In Fidelity National Financial’s (FNFV) latest earnings call, management revealed that it was reviewing its spinoff of American Blue Ribbon Holding, its conglomeration of casual and mid-scale dining concepts, including the Village Inn, O’Charley’s, and Ninety Nine. The unit was slated to be spun by the end of the year, but with same-store sales up an anemic 1% in the quarter, it looks like management is studying the issue again. The delay comes amid the market’s poor reception of J. Alexander’s (JAX), which Fidelity spun just a few months ago.
The performance of ABRH’s key three concepts was a mixed bag. Ninety Nine put up 3.9% comps on its way to a 10th straight quarter of SSS gains. Village Inn posted 0.4% comps, extending its streak to 23 straight quarters. However, O’Charley’s flat comps snapped a streak of 7 quarters of gains. Overall, ABRH saw sales growth of 5%, but EBITDA actually declined year over year from $14 million to $11 million. Again, not a great sign, given management’s focus on raising margins at ABRH.
If J. Alexander’s – the high-performing spinoff from FNFV – receives a wimpy 7x EBITDA valuation from the market, what would ABRH earn? The poor reception must have management scratching its head and going back to the drawing board to engineer a means of getting a better valuation on ABRH. Potential measures include spinning off up to three separate restaurant companies. Management basically rejected the idea of selling the unit because of its low cost basis, suggesting that any buyer would have to pay a high price to overcome the effect of taxes.
I expect continued spinoffs from FNFV, itself a tracking stock spinoff, whether now or later. But I’m sure management is frustrated with the reception to J. Alexander’s and doesn’t want a repeat with ABRH, a much less stellar performer.