My 2016 Year in Review is going to be really easy because I didn’t make any changes in 2016. I added a small amount of GTIM early in the year, but that was it. I was down around 34% in 2016, compared to the S&P 500 which gained 12%.
I continue to hold all my GTIM, I have not sold a share. I think my investment thesis is still intact. Fundamentals have become a little tougher in the industry, and sentiment towards the industry has become decidedly worse, but I think GTIM continues to perform largely as management indicated they would. GTIM is a young growth story in the sector, taking share from the larger players, so I do not think their growth is as dependent on the macro conditions in the industry.
Importantly, same store sales, average weekly unit volumes, and restaurant margins at Bad Daddy’s are still at management’s target model in this tougher environment. 2017 guidance for new store openings and revenue are still on track, despite the company deciding to shift planned new openings from the Phoenix market to the Midwest and Southeast instead due to a minimum wage/health care law that was passed in Arizona.
I think the next 12-24 months will be key for GTIM. If new markets perform as expected, then the Bad Daddy’s concept will have proven itself in roughly a dozen metropolitan markets in roughly a half dozen states, with no reason to think that the concept cannot continue to expand nationwide. As revenues, margins, and profits continue to grow, I would expect GTIM’s multiple to expand. If new markets do not perform as expected, then it would be cause for me to reevaluate my investment thesis in GTIM.