about the company's new ownership and the direction of the chain. The sale should be official in a week.
Expanding the individual smoking bans adopted by Boston and 100 cities throughout the state, Massachusetts has put an indoor smoking ban into effect. The ban prevents smoking in any workplace -- including bars and restaurants -- and imposes a $100 fine on violators. Like other laws of its kind, the ban does not apply to private clubs or cigar bars. Massachusetts is the sixth state to enact a statewide ban. The others are Connecticut, New York, Delaware, California and Maine. The chief of staff of the Massachusetts Department of Health expects 95% voluntary compliance by Labor Day.
Meanwhile in Rhode Island, smokers appear to be losing precious indoor ground to a law that will make smoking in any workplace -- including bars and restaurants -- illegal by March 1, 2005. The governor announced that he signed the bill into law on July 2. The law exempts private clubs, small bars with C licenses and the state's two gambling facilities.
The New York Post reports that a deal may be close for the purchase of Culligan International Co., the water filter and bottled water distributor. The French company that owns Culligan, Veolia Environnement, is talking with Clayton, Dubilier and Rice, a New York buyout firm about a reported $600 to $700 million purchase price. Interestingly, many companies looking at Culligan were uneasy about the purchase because of the complexities of the heavily franchised business and the complexities of dealing with disgruntled Culligan franchisees, who have long complained about the lack support they received from the franchisor.