To OTC Journal Members:
 

Pickle Invades City of Broad Shoulders: Chicago Gets Five More Stores

2007 is a wrap for Spicy Pickle, and the company ended up hitting the 36 opened stores mark at year's end. For those of you who might be disappointed by SPKL for not reaching the 40 store number forecast by management- not to worry- there are 4 currently under construction, so 40 is rapidly approaching - we're just going to be a month behind. Not bad when you consider the potential pitfalls in the permitting/construction process.

Where does this put us in the realm of cash/break even? Glad you asked. Sticking with our old formula of every 10 stores equating to about $50k in monthly residual revenues, one would assume we are close to getting about $200k into the coffers in recurring revenues every month.

Those numbers will be skewed as there is now a company owned store opened in Downtown Denver. If this store achieves the median roughly $800k in annual revenues for newer stores, it will contribute another $66k in monthly revs and about $10k in monthly positive cash flow. This store also contains a bakery/commissary that will provide supplies for the other 23 Denver area locations.

Couple this with the upfront franchise fees from last month's new 10 store market in Michigan, and you have a pretty strong cash flow picture looking forward.

Fast forward to today's post close news. SPKL announced another new franchise arrangement- A developer has signed a 5 store new restaurant agreement in Chicago- this will eventually bring the Chicago total to 6 stores- which is just a foothold relative to the potential of the Chicago market. There is a lot of room for more expansion in Chicago.

Besides the capital that flows to SPKL for the franchisee fees (not bookable as revs until the stores open), I particularly like the way the franchisee learned about the opportunity- as it turns out, he simply walked into the existing Chicago store, tried the food, and agreed to open 5 more stores. Great stuff. As the footprint of the company expands, more potential franchisees will walk into more new stores all over the country and try the food.

If SPKL were to freeze in time right now, the company could simply open the remaining 74 stores that are in the future pipeline, and turn very profitable. However, it's not enough. The company has aspirations of heading to 500 stores as quickly as possible, and to that extent will start investing the $6 million in fresh capital for their company owned store program. This will require infrastructure and commitments to real estate.

The new capital and the existing momentum should lead to accelerating positive news flow throughout 2008, and a pretty robust market for the stock barring a complete recession driven buyer's strike, which brings me to the next part of today's edition: the chart.

Anyone who follows the markets knows we have been putting up with some pretty rough action since about mid November. However, SPKL has been immune to the whole fiasco.

Here's an interesting chart I put together. The chart goes back to our initial coverage of SPKL, and compares its performance to that of the Russell 2000 over the same period of time. The Russell 2000 small cap index most closely mirrors the action in microcap stocks in general.

Note that the Russell has fallen off a cliff in the last month, while SPKL has held up very nicely during this turbulent period. In my view, this suggests SPKL has developed a very loyal shareholder base with a long term perspective on the future of the company. 

This also suggests SPKL will be in a position to rebound with an improving market climate, which I suspect will be coming in February after the next FED meeting. 

Today's news puts us at the 110 mark in franchises sold, with 36 opened and a number more under construction today. The real estate acquisition team is paddling furiously, and the franchise sales are once again gaining momentum.

If the US does go into a recession, consider the fast casual space. People still have to eat in a recession, and the white collar work force has to eat lunch. SPKL will be viewed as a "safe haven" stock in a recessionary environment.

The Chicago news will no doubt put a little charge into the stock, and more franchise sales, more new lease signings, new company owned stores, and store openings should keep fuel on the SPKL fire throughout 2008. In short, we're just getting started. On the corporate side, 2008 should be stronger than 2007.

Here is the complete text of today's news for your review:
 

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