RCF 50 Index - Second Quarter 2007

THE ROSENBERG CENTER FRANCHISE 50 INDEX RECOVERS STRONGLY IN 2nd QUARTER 2007  

The Rosenberg Center Franchise 50 Index jumped 5.3 percent in the second quarter 2007, recovering strongly from its 1.1 percent decline in the first quarter 2007.  A generally favorable economic environment and a hot merger and acquisitions market drove up most financial markets, with the S&P 500 index shooting up 5.8 percent.  Real gross domestic product, the output of final goods and services produced domestically, rose 3.4 percent this quarter and the Federal Reserve Bank kept its target federal funds rate, the interest rate on overnight interbank loans – a rate that influences the cost of business and consumer loans, steady at 5.25 percent.  The residential real estate market, however, continued to be a drag and a risk for the economy. 

RCF 50 Index and S&P 500 Index

Miami-based Benihana Inc. (BNHN), the operator and franchisor of the nation’s largest chain of Japanese and sushi restaurants, was the best performer of the RCF 50 Index components this quarter.  Its market value soared 40 percent as investors bid up its shares following several positive developments.  The company announced double digit total restaurant sales growth and strong company-wide comparable restaurant sales and guest count growth.  It also declared it was developing more locations than at any other time in its 43 year history.  Finally, the company implemented a 3 for 2 stock split in June.    

Blockbuster Inc, (BBI), the operator and franchisor of video, DVD, and video game stores, tumbled 35 percent this quarter after reporting disappointing financial results for their first quarter 2007.  It incurred more losses than expected, its operating income turned negative due to high advertising and promotions costs, and its gross margins dropped significantly.  On the bright side, its revenues increased 5.4% and subscriptions to its fledgling online service almost doubled, signs that it was making progress in its efforts to fend off its rival Netflix.  Blockbuster also announced this quarter that it was planning to close 287 underperforming US stores and that it had sold Game Station, its UK-based games retailer for $150 million.  This would help it pay down its large debt.   

This quarter saw a rash of M&A announcements involving a number of franchise companies, including Starwood Hotels and Resorts Worldwide, Applebee’s, IHOP Restaurant,  Steak n Shake, Friendly’s Ice Cream Corp,  Outback Steakhouse, and Accor Hotels.

The RCF 50 Index is up 4.2 percent year-to-date through the end of June 2007.  It is up 90.0 percent since January 2000.

   Note:

1. The Rosenberg Center Franchise 50 Index, developed by the University of New Hampshire’s Rosenberg International Center of Franchising, is an index that tracks the market performance of the top 50 US public franchisors.  For more information on the RCF 50 Index, contact Dr. E. Hachemi Aliouche (Hachemi.Aliouche@unh.edu) or Dr. Udo Schlentrich (Udo.Schlentrich@unh.edu).  For more information on the Rosenberg International Center of Franchising, visit the Center’s web site at http://franchising.unh.edu.