Boston Chicken Inc
BOSTON CHICKEN, INC*
At the end of 1996, Boston Chicken was one of the hottest names on Wall Street. Operating in the highly competitive restaurant industry, the chain had grown from 18 stores in 1991 to over 1,000 stores in 1996 and in its short history had raised over $1 billion in public offerings. EPS had grown from just $0.06 in 1993 to $1.01 in 1996, representing an annual growth rate of well over 100%. At the end of 1996, Boston Chicken traded around $40, representing a price-earnings multiple of 40 and a market-book ratio of 3. The company's spectacular success was attributed to the leadership of a group of investors headed by Scott Beck, former vice chairman of Blockbuster Entertainment, who took control in 1992. Enthusiasm for the company in 1994 was summarized in The Washington Post as follows:
Perhaps no company better captures the spirit of the new economy than Boston Chicken Inc., the hottest of last year's hot stock offerings, which aims to do for the rotisserie what Col. Sanders did for the deep fryer. …. But Boston Chicken is not really about poultry - it is about developing a market-winning formula for picking real estate, designing stores, organizing a franchise operation and analyzing data.1
However, enthusiasm for the company was not universal. Doug Kass, research chief of brokerage J. W. Charles of Boca Raton, Fla. commented:
I wouldn't touch Boston Chicken with a 10-foot rotisserie spit. I'm concerned with some major accounting issues, excessive stock valuation, surging competition and heavy dependence on a single product.2
Boston Chicken's management staunchly defended the company against such criticism. CFO, Mark Stephens responded:
We've got great chicken, great side items, our accounting is fine, and we're growing like a weed. When you get a big profile, it's natural for people to shoot at you.
Boston Chicken also took two steps to reduce its reliance on rotisserie chicken in 1995. First, Boston Chicken extended its food
At the end of 1996, Boston Chicken was one of the hottest names on Wall Street. Operating in the highly competitive restaurant industry, the chain had grown from 18 stores in 1991 to over 1,000 stores in 1996 and in its short history had raised over $1 billion in public offerings. EPS had grown from just $0.06 in 1993 to $1.01 in 1996, representing an annual growth rate of well over 100%. At the end of 1996, Boston Chicken traded around $40, representing a price-earnings multiple of 40 and a market-book ratio of 3. The company's spectacular success was attributed to the leadership of a group of investors headed by Scott Beck, former vice chairman of Blockbuster Entertainment, who took control in 1992. Enthusiasm for the company in 1994 was summarized in The Washington Post as follows:
Perhaps no company better captures the spirit of the new economy than Boston Chicken Inc., the hottest of last year's hot stock offerings, which aims to do for the rotisserie what Col. Sanders did for the deep fryer. …. But Boston Chicken is not really about poultry - it is about developing a market-winning formula for picking real estate, designing stores, organizing a franchise operation and analyzing data.1
However, enthusiasm for the company was not universal. Doug Kass, research chief of brokerage J. W. Charles of Boca Raton, Fla. commented:
I wouldn't touch Boston Chicken with a 10-foot rotisserie spit. I'm concerned with some major accounting issues, excessive stock valuation, surging competition and heavy dependence on a single product.2
Boston Chicken's management staunchly defended the company against such criticism. CFO, Mark Stephens responded:
We've got great chicken, great side items, our accounting is fine, and we're growing like a weed. When you get a big profile, it's natural for people to shoot at you.
Boston Chicken also took two steps to reduce its reliance on rotisserie chicken in 1995. First, Boston Chicken extended its food