Muscle Maker, Inc. Shares Surge 50% After Inking 40 Unit Deal For Flagship Brand Muscle Maker Grill (NASDAQ: GRIL)

November 03 07:32 2021

Undoubtedly, the COVID-19 pandemic was especially brutal on the restaurant and hospitality industry. But as is often the case in the face of adversity, some companies fare better than others. Muscle Maker, Inc. (NASDAQ: GRIL) indeed made the cut. In fact, they did better than making the cut. On Monday, GRIL provided an update showing that they are not only surviving but that they are thriving. A double dose of excellent news in as many weeks proves that point. 

On Monday, GRIL announced a deal to facilitate opening forty new Muscle Maker Grill locations resulting from its aggressive international expansion strategy. Indeed, it’s excellent news. And it sent GRIL shares higher by 50% to close on Monday at $1.67, which is its highest closing level since April of this year. Shares are holding over 41% of that increase during early trading on Tuesday.

Investors were correct to send the stock higher, and the surge on Monday may not be the end of the gains. That’s especially true as investors continue to search for sector winners. And after announcing that its parent company inked a second multi-unit international franchise deal, they fit the mold. Moreover, it’s a potentially massive revenue-generating deal by providing a Master Franchise Agreement (MFA) allowing for forty Muscle Maker Grill units in the Kingdom of Saudi Arabia. The agreement takes advantage of Saudi Arabia’s size and also expands the company’s international footprint by 400%. Its previously announced agreement set another MFA into action for ten Muscle Maker Grill locations in Kuwait. That puts up to fifty new units into the revenue-generating crosshairs. 

But, the goal is not to stop. And no one has said GRIL was even considering slowing down. They aren’t. Instead, GRIL intends to keep its international expansion momentum going by allowing its franchise partners to sell additional units in packs of ten and keep the group responsible for all facets of development for new locations in Saudi Arabia, including but not limited to opening, training, distribution, operations, and marketing. Hence, starting as a single New Jersey restaurant location, GRIL is now an international company in motion. Better still, they are tapping into markets that have demand for what GRIL is cooking.

Expansion Into Middle East

Indeed, GRIL management should be commended. In a ridiculous environment for hospitality stocks, they took a challenge, turned it into an opportunity, and then won. In fact, the two recent deals quadruple Muscle Maker Grill’s future presence in the Middle East and target an expected $1.3 billion fitness service market for people wanting “healthier for you options” in the Kingdom of Saudi Arabia. Even better, beyond that massive 2022 market size, it’s expected to grow substantially in the next three years following a global move toward healthier, organic, and sustainable food options.

The franchise partner is a winner as well. Beyond being enthusiastic on a business level, they expect success from bringing to the market a “healthier for you” dining alternative that doesn’t sacrifice taste. They should know, having opened two units in Salmiya and Mubarak Alkabir Governorate Kuwait. Most importantly, their optimism can benefit GRIL, especially with the restaurants well received locally and the team well-positioned to expand its presence in Kuwait and Saudi Arabia.

For GRIL, that news is exciting. Notable, too, Muscle Maker Grill has taken its New Jersey roots to a global stage. 

New Jersey Born, Enjoyed Globally

The better news is that the stage may get bigger. And while expansion into the Middle East probably wasn’t on the initial plan-o-gram, growth was always an intention. Founded in 1995 in Colonia, New Jersey, its brands embrace “healthier for you” high quality, great-tasting food, freshly prepared with proprietary recipes. And the more excellent news is that GRIL is no longer a single brand company. In addition to its Muscle Maker Grill, the company is earning success with two other brands.

Its first is SuperFit Foods, a Florida based, fresh-prepared meal prep company focused on delivering dietary-specific meals usually provided to local gyms and wellness centers or directly to customers’ doors. And keeping true to a company mission, it too works off a concept to promote fresh-prepared “healthier for you” meals in a centrally located kitchen in Jacksonville, FL. Moreover, by leveraging the versatility of a “ghost kitchen” concept, SuperFit Foods can expand its market presence quickly and position itself to surpass the more than 220,000 meals served in 2020.

Another brand penetrating the markets is Pokemoto. This brand is taking advantage of a surge in Hawaiian food popularity across the country. And already, its fresh ingredient poke bowl concept has become a multi-unit operation. Most recently, the company opened four stores opening around the Northern Virginia Community College campus. But, with Pokemoto featuring fresh Atlantic salmon, sushi-grade tuna, fresh fruits and vegetables, and propriety recipes, they expect additional locations to meet similar demand outside of campus locations.

Both brands and concepts add to its flagship brand momentum. Still, the most excellent news is that all of its brands are doing well. In fact, all tolled, GRIL posted a more than impressive 229% in Q2 revenues that ended June 30, 2021. Keep in mind those revenues came during one of the most challenging times in industry history. Not only were logistical channels near a stand-still, but consumers were mostly unable to dine in at locations. But, despite the industry-wide slowdown, the triple-digit percentage gains show GRIL management navigated the challenges exceptionally well.

The better news is that revenue contributions came from each brand, with recently acquired Pokemoto and Superfit Foods brands contributing to top-line revenue. Better yet, guidance is also bullish. GRIL management expects its acquisitions to provide near-term expansion opportunities in the ready-made healthy meal prep segment and trending Hawaiian Poke cuisine areas. Proving that point, GRIL has also announced additional franchise agreements.

It’s a three-location deal for Pokemoto in the Massachusetts market. But, the more excellent news is that the team thinks that deal is the first of many. That’s because, in addition to Hawaiian poke exploding in popularity, the Pokemoto franchising model is accessible to many entrepreneurs because of its low build-out and labor costs, ease of operations, small footprints, and support from an experienced franchise management team. Thus, GRIL believes they have a formulation for success. And those that understand franchising know that when an owner is happy with one, they usually want more. Hence, combining its low-cost feature with high margin sales, the trend for Pokemoto unit growth can appreciably steepen, making GRIL potentially right in their assumption.

Still, investors want more than great assets; they want to know their companies can earn profits. The excellent news there is that GRIL is on track to making that happen. 

Stage Set To Accelerate Growth 

Looking back to 2020 as a more normalized apples-to-apples sales comparison, GRIL posted more than $8 million in sales that generated an impressive EBITDA of roughly $1.46 million. And while being EBITDA positive is a rare feat for micro-caps, the more excellent news is that GRIL is getting even stronger. In fact, with easing COVID restrictions coupled with performing assets and a sharp increase in franchising agreements, GRIL could beat last year’s extraordinary top-line growth. Of course, its Q2 growth of 229% helps blaze a trail toward that mission. Remember, that spike came during nationwide shutdowns. Now, benefiting from a market where consumers are out to enjoy their favorites, there is potential to exceed even the highest revenue guidance.

So, from an investor’s perspective, management is doing the right things at the right time to put its current $1.67 share price in the rearview mirror. And with investors getting more confident that the hospitality sector won’t get hit again by unmanageable COVID restrictions, seeing share prices trend back toward their 52-week high of $3.70 is not an unreasonable presumption. Notably, GRIL stock traded at $2.20 intraday on Monday before closing at the $1.67 level. Volume was 30X its average 244K share pace. There’s a message there as well.

In fact, there are several messages given. And all of them are good. The most important one, though, is that GRIL is back in a hyper-growth mode. That’s justified by sales jumping from roughly $3.6 million in 2019 to approximately $8.1 million in 2020. EBITDA increased as well. Now, with two quarters of 2021 in the books, and another expected to be reported this month, combined sales, despite absurd market conditions, could put revenues on a trajectory to beat last year’s roughly 100% YoY increase.

Paying For Growth

And keep in mind, investors are looking for growth and are willing to pay a premium to own it. Thus, with GRIL showing an ability to deliver growth during the most challenging times, the increased attention provided on Monday could be the precursor of more to come. 

Thus, for those wanting a bottom-line consideration, here’s one- Stay long on GRIL. They own premium brands, post surging revenues despite challenging markets, generate positive EBIDTA, and have a management team that can successfully navigate challenging markets. In simple terms, GRIL presents an excellent all-around investment proposition. 

Hence, with better hospitality markets expected in Q4 and all of 2022, at current levels, investors should be more than hungry for GRIL stock; they should be ravenous.


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