WEBVTT - Jersey Mike's CEO Charlie Morrison Talks Trading Debut 0:00:02.520 --> 0:00:07.080 Bloomberg Audio Studios, Podcasts, radio News. 0:00:07.600 --> 0:00:10.319 I am here with the Jersey Mike CEO, Charlie Morrison. Charlie, 0:00:10.400 --> 0:00:12.240 thanks for doing Congratulations on listening today. 0:00:12.280 --> 0:00:14.000 Thank you. It's a great day for Jersey Mikes. 0:00:14.040 --> 0:00:16.599 I have to say I don't envy any CEO that 0:00:16.640 --> 0:00:18.760 has to list in this crazy market we're living right now. 0:00:18.720 --> 0:00:20.600 It has been quite volatile, and especially for a lot 0:00:20.600 --> 0:00:21.239 of your peers. 0:00:21.600 --> 0:00:24.400 I mean Sweet Green down four percent, Shakeshack down twenty 0:00:24.440 --> 0:00:27.240 four percent year to date, Wingstop also which you once 0:00:27.320 --> 0:00:28.360 led down forty four percent? 0:00:28.440 --> 0:00:30.560 So why was a middle of that? Why was now 0:00:30.560 --> 0:00:31.520 the right time to ipo? 0:00:31.760 --> 0:00:33.960 I think it's a great time to ipo Jersey Mikes. 0:00:33.960 --> 0:00:36.000 This is a brand that's been built over many, many years. 0:00:36.040 --> 0:00:38.320 We have a rich history of over seventy years, the 0:00:38.400 --> 0:00:41.200 last twenty years alone, the only brand that can cite 0:00:41.280 --> 0:00:44.440 twenty consecutive years of positive same store sales growth. We've 0:00:44.479 --> 0:00:46.920 been able to navigate the choppy waters over many, many, 0:00:47.000 --> 0:00:49.920 many times through our cycle. Even this year, year to 0:00:50.040 --> 0:00:53.720 date same store sales continue to grow. We've seen sequential 0:00:53.320 --> 0:00:57.000 improvement from quarter one to quarter two, exiting quarter two 0:00:57.000 --> 0:00:59.760 at two point three percent same store sales growth, most 0:00:59.760 --> 0:01:02.120 of that driven by traffic. So it's a great time 0:01:02.160 --> 0:01:03.959 to bring this brand to the market. We can deal 0:01:04.000 --> 0:01:05.880 with some of the challenges that are in there, but 0:01:05.920 --> 0:01:07.199 really it's for the long term. 0:01:07.280 --> 0:01:09.280 So this is the fundamentals look good heading into this. 0:01:09.360 --> 0:01:12.160 But was there ever a banker that was thinking, hey, Charlie, 0:01:12.200 --> 0:01:14.199 maybe now is not the time, maybe we need a way. 0:01:14.040 --> 0:01:16.479 For commerce waters not at all the full team ahead. 0:01:16.720 --> 0:01:18.280 Yeah, this is a brand that's really well built for 0:01:18.319 --> 0:01:19.040 the public markets. 0:01:19.080 --> 0:01:21.800 What about the pricing, because shares have fallen initially down 0:01:21.880 --> 0:01:24.000 eight point seven percent, that they've come back of course, 0:01:24.000 --> 0:01:26.080 now down only about four percent. What do you think 0:01:26.080 --> 0:01:28.240 of the pricing? Was the pricing off perhaps and that's 0:01:28.240 --> 0:01:30.880 why we're falling today. Maybe valuations a little bit too 0:01:30.880 --> 0:01:32.640 pricely rich to richly priced. 0:01:32.680 --> 0:01:34.360 Rather, No, I don't think it has anything to do 0:01:34.400 --> 0:01:35.680 with the price, and I think a market's been a 0:01:35.680 --> 0:01:37.800 little choppy over the last few days trying to find 0:01:37.840 --> 0:01:40.880 its place. Again, we're not looking at today's price. We're 0:01:40.880 --> 0:01:42.920 not worried about this. We're worried about the long term 0:01:42.920 --> 0:01:45.120 and continuing to do what we do well, which is 0:01:45.120 --> 0:01:48.040 grow restaurants, grow our same store sales growth continue to 0:01:48.040 --> 0:01:50.360 deliver great value for our shareholders, and we know they're 0:01:50.360 --> 0:01:51.360 going to win over the long term. 0:01:51.480 --> 0:01:53.640 Let's talk about the long term because now with IPO 0:01:53.760 --> 0:01:56.120 pre proceeds in hand, what do you want to do 0:01:56.160 --> 0:01:58.120 with them? What are the opportunities for growth that you're. 0:01:57.960 --> 0:01:58.800 Going to be pursuing. 0:01:59.040 --> 0:02:01.000 Well, I mean, we're a brand that is an asset 0:02:01.080 --> 0:02:03.640 light model, so we're a ninety nine percent franchise. We 0:02:03.680 --> 0:02:06.360 generate a lot of cash, we carry some debt. We're 0:02:06.440 --> 0:02:09.040 using the primary proceeds just to pay down our debt 0:02:09.080 --> 0:02:10.840 a little bit, so we get down below four and 0:02:10.840 --> 0:02:14.160 a half times are EBITDA and that's okay. Over time, 0:02:14.200 --> 0:02:16.560 we really will use our cash to return that capital 0:02:16.639 --> 0:02:20.440 back to shareholders, which is very much the common practice 0:02:20.560 --> 0:02:23.919 in a business like ours, and that'll be the continued 0:02:23.919 --> 0:02:24.600 pace over time. 0:02:24.720 --> 0:02:26.760 I know one of the growth strategies that you're pursuing 0:02:26.800 --> 0:02:30.720 these international expansion. You have big plans for the UK specifically, 0:02:31.080 --> 0:02:33.040 I know the market. I lived there for a while 0:02:33.080 --> 0:02:35.919 for about six years. They do this subway, so they 0:02:36.200 --> 0:02:39.080 know sandwiches quality might vary there, but they love like 0:02:39.120 --> 0:02:41.840 a Tesco's meal deal where they get a sandwich and. 0:02:41.880 --> 0:02:43.560 A bag of crisps as they would call it, for 0:02:43.600 --> 0:02:44.320 four pounds. 0:02:44.560 --> 0:02:47.120 How do you convince them and how are you certain 0:02:47.200 --> 0:02:49.639 that a British audience would like a Jersey Mics. 0:02:49.680 --> 0:02:52.720 Well, we know people all over the world enjoy sandwiches 0:02:52.800 --> 0:02:56.040 and sub sandwiches. Certainly, the market's been well established. What 0:02:56.120 --> 0:02:58.440 they don't know is the authenticity of how to really 0:02:58.480 --> 0:03:00.800 deliver a deli style sandwich right way the way we 0:03:00.840 --> 0:03:03.120 do it here in Jersey Mics. That's been part of 0:03:03.160 --> 0:03:05.680 who we are for the last fifty years. It's exactly 0:03:05.720 --> 0:03:07.480 what we're going to bring to the UK. We're going 0:03:07.560 --> 0:03:09.640 to bring the brand in its full force to the 0:03:09.720 --> 0:03:12.760 UK and look, we have a hot sub option as well, 0:03:12.840 --> 0:03:16.120 so our cheese steaks are hot subs. Other products will 0:03:16.160 --> 0:03:18.639 be anchored on the menu and we're going to do 0:03:18.680 --> 0:03:20.400 it in a high quality way. People want that kind 0:03:20.400 --> 0:03:24.079 of authenticity. Anything for the way, I mean one little thing, 0:03:24.120 --> 0:03:26.960 maybe we might bring salted beef to the protein mix 0:03:27.000 --> 0:03:29.200 and lineup. We know that's a big fan favorite overseas 0:03:29.240 --> 0:03:32.120 in the UK and so you might see that change. 0:03:32.120 --> 0:03:34.240 But otherwise it's gonna be authentically what we've been all 0:03:34.240 --> 0:03:35.720 about at Jersey Micros's. 0:03:35.360 --> 0:03:37.640 Love this subtle dig of they know subs out there, 0:03:37.640 --> 0:03:41.240 but like maybe not the real Deli style Charlie. Elsewhere 0:03:41.280 --> 0:03:43.480 here in the US there has been this real concern 0:03:44.040 --> 0:03:48.320 about the outbreak of silas FA and the concern about 0:03:48.320 --> 0:03:50.240 Iceberg lettuce. I know a lot of the majority of 0:03:50.680 --> 0:03:52.680 Jersey mic subs use Iceberg lettuce. 0:03:53.120 --> 0:03:54.720 Is your supply chain affected at all? 0:03:54.840 --> 0:03:56.520 We are not. We're not affected at all. 0:03:56.560 --> 0:03:59.400 In fact, we do buy wholehead Iceberg lettuce, but we 0:03:59.480 --> 0:04:02.560 buy it from primarily Selinas, California this time of year, 0:04:02.760 --> 0:04:05.800 none from Mexico. We actually take very good care of 0:04:05.800 --> 0:04:07.640 that product. We bring it in a whole head fashion. 0:04:07.640 --> 0:04:10.000 We peel the outer leaves off, wash it carefully, and 0:04:10.040 --> 0:04:12.520 actually shred it for our customers right there. And so 0:04:12.760 --> 0:04:15.840 we don't see any risk associated. That hasn't impacted our business. 0:04:15.960 --> 0:04:18.800 It maybe hasn't impacted your supply change. Hepotely said, the 0:04:18.839 --> 0:04:20.960 same thing. We source it somewhere else, But yesterday they 0:04:20.960 --> 0:04:24.240 pointed out it has impacted sales because the psychological concerns 0:04:24.440 --> 0:04:27.440 our consumers pushing back or maybe at least not asking 0:04:27.480 --> 0:04:28.640 for lettuce on their sandwiches. 0:04:28.680 --> 0:04:30.839 Well, every one of our sandwiches can be customized because 0:04:30.880 --> 0:04:32.240 we make it to order right in front of you. 0:04:32.279 --> 0:04:34.040 And so if a customer wants to opt out of 0:04:34.080 --> 0:04:36.440 all let us, that's fine with us. We'll accommodate that 0:04:36.520 --> 0:04:38.800 have made and then not really, I mean we've seen 0:04:38.880 --> 0:04:40.920 I mean we've been eating them for last two weeks 0:04:40.960 --> 0:04:41.320 on the road. 0:04:41.320 --> 0:04:42.200 We've been enjoying them. 0:04:42.360 --> 0:04:45.480 I think customers understand that the supply chain moves very quickly. 0:04:45.680 --> 0:04:48.360 The product's probably out of the supply chain and everything's fine. 0:04:48.520 --> 0:04:50.799 The credit card and debit card data that the Bloomberg 0:04:50.800 --> 0:04:53.440 team cracks tracks does show a little bit of slowing 0:04:53.760 --> 0:04:55.760 in July for Jersey Mike. Certainly still growing, but a 0:04:55.800 --> 0:04:58.000 slow down in that growth. What accounts for that? Then, 0:04:58.040 --> 0:04:59.400 if it's not the lettuce. 0:04:59.120 --> 0:05:01.039 Of it all, well, I think there's a lot going 0:05:01.080 --> 0:05:03.039 on in the marketplace right now. I wouldn't look to 0:05:03.080 --> 0:05:05.880 any one or two weeks as indicative. Lots of things 0:05:05.960 --> 0:05:08.000 kind of ebb and flow, and too often you can 0:05:08.000 --> 0:05:10.240 get too much data that'll point to two different things. 0:05:10.279 --> 0:05:12.040 But right now we haven't seen much of it. 0:05:11.680 --> 0:05:14.440 So summer sales have been strong. Maybe besides a little 0:05:14.440 --> 0:05:15.120 bit of July. 0:05:15.440 --> 0:05:18.600 Yeah, we haven't talked about anything about this particular quarter 0:05:18.720 --> 0:05:21.320 at this point. We certainly saw strong performance in the 0:05:21.320 --> 0:05:23.600 first quarter sequentially improving in the second quarter. 0:05:23.839 --> 0:05:25.600 We exited the second quarter on a. 0:05:25.560 --> 0:05:27.960 Strong note as well, and so we're going to continue 0:05:28.000 --> 0:05:30.520 to play our game and execute a game plan that 0:05:30.839 --> 0:05:33.159 is going to drive long term, sustainable same source sales growth. 0:05:33.200 --> 0:05:34.279 So I hate to do this to you, and I 0:05:34.279 --> 0:05:36.400 hope you don't check your social media mentions, but if 0:05:36.440 --> 0:05:39.040 you just look up Jersey mics, there is just a 0:05:39.279 --> 0:05:41.320 wide swath of people who say, ah, since you know, 0:05:41.360 --> 0:05:44.880 the Blackstone pe overlords came in, they've changed the sandwiches. 0:05:45.360 --> 0:05:47.120 They have, you know, shrunken size. 0:05:47.120 --> 0:05:49.400 People love to complain that like Pe comes and ruins 0:05:49.560 --> 0:05:53.000 their favorite sandwiches. Charlie, can you say here, definitively have 0:05:53.080 --> 0:05:55.840 the sandwiches change at all, quality or otherwise not as 0:05:55.920 --> 0:05:56.840 since you came into the. 0:05:56.760 --> 0:05:59.279 Hell not at all. That's just hype and social media. 0:05:59.320 --> 0:06:01.120 They like to pick on people for that reason. We 0:06:01.160 --> 0:06:03.479 haven't done nothing. I mean, I've been involved almost as 0:06:03.520 --> 0:06:04.560 long as Blackstone has. 0:06:04.720 --> 0:06:05.680 We haven't changed a thing. 0:06:05.720 --> 0:06:08.359 Why would we This brand has grown twenty consecutive years 0:06:08.360 --> 0:06:10.599 positive same source sales growth, we don't need to change 0:06:10.600 --> 0:06:12.559 the menu. We enjoy one of the lowest food costs 0:06:12.560 --> 0:06:15.280 in the industry. Our franchisees have some of the highest 0:06:15.279 --> 0:06:17.360 cash on cash returns in the industry. 0:06:17.600 --> 0:06:18.640 They want to grow and. 0:06:18.560 --> 0:06:20.480 Build more stores and they're going to do that, and 0:06:20.520 --> 0:06:23.039 so no need to change anything. We love this brand, 0:06:23.080 --> 0:06:25.120 we love the way we delivered the product, and we're 0:06:25.120 --> 0:06:26.520 going to continue to do it that way for a 0:06:26.560 --> 0:06:27.240 long time to come. 0:06:27.360 --> 0:06:30.000 On the cost because generally this market, if you track 0:06:30.040 --> 0:06:33.400 the macro data things like dairy meats, the prices have 0:06:33.520 --> 0:06:34.120 been rising. 0:06:34.600 --> 0:06:36.280 How have you been accounting for that? How do you 0:06:36.360 --> 0:06:37.200 keep your margins? 0:06:37.600 --> 0:06:40.760 Well, we have a very diverse lineup in our menu 0:06:40.800 --> 0:06:44.119 in terms of the proteins that we offer, so beef, chicken, pork, 0:06:44.160 --> 0:06:46.960 different products all within our menu, and we're able to 0:06:47.000 --> 0:06:49.360 balance that over time. So as one is high, like 0:06:49.400 --> 0:06:51.960 beef prices today, we focus on other parts of our 0:06:52.000 --> 0:06:53.920 business and we've been able to maintain that over time. 0:06:53.920 --> 0:06:56.520 We also have a very scaled supply chain over three 0:06:56.520 --> 0:06:59.640 thousand restaurants strong. We buy in very high volumes and 0:06:59.680 --> 0:07:02.039 able to handle that back to our franchisees in the 0:07:02.040 --> 0:07:04.240 form of a very low food cost around twenty seven 0:07:04.240 --> 0:07:06.239 percent of sales, which is industry leading. 0:07:06.680 --> 0:07:08.720 How about prices, Are you able to use that as 0:07:08.720 --> 0:07:11.360 a lever to charge more prices for higher prices for 0:07:11.360 --> 0:07:11.960 your sandwiches? 0:07:12.080 --> 0:07:14.720 Certainly, over time we do take price. Our long term 0:07:14.760 --> 0:07:17.600 algorithm is low single digit same store sales growth for 0:07:17.640 --> 0:07:20.520 this business that will be equally balanced between price and 0:07:20.600 --> 0:07:23.840 transaction growth. We air towards transaction growth. That's really how 0:07:23.880 --> 0:07:25.840 you grow the health of the business over time. We've 0:07:25.840 --> 0:07:29.000 taken some price as we've seen commodity inflation, not nearly 0:07:29.040 --> 0:07:31.560 as much as some other brands, and that quite frankly, 0:07:31.640 --> 0:07:34.520 is what's been fueling our growth this year and years 0:07:34.560 --> 0:07:36.960 prior compared to the rest of the concepts out there. 0:07:36.960 --> 0:07:38.440 All right, Charlie, that's all we have time for. Thank 0:07:38.480 --> 0:07:40.240 you so much and congratulations, ayeah pleasure. 0:07:40.280 --> 0:07:40.880 Thank you.