This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greenberg: Getting Restaurant IPO Indignation

This article appeared Wednesday, Aug. 13, on RealMoney.

SAN DIEGO (RealMoney) -- You could see this coming from a mile away: Noodles & Co. (NDLS - Get Report)Potbelly (PBPB - Get Report) and Papa Murphy's (FRSH - Get Report). All three were well-established before they went public, and all three, so far, are causing investors to grab the Tums.

Regardless of what Noodles reports today, it faces the classic retail/restaurant dilemma for an initial public offering: Quickly growing a concept that may or may not have appeal beyond a certain region to meet Wall Street's expectations, then finding the right real estate in a market that's often already glutted -- as in the case of Potbelly -- with sandwich shops.

As San Diego-based restaurant consultant John Gordon tells me, El Pollo Loco (LOCO - Get Report), from the IPO class of last month, "Historically hasn't been able to grow north of Santa Barbara." He continues, "This is the former Denny's clone, under-managed for years, almost defaulted on debt in 2011. Private equity had to pump in $40 million, paying an 18% coupon. But now it's back from the grave. They have made menu improvements and two years of (same-store sales) gains. The Street was totally blitzed with them in late-July timing (the third week is a primo IPO week), a faulty comparison to Chipotle. Traders said, 'I want a fresh story, something to get in at ground level, it's cheaper than CMG, geesh! But most of my non-sell-side restro-analytical friends see it as the bottom of the heap.'"

What's at the top? In Gordon's opinion, Zoe's Kitchen (ZOES - Get Report) "is a real fast casual brand (as opposed to LOCO, which isn't), which is first in its sub-segment (Mediterranean) and is not so insanely overpriced yet such that there will be a year one-two 'shock effect' meltdown when earnings disappoint. Its store economics is solid."

Reality: Just because a company goes public, doesn't mean its concept has been validated. It means either a) the private equity or venture guys wanted out, or b) the investment bankers were persuasive, or c) the executives were tempted, or d) all of the above.

Follow @herbgreenberg

Subscribe to Reality CheckHerb On TheStreet blog

Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security. He can be reached at


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Herb's Tweets

Select the service that is right for you!

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Growth Seeker

Chris Versace, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Daily Swing Trade

Master swing trader Alan Farley uses his sophisticated software screens to review thousands of stocks each day for you, to find just the handful that meet his demanding criteria.

Product Features:
  • Daily commentary and coaching on swing trading
  • Technical charts and analysis
Top Rated Stocks Top Rated Funds Top Rated ETFs