Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: I am here with the Jersey Mike CEO, Charlie Morrison. Charlie,
Speaker 2: thanks for doing Congratulations on listening today.
Speaker 1: Thank you. It's a great day for Jersey Mikes.
Speaker 2: I have to say I don't envy any CEO that
Speaker 2: has to list in this crazy market we're living right now.
Speaker 3: It has been quite volatile, and especially for a lot
Speaker 3: of your peers.
Speaker 2: I mean Sweet Green down four percent, Shakeshack down twenty
Speaker 2: four percent year to date, Wingstop also which you once
Speaker 2: led down forty four percent?
Speaker 3: So why was a middle of that? Why was now
Speaker 3: the right time to ipo?
Speaker 4: I think it's a great time to ipo Jersey Mikes.
Speaker 4: This is a brand that's been built over many, many years.
Speaker 4: We have a rich history of over seventy years, the
Speaker 4: last twenty years alone, the only brand that can cite
Speaker 4: twenty consecutive years of positive same store sales growth. We've
Speaker 4: been able to navigate the choppy waters over many, many,
Speaker 4: many times through our cycle. Even this year, year to
Speaker 4: date same store sales continue to grow. We've seen sequential
Speaker 4: improvement from quarter one to quarter two, exiting quarter two
Speaker 4: at two point three percent same store sales growth, most
Speaker 4: of that driven by traffic. So it's a great time
Speaker 4: to bring this brand to the market. We can deal
Speaker 4: with some of the challenges that are in there, but
Speaker 4: really it's for the long term.
Speaker 3: So this is the fundamentals look good heading into this.
Speaker 2: But was there ever a banker that was thinking, hey, Charlie,
Speaker 2: maybe now is not the time, maybe we need a way.
Speaker 3: For commerce waters not at all the full team ahead.
Speaker 4: Yeah, this is a brand that's really well built for
Speaker 4: the public markets.
Speaker 2: What about the pricing, because shares have fallen initially down
Speaker 2: eight point seven percent, that they've come back of course,
Speaker 2: now down only about four percent. What do you think
Speaker 2: of the pricing? Was the pricing off perhaps and that's
Speaker 2: why we're falling today. Maybe valuations a little bit too
Speaker 2: pricely rich to richly priced.
Speaker 4: Rather, No, I don't think it has anything to do
Speaker 4: with the price, and I think a market's been a
Speaker 4: little choppy over the last few days trying to find
Speaker 4: its place. Again, we're not looking at today's price. We're
Speaker 4: not worried about this. We're worried about the long term
Speaker 4: and continuing to do what we do well, which is
Speaker 4: grow restaurants, grow our same store sales growth continue to
Speaker 4: deliver great value for our shareholders, and we know they're
Speaker 4: going to win over the long term.
Speaker 2: Let's talk about the long term because now with IPO
Speaker 2: pre proceeds in hand, what do you want to do
Speaker 2: with them? What are the opportunities for growth that you're.
Speaker 3: Going to be pursuing.
Speaker 4: Well, I mean, we're a brand that is an asset
Speaker 4: light model, so we're a ninety nine percent franchise. We
Speaker 4: generate a lot of cash, we carry some debt. We're
Speaker 4: using the primary proceeds just to pay down our debt
Speaker 4: a little bit, so we get down below four and
Speaker 4: a half times are EBITDA and that's okay. Over time,
Speaker 4: we really will use our cash to return that capital
Speaker 4: back to shareholders, which is very much the common practice
Speaker 4: in a business like ours, and that'll be the continued
Speaker 4: pace over time.
Speaker 2: I know one of the growth strategies that you're pursuing
Speaker 2: these international expansion. You have big plans for the UK specifically,
Speaker 2: I know the market. I lived there for a while
Speaker 2: for about six years. They do this subway, so they
Speaker 2: know sandwiches quality might vary there, but they love like
Speaker 2: a Tesco's meal deal where they get a sandwich and.
Speaker 3: A bag of crisps as they would call it, for
Speaker 3: four pounds.
Speaker 2: How do you convince them and how are you certain
Speaker 2: that a British audience would like a Jersey Mics.
Speaker 4: Well, we know people all over the world enjoy sandwiches
Speaker 4: and sub sandwiches. Certainly, the market's been well established. What
Speaker 4: they don't know is the authenticity of how to really
Speaker 4: deliver a deli style sandwich right way the way we
Speaker 4: do it here in Jersey Mics. That's been part of
Speaker 4: who we are for the last fifty years. It's exactly
Speaker 4: what we're going to bring to the UK. We're going
Speaker 4: to bring the brand in its full force to the
Speaker 4: UK and look, we have a hot sub option as well,
Speaker 4: so our cheese steaks are hot subs. Other products will
Speaker 4: be anchored on the menu and we're going to do
Speaker 4: it in a high quality way. People want that kind
Speaker 4: of authenticity. Anything for the way, I mean one little thing,
Speaker 4: maybe we might bring salted beef to the protein mix
Speaker 4: and lineup. We know that's a big fan favorite overseas
Speaker 4: in the UK and so you might see that change.
Speaker 4: But otherwise it's gonna be authentically what we've been all
Speaker 4: about at Jersey Micros's.
Speaker 2: Love this subtle dig of they know subs out there,
Speaker 2: but like maybe not the real Deli style Charlie. Elsewhere
Speaker 2: here in the US there has been this real concern
Speaker 2: about the outbreak of silas FA and the concern about
Speaker 2: Iceberg lettuce. I know a lot of the majority of
Speaker 2: Jersey mic subs use Iceberg lettuce.
Speaker 3: Is your supply chain affected at all?
Speaker 1: We are not. We're not affected at all.
Speaker 4: In fact, we do buy wholehead Iceberg lettuce, but we
Speaker 4: buy it from primarily Selinas, California this time of year,
Speaker 4: none from Mexico. We actually take very good care of
Speaker 4: that product. We bring it in a whole head fashion.
Speaker 4: We peel the outer leaves off, wash it carefully, and
Speaker 4: actually shred it for our customers right there. And so
Speaker 4: we don't see any risk associated. That hasn't impacted our business.
Speaker 2: It maybe hasn't impacted your supply change. Hepotely said, the
Speaker 2: same thing. We source it somewhere else, But yesterday they
Speaker 2: pointed out it has impacted sales because the psychological concerns
Speaker 2: our consumers pushing back or maybe at least not asking
Speaker 2: for lettuce on their sandwiches.
Speaker 4: Well, every one of our sandwiches can be customized because
Speaker 4: we make it to order right in front of you.
Speaker 4: And so if a customer wants to opt out of
Speaker 4: all let us, that's fine with us. We'll accommodate that
Speaker 4: have made and then not really, I mean we've seen
Speaker 4: I mean we've been eating them for last two weeks
Speaker 4: on the road.
Speaker 1: We've been enjoying them.
Speaker 4: I think customers understand that the supply chain moves very quickly.
Speaker 4: The product's probably out of the supply chain and everything's fine.
Speaker 2: The credit card and debit card data that the Bloomberg
Speaker 2: team cracks tracks does show a little bit of slowing
Speaker 2: in July for Jersey Mike. Certainly still growing, but a
Speaker 2: slow down in that growth. What accounts for that? Then,
Speaker 2: if it's not the lettuce.
Speaker 4: Of it all, well, I think there's a lot going
Speaker 4: on in the marketplace right now. I wouldn't look to
Speaker 4: any one or two weeks as indicative. Lots of things
Speaker 4: kind of ebb and flow, and too often you can
Speaker 4: get too much data that'll point to two different things.
Speaker 1: But right now we haven't seen much of it.
Speaker 2: So summer sales have been strong. Maybe besides a little
Speaker 2: bit of July.
Speaker 4: Yeah, we haven't talked about anything about this particular quarter
Speaker 4: at this point. We certainly saw strong performance in the
Speaker 4: first quarter sequentially improving in the second quarter.
Speaker 1: We exited the second quarter on a.
Speaker 4: Strong note as well, and so we're going to continue
Speaker 4: to play our game and execute a game plan that
Speaker 4: is going to drive long term, sustainable same source sales growth.
Speaker 2: So I hate to do this to you, and I
Speaker 2: hope you don't check your social media mentions, but if
Speaker 2: you just look up Jersey mics, there is just a
Speaker 2: wide swath of people who say, ah, since you know,
Speaker 2: the Blackstone pe overlords came in, they've changed the sandwiches.
Speaker 3: They have, you know, shrunken size.
Speaker 2: People love to complain that like Pe comes and ruins
Speaker 2: their favorite sandwiches. Charlie, can you say here, definitively have
Speaker 2: the sandwiches change at all, quality or otherwise not as
Speaker 2: since you came into the.
Speaker 4: Hell not at all. That's just hype and social media.
Speaker 4: They like to pick on people for that reason. We
Speaker 4: haven't done nothing. I mean, I've been involved almost as
Speaker 4: long as Blackstone has.
Speaker 1: We haven't changed a thing.
Speaker 4: Why would we This brand has grown twenty consecutive years
Speaker 4: positive same source sales growth, we don't need to change
Speaker 4: the menu. We enjoy one of the lowest food costs
Speaker 4: in the industry. Our franchisees have some of the highest
Speaker 4: cash on cash returns in the industry.
Speaker 1: They want to grow and.
Speaker 4: Build more stores and they're going to do that, and
Speaker 4: so no need to change anything. We love this brand,
Speaker 4: we love the way we delivered the product, and we're
Speaker 4: going to continue to do it that way for a
Speaker 4: long time to come.
Speaker 2: On the cost because generally this market, if you track
Speaker 2: the macro data things like dairy meats, the prices have
Speaker 2: been rising.
Speaker 3: How have you been accounting for that? How do you
Speaker 3: keep your margins?
Speaker 4: Well, we have a very diverse lineup in our menu
Speaker 4: in terms of the proteins that we offer, so beef, chicken, pork,
Speaker 4: different products all within our menu, and we're able to
Speaker 4: balance that over time. So as one is high, like
Speaker 4: beef prices today, we focus on other parts of our
Speaker 4: business and we've been able to maintain that over time.
Speaker 4: We also have a very scaled supply chain over three
Speaker 4: thousand restaurants strong. We buy in very high volumes and
Speaker 4: able to handle that back to our franchisees in the
Speaker 4: form of a very low food cost around twenty seven
Speaker 4: percent of sales, which is industry leading.
Speaker 2: How about prices, Are you able to use that as
Speaker 2: a lever to charge more prices for higher prices for
Speaker 2: your sandwiches?
Speaker 4: Certainly, over time we do take price. Our long term
Speaker 4: algorithm is low single digit same store sales growth for
Speaker 4: this business that will be equally balanced between price and
Speaker 4: transaction growth. We air towards transaction growth. That's really how
Speaker 4: you grow the health of the business over time. We've
Speaker 4: taken some price as we've seen commodity inflation, not nearly
Speaker 4: as much as some other brands, and that quite frankly,
Speaker 4: is what's been fueling our growth this year and years
Speaker 4: prior compared to the rest of the concepts out there.
Speaker 3: All right, Charlie, that's all we have time for. Thank
Speaker 3: you so much and congratulations, ayeah pleasure.
Speaker 1: Thank you.