Spicy Pickle Update: Pickle Shareholders Not Recession Proof
July 8, 2008 @ 11:03 am
The home page at the OTC Journal lists my SSL (suggested stop loss) for Spicy Pickle at $.90. For those of you who understand the concept of an SSL, you know that you have now become a long term shareholder if you have continued to hold the stock.
As a very early stage investor, I was happy to notch a big profit at the end of 2007 when the stock was trading with liquidity above $1.50. Since then I have done very little trading in this issue- some buying and selling, but I don’t think I’ve done a trade in the stock in quite some time.
I knew things could get rough coming into the summer months. For starters, the summer can be rough on microcaps- summers are generally characterized by low volume pullbacks.
This summer has been particularly rough with the backdrop of a US recession. In short, any company who sells anything to US consumers is getting pretty rough treatment by the US markets right now. A couple of exceptions would be WalMart and Costco- the big discounters.
Fundamentally, there’s not much reason for the shoddy treatment. It’s more market and recession related. The company’s 41 stores are doing very well for the most part, and the expansion will continue.
I was able to get an update on current events this past weekend. Two new stores are slated to open in July in two new states- the first Michigan and Brooklyn stores are scheduled for opening.
There are more under construction. More leases are close to being signed. New franchisees are close to coming on board. The money that was going out for the 7 corporate stores is over, and they are now contributing gross profits regularly.
No franchise commitments are being shelved in this tough market. Real estate continues to be the expansion Achilles Heel- finding the right locations cannot be rushed, and finding the good locations is still difficult. A good recession might actually a positive on the expansion side- the real estate might become more readily available.
So- here’s the slap of reality- we’re in a recession, we’re in a Bear Market, and we’re in the middle of the summer doldrums. My accounts are awash in red ink, but I made the decision to tough it out.
SPKL has a very loyal shareholder base, but has still come down into the mid $.70’s on a little selling pressure without the accompanying buy side pressure.
The company will continue opening new stores for the forseeable future, albeit not as fast as I would like to see. Each new store opening contributes a little more cash flow on an ongoing basis forever.
I can’t call where the bottom might be or when the stock will start a reasonable and sustainable rebound phase. I suspect the stock will be a lot higher by year’s end, but there’s no telling for sure. Here’s one certainty- the market will start pricing stock’s out of this recession long before economists give the all clear signal.
If I have to hang in there for two months or two years to catch the next Bull Market surge for consumer related US stocks, then so be it. That’s what I’m going to do.
Comments and questions are welcome.
15 Comments
RSS feed for comments on this post.
Leave a comment
Line and paragraph breaks automatic, e-mail address never displayed, HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>
You mentioned that the “company was moving in an interesting direction and if it pans out, the shareholders will love it.” Can you elaborate anymore without getting in trouble? Thanks.
Editor: No guarantees- think International. There is very robust growth going on in other regions of the world. Just an educated guess. Here’s a fact- I haven’t sold a single share in several months, and still have a nice profit in all my shares with the exception of the $100k I put in last December at $.85. That’s not to say I won’t if I really need the cash, but I have decided to simply think long term and disregard the price.
Comment by Kevin M. — 8/5/2008 @ 7:31 pm
The brooklyn store is not opening in july as you stated in this blog. Thats also part of the problem false rumors we need facts
Editor: I have heard there is some delay of a few days or so due to some power delivery issue. It’s about ready to open. Whether it opens this week, next week, or the week after is not important. I don’t know why you would even mention this- it’s absurd. It will open in pretty short order.
Comment by Rob — 7/31/2008 @ 4:31 am
Larry-
I appreciate very much the communication SPKL has made with investors. I hope this continues into successive quarters. I believe in the idea and think this could be the next Panera Bread. Please let management know we are all watching closely and communication is imperative, good or bad, to keep investors informed and to also attract new investors. Thanks for the good work! I’ll keep whethering the storm on this one!
Editor: In reality, SPKL is being effected by the recession in the sense that growth has slowed a bit. As it stands today, growth will not be as robust in the second half of the year as the first half. We need a big fall out in commercial real estate, which hasn’t really happened yet. In the interim, the company is moving in an interesting direction. If it pans out, shareholders will love it. On the plus side, despite the recession, the existing stores are doing just great. In fact, the new store is Portage, MI is doing so well it threatens to be the first $1 million store in the chain. The market perception right now is to avoid stocks that have anything to do with US consumers. As soon as that perception changes, we’ll start getting strong again in the market. I would expect that change starting in October.
Comment by Kevin M. — 7/30/2008 @ 10:22 am
SPKL did produce a ‘new inventors fact sheet’, a great communiction initiative. However, when reading it, I’m a bit confused. It is true, they estimate a revenue growth of 208 %, but at the same time they estimate a a negative EPS of 0,12 USD (vs 0,08 USD in the previous year). So, this seems to be a (temporarily ?) very negative evolution concerning the balance between revenues and earnings: an estimated revenue growth of ca. 200 % and an estimated earnings growth of ca. minus 50 %.
How do I have to understand this and does it mean that stock price should reasonable also go minus 50% in the coming months?
Kind regards,
Bart
Editor: Losses are going to be up as the company invested a lot of the capital it raised last December to build and buy company owned stores and build out both the infrastructure required to run their own stores and ramp up to handle the additional 90 stores that still need to be built. You’ll see a huge percentage top line growth in Q2, but high expenses associated with the build out of those stores. BTW- the word I am getting is the stores are doing great, but expansion in the second half of ‘08 is slower as a result of the environment we all are putting up with. Losses should now start going down in successive quarters, and in 2009 SPKL should make the turn to profitability. I think this is pretty much reflected in the stock price now. Look for the company to make some interesting moves over the next couple of months that would paint a whole new picture on things. I have the company focused on shareholder communication- I want them to make sure investors are informed- good, bad, or in the middle.
Comment by Bart Strosse — 7/29/2008 @ 11:42 am
I thought we were under the impression that the break even point was number of stores opened in the mid-40’s? The new investor fact sheet lists it at 75-100. Which is correct?
Editor: It’s really somewhere closer to the 50 to 60 range- the mix has changed a bit as well with the addition of the company owned stores, which is a positive. However, the company wanted to be really conservative in its public disclosure. The number has gone up as the company has built an infrastructure that allows them to become really big. They need to pick it up in the second half of the year. Growth has slowed a bit, but the stores are doing just great. I hear the new Portage Michigan store is on track to become the first $1 million store.
Comment by JD — 7/29/2008 @ 9:52 am
Someone or something is pounding this stock into the ground and I don’t think it has anything to do with the market or it being summer it has come down way to much for a company doing so well. I guess I’ll have to get up off my beach chair and head into Brooklyn and find out first hand what’s going on with that store I’ll give a follow up
Editor: I don’t believe the Brooklyn store is quite open yet. Apparently, there is some issue with the power company. Other than that, I am told it is ready to go. The company is stumbling a bit as it is still have trouble locating commercial real estate that fits its needs. While the residential market is in a complete depression, the commercial market hasn’t really cracked as much as it will. New signings are slow, meaning new openings are going to be slow in the second half of the year. Things could change with some moves the company is looking at, but I think the stock’s performance is 100% related to the economy- let’s face it, stocks of companies that sell stuff to consumers in the US are not investor’s favorites right now.
Comment by Rob — 7/25/2008 @ 9:47 am
Would it be bottom line savy for Spicy Pickle to consider some of Starbucks closing stores as opposed to building their own? Just a thought.
Editor: Starbucks built thousands and thousands of stores, and paid too much for the commercial real estate in many cases. If it’s a problem location for Starbucks, why would we put a Spicy Pickle there? They aren’t closing the ones that are making money. We have looked into it, and we would simply rather be next to a profitable Starbucks.
Comment by Verland — 7/18/2008 @ 3:16 pm
Larry,
SPKL is getting killed today. No news? I really don’t get it. I’ve been looking for a place to get in but every time I’m about to pull the trigger, it drops more. Very disconcerting. WHY would anyone sell?? If the expansion is going well, the future will be bright. A mystery wrapped up in an enigma.
BD
Editor: I just wrote up coverage of today’s news on #42. In fact, expansion is slowing as real estate continues to be hard to acquire at the right price. I believe that will change over the coming months. I believe it is now priced into the stock. Second half growth could be more International in flavor if the company has set its sails correctly. Also- people are selling because it’s a source of funds they can live with to cover other issues they may be facing. It’s typical in a bear market.
Comment by Biodigger — 7/16/2008 @ 12:49 pm
Latest rumor spkl closed 10 stores more to come
Editor: Naturally, you don’t have the courage to identify your self so the company can sue you for slander and liable. No stores have closed.
Comment by Anonymous — 7/15/2008 @ 1:06 pm
ANOTHER GREAT COMPANY NO NEWS AND THE SHARE HOLDERS GETTING RIP OFF AND DON’T SAY ITS THE MARKET ITS A BAD CAMPANY
Editor: Just sell it if you don’t like it. No one likes the price, but it can’t be helped. Obviously, you should have sold at my SSL of $.90.
Comment by Anonymous — 7/15/2008 @ 12:46 pm
Do you get a lot of nasty emails?
Editor: Not really nasty- more like frustrated. I can’t control the markets, and most rational people realize that.
Comment by Anonymous — 7/15/2008 @ 12:11 pm
This stock just keeps going down any there is less info coming from them then efsf nothing in over a month
Editor: I’m waiting for a bottom on this one to get really active again. The company has over 5,000 shareholders, and there are so many people selling for reasons having nothing to do with the company, that I am just holding my nose and toughing it out. This is brutal, but it’s the nature of bear markets.
Comment by Anonymous — 7/15/2008 @ 8:32 am
you pick this at .69 it is now .66 someone is taking a lot of money out WHY? is something wrong just like all the other companys you promote?
Editor: There haven’t been many redemptions of the convertible preferred from last December at $.85. Everyone seems to be willing to tough it out. There also hasn’t been much volume. It’s simply as case of some sellers thanks to the market, and no buyers in my view. I don’t know where the bottom is, but I do know there will be one, and the stock will turn back around.
Comment by Anonymous — 7/12/2008 @ 4:48 am
….comment Nr. 1 might be right. But only an increasing stock is a good stock. The chart resistance has been broken, we are in a downtrend, have a summerhole, no serious buyers adn the volumes of those who sell increases. Whatever or whereever SPKL might be in future, it is not the time to buy! Seriousity forbids to recommend to buy SPKL currently! I am a little bit astonished about the blind thrill regarding the expanding. A experienced investor does not accumulate a falling knife, and as much as I notice SPKL continues to fall.
Editor: I totally agree. If you check my home page, you will see my SSL was set at $.90. If you held it below that level, in my view you simply decided to become a long term investor. I have no idea where the bottom is, but there will be one and it will become a buy again sometime. In the interim, I don’t believe there is anything wrong with long term investors accumulating at these levels. We are nearing what has been the traditional seasonal bottoms for micros, but who knows this year.
Comment by michael — 7/11/2008 @ 2:55 pm
This one is a bit amazing. They keep expanding even in a crummy economy. I agree with you, think it will make significant gains when the economy turns around.
Editor: We will simply have to wait for the next bull market for this one to get big legs again. In my view, eventually this stock will go on to make new highs.
Comment by Irvt — 7/8/2008 @ 6:48 pm