Hooters (HOTR) must Reverse Split or Hire Market Awareness Team

Steve Kanaval  |

Smaller publicly traded companies who trade under $1 per share for more than 30 days are sent a pink slip by Nasdaq notifying them they must act or be de-listed. So, the company has a few choices, reverse split the stock where shareholders have fewer shares and the price is higher, or go on a PR campaign explaining the nuance of the revenue model (most call this market awareness) to add new shareholders, which normally gets the stock price higher. The Hooters restaurant franchise whose parent is Chanticleer Holdings (HOTR) has chosen the later for now.

“At the current time, our business is being valued at a discount to others in the sector, as well at a significant discount to our revenue and our book value," CEO Mike Pruitt wrote in an email to the Charlotte Business Journal. "We do not think that this will be a lasting valuation given our dramatically improving performance.”

Chanticleer has until Aug. 16 to regain compliance. To do so, the company’s common stock must close above $1 per share for a minimum of 10 consecutive business days. If Chanticleer fails to regain compliance by then, it may be eligible for an extension through Feb 2017, if it meets other standards necessary. Many companies are faced with this issue after stockholder turnover, and it is the company's job to increase revenue and profitability, get the word out and attract new shareholders. This is an ongoing issue for these smaller companies. Pruitt is an experienced Wall Street player and shareholders should have full confidence that he will accomplish his goals.

He is already moving in that direction and any market watcher can see what his strategy is here improving top line sales and getting in front of market awareness companies like ours. But the rubber hits the road as we move into summer of 2016, where he must continue to integrate these operations (any accretive acquisitions) and stay on track getting the word out. This is the reason he is on the rubber chicken conference circuit telling his story.

Everyone knows the Hooters brand so it is an easy story to tell, but integrating another high margin chain is another task. You can have all the revenue and margin improvement in the world, but if no one knows about it, it doesn't matter, and not everyone reads press releases and listens to conference calls. In the age of Social Media, digital & native advertising brand awareness is a low cost useful tool in the quiver of the 2016 CEO as they leverage new channels.

“We believe this will be an issue that will get resolved in the time NASDAQ has allowed,” Pruitt says. “I firmly believe that if we continue to execute, the value of the business will be reflected in the share price for shareholders,” he says. We will see how this plays out. Personally, I love the place, and I think this is universally shared, but how many of you knew that Chanticleer was the guiding light behind the magic that is Hooters? How many knew these operators skill sets were transferable and scale-able to other acquisitions? I guess this is the point as brand marketing for public companies takes a turn in the digital age. It is not just for mega brands anymore, It is necessary, which is why the internal Social Media positions at companies is the largest growing job for millennials.

Chanticleer remains focused on growing its business, particularly the better-burger segment. It signed a letter of intent with a financial partner for 10 locations of Little Big Burger in Seattle. "We've been very active in the acquisition of the better-burger category," said Pruitt. "The size of their [Little Big Burger's] burger and their truffle fries is a very unique concept." Little Big Burger originally proposed the sale to Chanticleer Holding.

Chanticleer Holdings has not announced any changes to the Little Big Burger concept other than expanding it beyond its Portland roots. Construction has begun on a ninth Portland location as part of the Hassalo on Eighth development. The company is also considering opening Seattle and Boise locations. It also signed a deal with Spartan Investment for three locations of BGR: The Burger Joint in the Baltimore and District of Columbia markets.

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About the writer: Steve began his career at the Chicago Mercantile Exchange in 1980 and ran Morgan Stanley Derivative Prop Trading for the firm. He continued his career as a Trader/Portfolio Manager for multiple Hedge Funds during the Internet Boom of the 90's. Steve is known as an expert in Emerging Market Stocks and has published thousands of articles and archived video with important market participants related to US Equities. He offers a humorous, unique insight in volatile stocks and the related back stories and drivers.

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