This Sizzling Stock’s Too Hot to Handle
Yesterday, before a live audience of some 40,000 and more than one million national TV viewers, Joey “Jaws” Chestnut set a world record in a sport more American than any other.
The “competitive eater” stuffed 69 Nathan’s Famous ( Nasdaq: NATH) hot dogs down his esophagus in just 10 minutes, earning $10,000 in prize money and the coveted, bejeweled Mustard Yellow Belt advertising a certain hot dog brand on its buckle.
I know this because of stories by the Associated Press and CNN among many other outfits, not to mention the slide show in the Washington Post and clips on hundreds of local newscasts ravenous for news tidbits on a low-news holiday.
It’s a massive amount of free brand exposure few marketers could afford to buy, placing Nathan’s right alongside grilling, fireworks and the old red-white-and-blue in the Independence Day pantheon.
Which may be one reason the company recently reported an 8 percent revenue increase for the latest fiscal year, even as, according to Bloomberg Businessweek, nationwide hot dog sales dipped 3 percent last year, their third consecutive annual drop.
When Polish immigrant Nathan Handwerker opened his stand on Coney Island in Brooklyn in 1916, selling hot dogs made according to wife Ida’s recipe, he couldn’t have imagined all this. By 1939 Franklin Delano Roosevelt was serving up Nathan’s to the king and queen of England, by 1992 Jerry Seinfeld was promising them to George Costanza and eight years later mourners at Walter Matthau’s funeral were noshing on them at the late actor’s request.
The history is great marketing fodder, and the people running Nathan’s today are clearly champion marketers. The recently posted annual results were boosted by a 12 percent surge in sales under the Branded Products Program, which licenses hit dogs sold in cafeterias, airports, convenience stores and sports arenas.
Branded Products revenue accounted for 60 percent of the total in fiscal 2013, while sales at the five company-owned restaurants contributed 19 percent. The rest came from retail licensing fees (12 percent of the total) and franchising (8 percent).
The franchise system consists of 303 outlets operating in 28 states and eight foreign countries not counting the Cayman Islands. Thirteen of the international locations are in Kuwait, and the 40 franchised outlets added in the last year included the first Nathan’s outposts in Mexico and Turkey.
The current fiscal year will mark the end, on March 1, of a contentious retail licensing relationship with principal licensee SMG Foods, which won a $4.9 million judgment against Nathan’s over its attempt to terminate its deal early. Nathan’s is down to its last appeal before the Illinois Supreme Court, but has already set aside the total in an escrow account.
It will take Nathan’s about a year to recoup that cost from the increased proceeds of its lucrative new retail licensing deal with John Morrell & Co, a subsidiary of Smithfield Foods (NYSE: SFD) that has guaranteed Nathan’s at least $10 million annually and 10.8 percent of net sales for the right to supply Nathan’s dogs to supermarkets.
That should further boost net income that rose 21 percent to $7.5 million in the last fiscal year. Nathan’s $253 million market cap values the company at a hefty 35 times trailing earnings per share, though that’s somewhat offset by a debt-free balance sheet containing $25 million in cash and marketable securities.
The stock has been hotter than any dog, up a sizzling 68 percent year-to-date to a new record high that makes Chestnut’s accomplishment look like so much filler. At this point it should probably be bought only by those who believe the dogs taste so good that the laws of gravity have been repealed.
But stocks tend not to break out to new highs without a good reason, and this great American success story deserves a look on a pullback. In the meantime, go to Coney Island and buy a dog for $3.95. It’s a small price to pay for a bite of nostalgia.
The “competitive eater” stuffed 69 Nathan’s Famous ( Nasdaq: NATH) hot dogs down his esophagus in just 10 minutes, earning $10,000 in prize money and the coveted, bejeweled Mustard Yellow Belt advertising a certain hot dog brand on its buckle.
I know this because of stories by the Associated Press and CNN among many other outfits, not to mention the slide show in the Washington Post and clips on hundreds of local newscasts ravenous for news tidbits on a low-news holiday.
It’s a massive amount of free brand exposure few marketers could afford to buy, placing Nathan’s right alongside grilling, fireworks and the old red-white-and-blue in the Independence Day pantheon.
Which may be one reason the company recently reported an 8 percent revenue increase for the latest fiscal year, even as, according to Bloomberg Businessweek, nationwide hot dog sales dipped 3 percent last year, their third consecutive annual drop.
When Polish immigrant Nathan Handwerker opened his stand on Coney Island in Brooklyn in 1916, selling hot dogs made according to wife Ida’s recipe, he couldn’t have imagined all this. By 1939 Franklin Delano Roosevelt was serving up Nathan’s to the king and queen of England, by 1992 Jerry Seinfeld was promising them to George Costanza and eight years later mourners at Walter Matthau’s funeral were noshing on them at the late actor’s request.
The history is great marketing fodder, and the people running Nathan’s today are clearly champion marketers. The recently posted annual results were boosted by a 12 percent surge in sales under the Branded Products Program, which licenses hit dogs sold in cafeterias, airports, convenience stores and sports arenas.
Branded Products revenue accounted for 60 percent of the total in fiscal 2013, while sales at the five company-owned restaurants contributed 19 percent. The rest came from retail licensing fees (12 percent of the total) and franchising (8 percent).
The franchise system consists of 303 outlets operating in 28 states and eight foreign countries not counting the Cayman Islands. Thirteen of the international locations are in Kuwait, and the 40 franchised outlets added in the last year included the first Nathan’s outposts in Mexico and Turkey.
The current fiscal year will mark the end, on March 1, of a contentious retail licensing relationship with principal licensee SMG Foods, which won a $4.9 million judgment against Nathan’s over its attempt to terminate its deal early. Nathan’s is down to its last appeal before the Illinois Supreme Court, but has already set aside the total in an escrow account.
It will take Nathan’s about a year to recoup that cost from the increased proceeds of its lucrative new retail licensing deal with John Morrell & Co, a subsidiary of Smithfield Foods (NYSE: SFD) that has guaranteed Nathan’s at least $10 million annually and 10.8 percent of net sales for the right to supply Nathan’s dogs to supermarkets.
That should further boost net income that rose 21 percent to $7.5 million in the last fiscal year. Nathan’s $253 million market cap values the company at a hefty 35 times trailing earnings per share, though that’s somewhat offset by a debt-free balance sheet containing $25 million in cash and marketable securities.
The stock has been hotter than any dog, up a sizzling 68 percent year-to-date to a new record high that makes Chestnut’s accomplishment look like so much filler. At this point it should probably be bought only by those who believe the dogs taste so good that the laws of gravity have been repealed.
But stocks tend not to break out to new highs without a good reason, and this great American success story deserves a look on a pullback. In the meantime, go to Coney Island and buy a dog for $3.95. It’s a small price to pay for a bite of nostalgia.