1/ $MEX.L is a micro-cap, market-leading Mexican food chain in the UK. They released their interim results yesterday, and the stock fell 25% on the day.
Tortilla is a company I have written about in the Lone Wolves newsletter, so here is a quick update:
Tortilla is a company I have written about in the Lone Wolves newsletter, so here is a quick update:
2/ $MEX.L revenue increased by 30% to £26.9m (H1 FY21: £20.8m). LFL revenue growth of +19% (13% higher than CGA Peach of benchmark: +6%).
The company increased its opening rate of stores in FY23 to 12-15. They opened 10 in FY22 (18 if including the Chilango acquisition).
The company increased its opening rate of stores in FY23 to 12-15. They opened 10 in FY22 (18 if including the Chilango acquisition).
3/ With results like that, you may question the 25% decline in share price.
The negative market reaction most likely comes from the decline in margins. CEO Richard Morris stated gross margins will be down 300bps due mainly to inflationary price increases of protein.
The negative market reaction most likely comes from the decline in margins. CEO Richard Morris stated gross margins will be down 300bps due mainly to inflationary price increases of protein.
4/ A downtrend in the share price is not surprising, however, the amount it went down is somewhat baffling.
Shareholders should have been very aware that margins would take a hit with increased food costs, rising utility expenses & government grants stopping.
Shareholders should have been very aware that margins would take a hit with increased food costs, rising utility expenses & government grants stopping.
5/ Protein costs have risen ~40% and account for 1/3 of Tortilla's COGS. To only see a 300bps hit to gross margins, for a likely temporary problem isn't a huge concern in my opinion.
The increase in store roll-outs is a huge positive in my mind that the market has ignored.
The increase in store roll-outs is a huge positive in my mind that the market has ignored.
6/ The results for $MEX.L had some positives & more negatives. Considering the market environment & hit to margins, a decrease in share price was reasonable. But 25% is pretty crazy to me. Welcome to the volatile micro-cap world.
View my full write-up:
lonewolves.substack.com
View my full write-up:
lonewolves.substack.com
cc: @InvestmentTalkk, @davidhpolansky, @Mark_Chantler, would love to hear any of your opinions. Maybe I'm missing something.
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