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October 7, 2019

Franchisee Debt a Problem?

Restaurant Stocks Could Have a Debt Problem If Their Franchises Do - Barron's
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9 comments:

Anonymous said...

When can we expect Our resident snake oil salesmen (Spero) to spin the communications on this to investors to tell them that every franchisee is a billionaire and there are no debt issues??

Richard Adams said...

Management rarely, if ever, discusses franchisee debt with analysts. They talk about cash flow but only in terms of pre-debt service, pre-tax cash flow. They usually tell analysts that cash flow is on the increase except in 2018 they admitted that cash flow was "under pressure".

The emergence of NOA was a huge signal to Wall Street that something was happening to McDonald's franchisees so they've been asking about cash flow more often.

But keep in mind, they aren't asking out of actual concern for the individual people who own the franchise. They are asking about the McDonald's franchisee's future ability to reinvest in the business and ability to keep up with technology changes.
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Anonymous said...

This is why the management suits use meaningless terms like "cash on cash returns" to obfuscate the fact that after paying debt service and taxes, franchisees have no money left to take home.

NOA please help get the truth out there. Management listens only to their paymasters on Wall St. They pretend to listen to you/operators only to get us to spend even more on their buildings and the new tech companies theynbought and we have to pay for.

Anonymous said...

MCD borrows money to pay dividends to shareholders. The Board of directors are legally required to work for the shareholders. They gave our CEO bonus incentive to increase the share price. Which he has done. However, in my opinion, borrowing the money to pay shareholders dividends coupled with buying back shares is not a good business practice. But, it does make Board members and stockholders happy and huge bonuses are paid to the CEO and the President of MCD USA. The incentive for bonus should be for increasing sales or company cash flow. They got it backwards. Bonuses are in the millions! At the same time guest counts are falling and our products are not competing well in the market place. It is probable that a day of reckoning will come.

Anonymous said...

Interesting thoughts, I’m in agreement with the above post, that borrowing money for “artificial” returns is a bad idea. Unfortunately, we as operators are doing the same thing... I think there’s equity in my restaurants. I HOPE there is equity in my restaurants. But as a solution, just as Corp Mcd does whatever they want regarding debt structure, we too should be able to do the same. There should be no limit on time to pay back debt. Just a contractual agreement, they you must pay back your debt.

This should be implemented and it should be implemented tomorrow. Although, this doesn’t fix the problem, it perhaps, can help everyone think straight.

Anonymous said...

Richard, how many analysts do you believe read this blog on a regular basis?

Anonymous said...

A day ion reckoning will come, but the bonus takers will be long gone enjoying their millions. WE will be left to deal with it.

Anonymous said...

Junior staffers in every sell side analyst and investment house reads this blog, as well as everything else hatntheyncannget theor hands on to give them insight beyond what management tells them.
They will talk to anybody to get at the truth. Take advantage of it.

Anonymous said...

MCD top execs (Stock price Steve & Clueless Chris) fail to recognize the learnings of the past six decades which fueled our success. The future, despite Wall Street, looks BLEAK. In Rays day , he promoted the revenue split as 70% to Operator, and 30% to MCD.This drove our growth. This has gradually deteriorated to Operator 20%, MCD 80%. Todays dictatorial Top management does not have the courage (or intelligence) to admit what they do not know.