I have previously written about Noble Roman’s (OTC BB: NROM, $1.40) and its growth strategy of selling master franchise agreements (what it calls area developer agreements) and its strategy to sell dual-branded franchises (Noble Roman’s pizza and Toscano’s subs). I can now say that this strategy has utterly failed. To those who read my previous articles this should not be a surprise. I argued that this strategy was doomed to failure back on December 2, 2007 when the stock was priced at $2.48. I later criticized management for blaming franchisees for their failures. More recently, I mocked the company’s effort to hire an investment bank to sell itself, calling the company overvalued.
Noble Roman’s continues to falter. In the most recent quarter, Noble Roman’s did not sell any area developer agreements:
In addition, included in royalties and fees were approximately $360,000 in the three-month period ended March 31, 2007 and none in the three-month period ended March 31, 2008 for the sale of Area
Furthermore, initial franchise fees were down significantly:
Approximately $466,000 and $135,500 are included in royalty and fee income for the three- month periods ended March 31, 2007 and 2008, respectively, for initial franchise fees.
In my first article criticizing Noble Roman’s, I argued that if the company’s plans completely collapsed, it would struggle to earn $1 million per year. With 1st quarter earnings of $305,000, down from $662,000 in the year ago quarter (and down from $389,000 in the 4th quarter of last year), the company could quite possibly miss even my pessimistic earnings forecast.
Considering the company’s problems, I do not believe an investment in Noble Roman’s stock or the purchase of a Noble Roman’s or Toscano’s subs franchise would be a prudent decision.
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Disclosure: I have no position in NROM, long or short. I have a disclosure policy. All quotes above from the 1st quarter 2008 NROM 10Q.