Newsletter

Home Page : www.otcjournal.com
Email Questions or Comments To: editor@otcjournal.com

To OTC Journal Members:

Spicy Pickle (OTC BB: SPKL) Mid Year Update: Growth in a No-Growth World

A lot of you have been asking for an update on Spicy Pickle, so here you go. The company accommodated with a mid year update.

Spicy Pickle provided investors with a mid year update yesterday after the close, and it's far from all bad news. In fact, I would characterize the company as doing "OK", or perhaps a little better than "OK". Why- because while most fast casual restaurant chains are closing locations this year, SPKL will in fact grow.

It's not going to grow at anywhere near the torrid pace the company achieved in 2007- it's breakthrough year. If there had been just one more year of '07 growth before the recession hit, the company would be cranking out positive cash flow now. It's not, and it's Q2 numbers are going to be a micro version of many other US companies.

Here's a quick overview of what's happening. The past May, the first of restaurant of a 10 unit development package opened in Houston. A new restaurant is opening in Naperville, IL in the next two weeks. Before year's end, there will be new stores opening in Las Vegas (2nd of 4), Temecula, Ca, and San Diego, where the franchisee is looking for a 3rd site to complement the one currently opened and the new location. The Chicago franchisee is seeking a 2nd location of 5 as well.

SPKL also disclosed it was in negotiations for a location in Denver's Pepsi center- home of the Colorado Avalanche (NHL) and Denver Nuggets (NBA), and many concerts and other entertainment events.

On the very positive side, the Canadian based Bread Garden Urban Cafes is on a torrid expansion pace- matching the 2007 performance on Spicy Pickle in 2007.

Bread Garden Urban Cafes recently opened in Terminal C of the Vancouver airport and the Kamloops Airport. This positions the Bread Garden concept for significant exposure during the upcoming Winter Olympic games. And, speaking of the Winter Olympics- Bread Garden is also opening at Whistler Mountain where the Alpine events will be held, along with another location in downtown Vancouver.

In all, there are currently 13 Bread Gardens opened and operating- there are 4 currently under construction, and numerous leases in negotiation. As of today, by year's end there will be 42 Spicy Pickles and 17 Bread Gardens based on what's open and under construction. Total- 59 operating restaurants as a near certainty.

There's one more wild card. There is a Bread Garden Urban Cafe open and operating in Australia. The company does not mention the restaurant in it's filings as it is an "experimental" version. The operator is not paying a royalty to the parent company. However, the operator has opened at this location as an experiment with an eye towards becoming the "Master Franchisor" for all of Australia if the Australian consumer embraces the concept.

Now, on to Q2 numbers. Here's what you're likely to see. Top line growth year over year, but not much quarter over quarter. Significantly lowered costs due to cost cutting measures at the corporate level.

Slowly but surely the top line will start to improve later this year and into next. The Bread Garden chain in Western Canada is accelerating rapidly and will continue to do so. Stateside, Spicy Pickle will enjoy some growth, but if it begins to accelerate, the company is now in a position to turn cash flow positive in pretty short order.

As I said- their story is a micro version of many US based company's mired in the nastiest recession since the Great Depression. This past week Intel (NASDAQ: INTC) beat earnings estimates handily by delivering a better number than expected- it wasn't top line growth- it was cost cutting that delivered the improved bottom line.

Cost cutting at the corporate level along with moderate growth has SPKL closing in on the promised land of operating cash flow positive. It's near at hand, but not quite there yet.

I assume cash reserves will be thin when we see the next 10Q, but the company is bootstrapping it's way through this year, and better times are certainly ahead.

The current market cap is only about $8.5 million. That's about $144k per restaurant. With a little more expansion, this stock could easily trade at a $25 million market value- especially if and when the company turns cash flow positive.

This offers about a triple from the current levels. However, it's only for investors with the stomach to be longer term and a willingness to accumulate. The stock trades rather anemically from it's late 2007 hay day, and patience will be required. I suspect volume, liquidity, and upside movement will come back later this year. As you can see from the chart, the stock is blown up and blown out, so it won't take a lot of pressure to get it going to the upside.

Here's the full text of today's news:

Spicy Pickle Updates Current Operations

Spicy Pickle Franchising, Inc. (OTC.BB:SPKL - News), fast casual restaurant operator serving all natural premium meat and poultry and other fresh products and franchisor under its Spicy Pickle and Bread Garden Urban Caf? brands, today updated its outlook for 2009.

Spicy Pickle CEO Marc Geman noted that "Like most restaurant chains and retail in general, the last quarter of 2008 and the first half of this year were difficult times due to the downturn in consumer spending. Our reaction to the reduced spending and increasing unemployment was to reduce our overhead to prepare for a slower anticipated growth rate. We refocused on unit economics based on changing customer habits. In the beginning of the fourth quarter 2008, we completed the purchase of our Bread Garden Urban Caf? chain in British Columbia believing that its growth rate would in the short to medium term outpace US opportunities. That has been the case."

As to company operations and those of its franchisees, Mr. Geman noted that in late May 2009 a franchisee in Houston, Texas opened their first restaurant; and another franchisee has completed construction and will open a restaurant in Naperville, Illinois late July 2009. The Houston restaurant is part of a ten unit development and the franchisee expects to open a second restaurant by the end of this year. The Naperville restaurant is part of a five unit development package. Additional restaurants are anticipated to open in 2009 in Las Vegas, Nevada that is a second in a four unit franchisee development package; in Temecula, California for a new franchisee who is also looking to open another unit; in Chicago as a second restaurant in a five unit development package; and in San Diego where the franchisee has now moved forward with a second location and is looking at a third site. The company has also been negotiating for a location in the Pepsi Center in Denver, Colorado, home of the Colorado Avalanche NHL hockey team and the Denver Nuggets NBA basketball team. A Spicy Pickle franchisee closed two units in Michigan, he added.

Mr. Geman continued, "The Bread Garden Urban Caf?s continued to open new restaurants and new locations are under negotiation. At this date, there are 13 Bread Garden Urban Caf?s operating in British Columbia. Two are airport locations, one in Kamloops, BC and the other in the newly opened C Terminal serving Air Canada at the Vancouver Airport which opened in early July 2009. Build-outs for three additional locations are underway in downtown Vancouver and another at Whistler Mountain. Several additional locations are under negotiation."

Mr. Geman noted, "The continued expansion of our Bread Garden Urban Caf?s throughout greater Vancouver and up to Whistler Mountain, out to Kamloops and other British Columbia locations under negotiation, have exceeded our growth expectations and should result in significant additional revenue for The Company as we approach the end of this year. Our reduced overhead along with the anticipated Spicy Pickle and Bread Garden Urban Caf? restaurant openings in the remainder of 2009 puts us in a much better position to continue to weather the economic storm. In addition, we expect to be prepared with new menu and restaurant features to address a more cautious and discriminating consumer which we believe will be the customer of the future. We expect to have at least 42 Spicy Pickle restaurants and 17 Bread Garden Urban Caf?s opened by year end."

About Spicy Pickle(TM):

Founded in 1999, Spicy Pickle Franchising, Inc. (OTC.BB:SPKL - News) serves high quality meats and fine artisan breads, baked fresh daily, along with a wide choice of eight different cheeses, twenty-two different toppings, and fourteen proprietary spreads to create healthy and delicious panini and sub sandwiches with flavors from around the world. As a leading "fast-casual" concept, Spicy Pickle offers menu items that are far beyond traditional fast food but without the price point of casual dining. The hallmark of a Spicy Pickle restaurant is quality, service and an enjoyable atmosphere. The company is headquartered in Denver, Colorado, with restaurants open across 11 states and more in development nationwide. Spicy Pickle Franchising, Inc. also operates as franchisor for Bread Garden Urban Caf?s, a concept with restaurants in the metropolitan Vancouver, Canada area. Bread Garden Urban Caf?s serve coffee, pastries and breakfast items as well as lunch and dinner along with a wide variety of desserts. To find out more about Spicy Pickle (OTC.BB:SPKL - News), visit our website at www.spicypickle.com.

Forward-Looking Statements:

Certain statements in this press release, including statements regarding the number of restaurants we intend to open, are forward-looking statements. We use words such as "anticipate," "believe," "could," "should," "estimate," "expect," "intend," "may," "predict," "project," "target," and similar terms and phrases, including references to assumptions, to identify forward-looking statements. The forward-looking statements in this press release are based on information available to us as of the date any such statements are made and we assume no obligation to update these forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those described in the statements. These risks and uncertainties include, but are not limited to, the following: factors that could affect our ability to achieve and manage our planned expansion, such as the availability of a sufficient number of suitable new restaurant sites and the availability of qualified franchisees and employees; risks relating to our expansion into new markets; the risk of food-borne illnesses and other health concerns about our food products; changes in the availability and costs of food; changes in consumer preferences, general economic conditions or consumer discretionary spending; the impact of federal, state or local government regulations relating to our franchisees and employees, and the sale of food or alcoholic beverages; the impact of litigation; our ability to protect our name and logo and other proprietary information; the potential effects of inclement weather; the effect of competition in the restaurant industry; and other risk factors described from time to time in our SEC reports.

Contact:
Company Contacts:
Marc Geman
Spicy Pickle Franchising, Inc.
Email Contact
www.spicypickle.com
(303) 297-1902
Woody Wallace
The Investor Relations Company
Email Contact
312-245-2700