**Giggles N Hugs Could Have Investors Laughing All the Way to the Bank (GIGL, CEC, APO, MCD)**
Restaurants like McDonald's and Chuck E Cheese are known for attracting kids, but neither does it as well as Giggle N Hugs does... and where there's a crowd of kids, money follows.
By Bryan Murphy
When one thinks of kid-oriented restaurants, the bulk of the time it's Chuck E Cheese -formerly traded as CEC Entertainment Inc. (NYSE:CEC) but now wholly owned by Apollo Global Management LLC (NYSE:APO) - that comes to mind first. And, for good reason. Chuck E Cheese is billed as a place "where a kid can be a kid", partaking in all sorts of ride-ons, games, and costumed characters. McDonald's Corporation (NYSE:MCD) has to be a close second in terms of kid-friendliness, though. After all, technically speaking, McDonald's is the world's biggest distributor of toys, and the bulk of the marketing effort is aimed at getting kids to talk parents into visiting.
There's another name on the landscape of children's restaurants, however, and it may well become the model that Apollo Global Management wants to follow with its Chuck E Cheese franchise, and it may well be something McDonald's Corporation wants to emulate. That company? Giggles N Hugs Inc. (OTCMKTS:GIGL).
Don't sweat it if you haven't heard of it, as there are only three Giggles N Hugs locales right now, all near Los Angeles, California. If all goes as the company plans, though, there could be as many as 12 Giggles N Hugs up and running by the end of 2017.
As for the concept, the easiest comparison to make is to your typical Chuck E Cheese. The three locations have a large play area, and serve food. It's not an adequate comparison though, for a variety of reasons.
First and foremost, the food is much healthier at Giggles N Hugs than one would expect from a typical kid-oriented restaurant. Wraps are pushed rather than burgers, and gourmet mac-and-cheese is displaces French fries. Fresh - and organic - options are served whenever possible.
It's not just the food that's a fresh alternative to often-greasy pizza at Giggles N Hugs, however. This chain also serves alcohol to adults. Don't think "bar", because that's not what it is. The chain imposes a strict two-drink limit on everyone, ensuring the visit remains kid-friendly; no parent has complained once about the limitation.
It's not just the menu that makes GIGL a compelling and unique investment, however. The play itself is healthier. Whereas the average Chuck E Cheese is geared up to encourage kids to play video games or skill games on their own, win tickets, and exchange them for prizes, the play at Giggles N Hugs is physical activity.... ball pits, bouncies, and climb-ons. The employees also host story time, and a trained attendant is always around to facilitate fun and fair play-time.
It's a unique idea to be sure, but it's an idea whose time has come. The Chuck E Cheese concept is still stuck in the 90's (maybe even the 80's), and the McDonald's menu is starting to scare even the most unconcerned parents. Healthier diets and healthy social time are quickly becoming the norm, and GIGL is on the cutting edge of both of those trends.
Just as tasty as the food is the opportunity in the table for investors.
Restaurants can be an expensive business, sometimes taking years for a new unit to pay for itself. The Chuck E Cheese company hasn't experienced a long wait before seeing a positive ROI, however. In fact, thanks to concessions often given to the company by new landlords, it's only taken a little over two years for GIGL to recoup its initial expenses for a new location. Past that, all the operating profit is also pure profit. The biggest of these concessions? Mall operators like General Growth Properties and Westfield have been agreeing to pay an average of about 60% of a new store's buildout cost, which is around $1.2 million. Effectively cut in half, operating profits only need to cover about half of that cost. That makes the ROI quick to turn positive.
To that end, the payback on the investment of roughly $775,000 for new restaurants usually happens right after the beginning of the third year. After that, positive EBITDA emergnes, and margins can exceed 15%. This isn't just great by restaurant standards - it's great for any new business in any industry. But, we're seeing it start to happen for the company. In the last two quarters of last year and the first quarter of this year, the company was operationally profitable, while Q2 of this year was quite close. As the company continues to increase scale and discover where it can cut more expenses, operational profits will become the norm.
As for the future, if Giggles N Hugs can get a total of 12 units in place and operational, within the next four years, it should translate into annual revenue of about $16 million. That's not bad for a company with a market cap currently around $7.8 million.
For more on Giggles N Hugs Inc., visit the SCN research page here.
http://www.smallcapnetwork.com/Giggles-N-Hugs.../2/id/202/
Restaurants like McDonald's and Chuck E Cheese are known for attracting kids, but neither does it as well as Giggle N Hugs does... and where there's a crowd of kids, money follows.
By Bryan Murphy
When one thinks of kid-oriented restaurants, the bulk of the time it's Chuck E Cheese -formerly traded as CEC Entertainment Inc. (NYSE:CEC) but now wholly owned by Apollo Global Management LLC (NYSE:APO) - that comes to mind first. And, for good reason. Chuck E Cheese is billed as a place "where a kid can be a kid", partaking in all sorts of ride-ons, games, and costumed characters. McDonald's Corporation (NYSE:MCD) has to be a close second in terms of kid-friendliness, though. After all, technically speaking, McDonald's is the world's biggest distributor of toys, and the bulk of the marketing effort is aimed at getting kids to talk parents into visiting.
There's another name on the landscape of children's restaurants, however, and it may well become the model that Apollo Global Management wants to follow with its Chuck E Cheese franchise, and it may well be something McDonald's Corporation wants to emulate. That company? Giggles N Hugs Inc. (OTCMKTS:GIGL).
Don't sweat it if you haven't heard of it, as there are only three Giggles N Hugs locales right now, all near Los Angeles, California. If all goes as the company plans, though, there could be as many as 12 Giggles N Hugs up and running by the end of 2017.
As for the concept, the easiest comparison to make is to your typical Chuck E Cheese. The three locations have a large play area, and serve food. It's not an adequate comparison though, for a variety of reasons.
First and foremost, the food is much healthier at Giggles N Hugs than one would expect from a typical kid-oriented restaurant. Wraps are pushed rather than burgers, and gourmet mac-and-cheese is displaces French fries. Fresh - and organic - options are served whenever possible.
It's not just the food that's a fresh alternative to often-greasy pizza at Giggles N Hugs, however. This chain also serves alcohol to adults. Don't think "bar", because that's not what it is. The chain imposes a strict two-drink limit on everyone, ensuring the visit remains kid-friendly; no parent has complained once about the limitation.
It's not just the menu that makes GIGL a compelling and unique investment, however. The play itself is healthier. Whereas the average Chuck E Cheese is geared up to encourage kids to play video games or skill games on their own, win tickets, and exchange them for prizes, the play at Giggles N Hugs is physical activity.... ball pits, bouncies, and climb-ons. The employees also host story time, and a trained attendant is always around to facilitate fun and fair play-time.
It's a unique idea to be sure, but it's an idea whose time has come. The Chuck E Cheese concept is still stuck in the 90's (maybe even the 80's), and the McDonald's menu is starting to scare even the most unconcerned parents. Healthier diets and healthy social time are quickly becoming the norm, and GIGL is on the cutting edge of both of those trends.
Just as tasty as the food is the opportunity in the table for investors.
Restaurants can be an expensive business, sometimes taking years for a new unit to pay for itself. The Chuck E Cheese company hasn't experienced a long wait before seeing a positive ROI, however. In fact, thanks to concessions often given to the company by new landlords, it's only taken a little over two years for GIGL to recoup its initial expenses for a new location. Past that, all the operating profit is also pure profit. The biggest of these concessions? Mall operators like General Growth Properties and Westfield have been agreeing to pay an average of about 60% of a new store's buildout cost, which is around $1.2 million. Effectively cut in half, operating profits only need to cover about half of that cost. That makes the ROI quick to turn positive.
To that end, the payback on the investment of roughly $775,000 for new restaurants usually happens right after the beginning of the third year. After that, positive EBITDA emergnes, and margins can exceed 15%. This isn't just great by restaurant standards - it's great for any new business in any industry. But, we're seeing it start to happen for the company. In the last two quarters of last year and the first quarter of this year, the company was operationally profitable, while Q2 of this year was quite close. As the company continues to increase scale and discover where it can cut more expenses, operational profits will become the norm.
As for the future, if Giggles N Hugs can get a total of 12 units in place and operational, within the next four years, it should translate into annual revenue of about $16 million. That's not bad for a company with a market cap currently around $7.8 million.
For more on Giggles N Hugs Inc., visit the SCN research page here.
http://www.smallcapnetwork.com/Giggles-N-Hugs.../2/id/202/
3
