Restaurant IPOs Suffer Indigestion

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Restaurant companies were among the hotter initial public offerings last year, but things have cooled down now that 2013's debutantes have failed to live up to the hype.

Papa Murphy's (FRSH) went public Friday. It should have been as hot as its oven-ready pizzas post-baking. Papa Murphy's watches over 1,418 franchise and company-owned locations, making it more than 20 times larger than its closest take 'n' bake competitor. At a time when many fast-food chains are struggling to grow at the store level, Papa Murphy's has posted positive comparable-store sales growth in 35 of its last 40 quarters, averaging a decent 4 percent uptick in comps during that span.

Revenue has grown quickly. Papa Murphy's has posted losses in recent years, but it would have been profitable in 2012 and 2013 if it wasn't for one-time accounting hits resulting from the early retirement of debt.

Papa Murphy's had all of the right ingredients to be a big winner last week, but it fell short. After the stock was assigned an initial pricing range between $11 and $13 leading up to the offering, underwriters settled to hit the market at the low end. The pre-baked pizza takeout giant went public at $11, closing at just $11.05 on its first day of trading.

That's as yawn-worthy as an IPO can get.

Blame It on the Wet Noodles

Investors were eating up restaurant IPOs last year, especially those toiling away in the fast-casual category, offering the quick-service convenience of fast food with the quality eats of casual dining. Noodles & Co. (NDLS) more than doubled the day that it went public 11 months ago. A few months later, Potbelly (PBPB) also rose sharply in its Wall Street debut.

It was in the wake of the market's appetite for growing eateries that Papa Murphy's filed to go public. If folks were warming up to a pasta boiler and a sandwich baker, why wouldn't they take to the darling of bake-at-home pizza takeout?

Unfortunately for Papa Murphy's, the enthusiasm for dining stocks died off after Noodles & Co. and Potbelly have turned in uninspiring rookie seasons. Noodles & Co. reported quarterly results just three days before Papa Murphy's report, and it wasn't pretty.

Revenue did climb 10 percent during the period, but that was solely the handiwork of brisk expansion. Noodles & Co. suffered a nearly 2 percent decline in comparable restaurant sales, and profitability fell short of expectations. The 394-unit chain that offers up pasta dishes in a wide range of global-cuisine varieties has now missed Wall Street's profit target in back-to-back quarters. Investors hate to see companies disappoint so early in their publicly traded lives.

Papa, Don't Preach

Potbelly hasn't fared a whole lot better. The stock has shed half of its value since peaking at $33.90 on its third day of trading.

%VIRTUAL-article-sponsoredlinks%Papa Murphy's can't be blamed for the shortfalls at Noodles & Co. and the sharp correction at Potbelly. However, market sentiment works in cahoots with industry cycles. Restaurant stocks were hot a year ago, and that helped fast-casual darlings Noodles & Co. and Potbelly score massive IPO paydays. Now that those darlings have turned, it's easy to see why even the otherwise-worthy Papa Murphy's is being ignored.

That's a shame. Papa Murphy's seems to be doing all of the right things. It's hard to fault the model. A whopping 95 percent of Papa Murphy's stores are owned by franchisees. It's a compelling business plan. There are no ovens to maintain, delivery drivers to hire and tables and wait staff to support. A Papa Murphy's can open in as little as 1,400 square feet of prep space, making it a prime candidate for all of the vacancies in strip mall shopping centers across the country.

In the end, Papa Murphy's IPO turned out to be a lot like its popular pies, in that the ingredients are there but it's going to have to heat up somewhere else for it to truly get tasty.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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12 Ways to Save Money on Food
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Restaurant IPOs Suffer Indigestion

This advice applies to adults and kids alike. Plan out your shopping list before you head to the grocery store so you’re not tempted by impulse buys, and let any children along for the ride know that you plan on sticking with that list. Small expenditures add up to big money, so try to avoid giving in to any last-minute requests.

If your children continue to insist that you purchase their requested items, then ask them to bring their own piggy bank money. Remind your children they are only allowed to pick something they can afford. It's good practice for grown-up budgeting.

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Stocking your freezer with frozen meals can help you save money on lunch, since they cost just about $5 each. It can even be a healthier option because they help you practice portion control. Just make sure you're purchasing meals that have no preservatives, and watch out for sodium levels.
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Most families throw away so much food on a weekly basis. A better idea is to turn your dinner leftovers into a lunchtime feast. Apps like BigOven help you use your leftovers to make yummy, new dishes. All you have to do is enter the ingredients you have, and the app will show you different recipe options for your leftovers. You'll save money using food that would have been thrown out.

If you know you have $400 to spend per month on your food budget, that's roughly $100 a week. Whether you shop once or twice per week or use cash or credit doesn't matter as long as you stay within your spending limits. Just be sure to only spend the amount you allotted per week.

Keep your shopping list in a set location so all members of the household can access it. Write estimated prices of the items you are going to buy next to each item on the checklist. It can serve a dual purpose as a price book you can use to guess how much you will spend.
If you've ordered from the kids menu at a restaurant recently, then you know how big the meals are – they're almost as big as meals for adults, and they can cost up to $10 each. If you have multiple children, an easy way to cut down on this expense is to have them share a meal. Not only does this lower the cost of feeding everyone, but it also cuts down on food waste.
Most stores are open late, and without the distraction of announcements, people and maybe even your kids, you can have your own Zen moment. When you are clearheaded, you're more likely to zone in on what you really need and leave out what you really don't. Plus, it's easier to give the cashier coupons without causing any delays for the people in line behind you.

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