Bojangles’ is sputtering two-plus years after going public. What’s wrong?

Bojangles’ is sputtering two-plus years after going public. What’s wrong?
Anita Block holds out a freshly baked biscuit that she made from scratch at a Charlotte Bojangles’ on June 1, 2017. (Credit: Alex Kormann | The Charlotte Observer)
Anita Block holds out a freshly baked biscuit that she made from scratch at a Charlotte Bojangles’ on June 1, 2017. (Credit: Alex Kormann | The Charlotte Observer)

CHARLOTTE, N.C. (Katherine Peralta | The Charlotte Observer) - When Charlotte-based Bojangles' went public in May 2015, more than 100 of the company's executives, workers and their families were in New York handing out Cajun chicken filets and ham, egg and cheese biscuits for breakfast at the Nasdaq in Times Square.

Investors salivated at the chicken-and-biscuits brand: Bojangles' initial public offering raised around $147 million, with shares priced at $19. By the closing bell on the day of the IPO, the stock was up 25 percent.

At the time, the company laid out a careful growth plan: Fill out its core in the Carolinas, then expand into adjacent markets. Some new areas that Bojangles' has announced plans for include Washington, D.C., Cincinnati, Ohio; and Evansville, Ind.

But more than two years later, things seem to have sputtered.

The company's share prices plummeted nearly 37 percent last year. Same-store sales, a key metric that gauges a retailer's health, declined 2.2 percent in the third quarter. And the company's net income plummeted nearly 30 percent over the same three-month period.

Experts, however, say the entire industry is facing similar challenges. Large fast-food chains like Taco Bell and McDonald's are heavily reliant on promotions and specials, so regional chains like Bojangles' have started discounting, too. Operating costs are up industry-wide, so margins are thin.

During the company's third-quarter conference call with analysts in November, Bojangles' CEO Clifton Rutledge acknowledged the challenges facing the company, which got its start in Charlotte in 1977.

"The persistent headwinds affecting our industry, they're significant," Rutledge said. "Consumer spending remains soft, and it appears those with lower household incomes have been impacted more than others. The competition from convenience and grocery store is still a concern for many."

Bojangles' spokesman Brian Little said the company, which is in a "silent period" ahead of its fourth-quarter earnings report, does not comment on the stock price.

After once climbing as high as nearly $28 on the day of its IPO, Bojangles' shares are now trading for less than $13, hovering a little above an all-time low. So far in 2018, shares are showing improvement, climbing more than 5 percent.

Testing delivery 

Customers today are looking more often for convenience, whether it's through a quick visit, a low-cost menu or delivery, which is becoming increasingly popular, said Bonnie Riggs, a restaurant industry analyst for the NPD Group.

"If you're going to grow your business, you have to address convenience needs in the marketplace," Riggs said.

Last November, after reporting its disappointing third-quarter results, Bojangles' said it would be testing a delivery service in Charlotte. The company will expand the program if it results in an uptick in sales, Rutledge said.

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Already, Bojangles' delivery is available through several third-party services, including Postmates, Doordash and GrubHub.

Riggs also said Bojangles' could benefit from more menu innovation. Chicken and biscuits have always been the company's bread and butter, so to speak. And breakfast has always been a bright spot for Bojangles', comprising nearly 40 percent of its sales.

Bojangles' is looking at lighter fare, or the "better-for-you-category," but it's not a big part of the quick-service restaurant business overall, according to Andy Barish, a managing director and senior equity research analyst at Jefferies.

"People understand that Bojangles' food is about quality and authenticity. That means a lot to consumers," Barish said.

On a typical weekday morning at a Bojangles' in Charlotte, you'd probably never guess that anything is amiss with the company.

After the early morning rush hour this week at the Bojangles' on West Boulevard and South Tryon, lines of customers moved quickly through, construction workers sat in clusters with trays full of biscuits and coffee, chicken sizzled on friers behind the counter. In North Carolina, breakfast at Bojangles' has a cult following, and it's part of many folks' regular routine.

That's not necessarily the case everywhere. Experts said the company has experienced weaker-than-expected sales especially in some of its newer markets. Slowing down the company's pace of growth makes sense, Riggs said, if the company has more restaurants than necessary.

"(There are) more restaurants than we have bodies to fill them. Consumers still make visits to restaurants but they're not visiting them as often," Riggs said.

Bojangles' said in November it will open fewer company-owned restaurants as it expands, and rely instead on franchisees, which the company sees as less risky, Barish said.