Bojangles': Why Now Is The Best Time To Take A Big Bite Of This Breakfast Craze Winner
With stores opening at the wee hour of 5:00 am and massive waves of customers eagerly waiting in line until the 11:00 am peak, Bojangles' (NASDAQ:BOJA) has been the daily go-to breakfast chain for thousands from Virginia to Florida. They are known for their addicting sweet tea, freshly baked buttery biscuits, and never-frozen fried chicken. As we know, breakfast is hands-down the area of highest potential in fast-food, and players like McDonald's (NYSE:MCD), Taco Bell (NYSE:YUM), Starbucks (NASDAQ:SBUX), Wendy's (NASDAQ:WEN), and Chick-fil-A are all placing an overwhelming emphasis on it in their strategies this year. The race to whack McDonald's best-selling Egg McMuffin out of driver's hands and replace it with their own creations is heating up. According to The NPD Group, a leading market research firm, almost 60% of the industry traffic growth in the past five years was due to breakfast. Luckily, Bojangles' has beat many others to the punch in this area. As they have mentioned, "While our competition is sleeping, we've said good morning to up to 40% of our customers" ℠.
Being from the South, I can say from firsthand experience that Bojangles' "cult-like" following is a very real thing. It was a huge part of my high school and college days. In fact, Bojangles' was so deeply ingrained into my southern high school's culture that an entire speech on graduation was dedicated to addressing the student body's (only) unifying trait - that we were all getting us some of that good ole Bo every day before class. From my personal observations, it is second only to privately-owned Chick-fil-A in terms of morning traffic in Charlotte, NC and surrounding areas. Mainly dominating in the Carolinas (roughly 30% of stores here), Bojangles' has been offering unique Cajun-inspired flavors with special sauces and dips since 1977. Selection expands to lunch and dinner, with lines on college campus locations out the door time and time again. In 2012, Bojangles' was in the Top Five of Zagat's Survey of Fast Food Chains, and in 2013, they ranked Number One in Unit Growth in the Chicken Segment by Technomic 500.
For the millennials and others looking for healthier options, Bojangles offers an assortment of "Bo-Smart ®" meals such as salads (similar to Wendy's), beans, and a wheat wrap. In fact, CEO Rutledge, who has previous experience at both Whataburger and TCBY, comments that most consumers are unaware of the healthier options, and that the company can work on marketing these accordingly. The right execution of this marketing can bring more traffic to Bojangles' beyond current high-volume hours. Management keeps their promises, as we can see by the recent re-introduction of the Cheddar Bo biscuit, a former limited edition favorite that customers could not forget.
Can the marketing get any better than this?
The positive reception of Bojangles' innovative marketing techniques is enough to make any competitor re-evaluate their own. The call-to-action catch phrase, "It's Bo Time!", can be heard on radio stations throughout the Southeast multiple times a day. Most recently, Bojangles' came out with "Bomoji's", an Apple (NASDAQ:AAPL) IPhone app that allows you to use special Bojangles' emoticons in your texts. Us Americans text constantly, and having this delicious reminder on customers' phones will only encourage new and repeat business. It will greatly facilitate word-of-mouth advertising from their fan base and compliment their robust Twitter profile (which is always posting amusing and trendy things). This unique move, which will most certainly be mimicked by competitors, is only one aspect of their creative approach to winning customers' hearts and money.
(Source: CNBC Restaurants page)
Their marketing genius was once again made evident through a recent video that received well over 100,000 views after 24 hours on their social media page. In this clip, we witness Bojangles' welcoming people to the South with open arms through passing out free boxes of food via baggage claim belt to visitors at the Charlotte Douglas International Airport. What could be a better way to get travelers to fall in love with the Bojangles' brand, experience the epitome of "Southern Hospitality", and automatically qualify Bojangles' as a go-to stop when in the area? This move gives investors insight into how Bojangles' has used non-conventional methods to capture an extremely loyal fan base. To make things even better, Bojangles' has just become an official corporate partner of the Atlantic Coast Conference, or A.C.C., further strengthening their popularity through sports (as they have done before with NASCAR). These smart moves will not only grow their presence but also their bottom line faster than ever before.
What if I wanted it iced, and how can you get me my food faster?
Bojangles' is widely known for their signature Legendary Iced Tea®, but not so much their coffee. With only one option on the board (besides in the limited areas where iced is sold), Bojangles' is leaving breakfast go-ers no option but to get their specialty fix at McDonald's, Dunkin' Donuts (NASDAQ:DNKN), or Starbucks. To counteract this, competitors such as Chick-fil-A and Wendy's, who previously had limited offerings in coffee, have created a few different options such as decaf and iced. I believe in this space a little can go a long way. While they do not have to go and serve frothy lattes, a brief menu of around 4 to 5 more coffee options being marketed correctly will allow Bojangles' to enhance convenience and make it more appealing for customers to get their fix within stores.
Loyal customers will stay for the breakfast, and just buy the more "premium" coffee there with it. For example, in 2014, Jack in the Box (NASDAQ:JACK) expanded their coffee selection to include various flavor shots and limited edition beverages. While not up to Starbucks-like standards, new options still offered variety in a world where customers can afford to be pickier than ever.
Lastly, Bojangles has done a good job at setting up the "e-club", an online rewards program, but has been late to the game with mobile payments and ordering from your phone. As you may know, this trend, mostly executed very well by Starbucks, Noodles & Company (NASDAQ:NDLS), and Domino's (NYSE:DPZ), could be a huge win for Bojangles'. Large box orders for tailgating football games would be great to order offline and pick up quickly in stores. In a recent CNBC article, Senior Director of Marketing Doug Poppin comments, "We're currently evaluating things like mobile payment". This would be a positive move as it is now almost expected by consumers.
(Source: Bojangles' Athens, GA Facebook page)
Is smelling the fresh-baked biscuits from coast to coast ever going to be a possibility?
Bojangles' has 379 franchisee-operated stores as well as 267 corporate-run ones. Around 95% of revenue came from company restaurant sales, with the other 5% being from royalty and other franchise revenues.
Management has vowed to take a steady, calculated approach to geographical expansion as they believe focusing on core areas where there is still room to grow is best (and also because that makes distribution easier). After being introduced in the Atlanta, GA area only a mere two years ago, Bojangles' managed to open over 45 stores. This is a great accomplishment for Bojangles' and gives investors a prime example of why they should trust CEO Rutledge's sound judgment as he approaches growth with an optimal mix of aggressiveness and caution. They plan to reach 1,400 stores and beyond, and if they change their longer term outlook to include expansion to very populous states such as New York, there is no telling what Bojangles' could do. Popeyes (NASDAQ:PLKI) does well in some of these areas as well as Canada and some competition for them would not hurt.
(Source: Bojangles.com)
A look into the numbers:
BOJA recently beat on earnings by $0.07 and is poised to do so again. Company-owned restaurant revenues quarter over quarter have increased by 13.1% (high compared to most peers). They have a system-wide AUV of $1.8 million, which is very strong as well, and a record of 21 consecutive quarters of system-wide comparable restaurant sales growth. BOJA stock has fallen hard with the market and general bearish sentiment by investors as of late, as seen by the daily chart below. If you are looking for an entry, BOJA is down 40% from the 52 week high of $28.45 and only 5% up from the 52 week low of $16.08 as of September 30th, 2015. At current levels ($16.90), it is a very compelling buy for most time horizons, especially for those who may have found it overvalued in the ~$20's and are more skeptical. As seen by a quick pull of comps on Bloomberg, NTM P/E is 20.2x, 4% less than the comps mean (I notice these are not the best comps).
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(Source: Finviz.com)
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(Source: Bloomberg)
I may run a valuation including a DCF and Comparable Companies in an additional article to support these views.
Conclusions:
Unless we enter a bear market, for anyone that is confident in this All-American growth story, the current price is a strong buy. Besides the obvious risks that come with operating a fast-food business (consumer taste shifts, volatility in commodity prices, raises in hourly wages, etc), Bojangles' has limited negatives, numerous positives, and tremendous momentum in the United States. Most recently covered by SunTrust, the average price target for this growth story remains at $28, which means over 60% upside from the September 30, 2015 close price of $16.90.
This is indeed a very exciting time for 38-year-old Bojangles', an iconic southern brand, and investors will soon notice how it stands out from others in the sector. IPO's have been hit hard recently, but BOJA is nothing like a Shake Shack (NYSE:SHAK). Fundamentals are solid and higher valuations can be justified. Management is enthusiastic, experienced with organic growth, and adept at identifying what consumers want and literally bringing that to the table. In fact, writing this article has made my mouth water, because Bojangles' is just that…
Read more »SeekingAlphaOctober 1, 2015 - 12:47 PM EDTNews by QuoteMediawww.quotemedia.com
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