Video Rental Stores Suffer
On Popular Pizza And A Movie Night
Papa John’s Is Piping Hot in Rosenberg
Center Franchise 50 Index
While Blockbuster Comes Up Cold as Consumers Move to New Rental
Contact: Lori Wright
UNH Media Relations
Nov. 22, 2005
Editors: Director Udo Schlentrich and senior research fellow
Hachemi Aliouche of UNH William Rosenberg International Center of
Franchising, are available to discuss the Franchise 50 Index™
Q3 2005 report. Udo Schlentrich can be reached at 603-862-0137 or
Aliouche can be reached at 603-387-5750 or firstname.lastname@example.org.
DURHAM, N.H. – The popular family pizza and a movie night
no longer includes an automatic trip to the video rental store.
Consumers are still eating the ‘zah, with Papa John’s
posting the second-best performance in the Rosenberg Center Franchise
50 in the third quarter of 2005 with a 29.7 percent gain, but they’re
more apt to rent the movie online or pay for it through an on-demand
service. Blockbuster was the biggest loser in the third quarter,
with a 48.2 percent decline in market value.
The Rosenberg Center Franchise 50 Index™, developed by The
William Rosenberg International Center of Franchising at the University
of New Hampshire Whittemore School of Business and Economics, is
an index that tracks the market performance of the top 50 U.S. public
franchisors. These 50 franchisors represent more than 98 percent
of the market capitalization of all U.S. public companies engaged
in business format franchising.
Overall, the Rosenberg Center Franchise 50 dropped 1.6 percent this
quarter as most of the hotel components dropped sharply (e.g. Marriott
International down 10.2 percent, Hilton Hotels down 6.5 percent).
The hotel sector was hard hit by high gas prices, increasing interest
rates, and the threat of hurricanes. The S&P 500 Index was up
3.1 percent led by the strong performances of energy companies (+20
percent), and utilities (over 7 percent). The RCF 50 Index is down
0.9 percent year-to-date 2005. It is up 51 percent since January
2000, while the S&P 500 is down 11.9 percent over the same period.
Of the 50 components comprising the Franchise 50 Index, 32 were
down while 18 were up this quarter. CDI Inc. led the winners with
a 34.9 percent jump, followed by Papa John’s International
(29.7 percent), and TBC Corporation (27.3 percent). Blockbuster
Inc. (-48.2 percent), Red Robbins Gourmet Burgers Inc. (-26 percent),
and CEC Entertainment Inc. (-24.7 percent) lost the most market
value this quarter.
With a 34.9 percent gain, CDI Corporation (CDI) is the best performer
of the index this quarter. CDI provides engineering and information
technology outsourcing solutions, professional services, staffing
and permanent placement services, and franchise services in the
United States, Canada, and Europe. CDI is the parent of the franchise
company Management Recruiters International (MRI), the world’s
largest search and recruitment organization. MRI has more than 1,300
“This quarter CDI experienced significant new customer wins
and an increase in the productivity of its recruiters and sales
personnel. For example, CDI announced a three-year contract with
IBM with an incremental annual revenue in the range of $75 million
to $110 million. MRI performed even better than the company as a
whole. Its revenues grew 10.8 percent sequentially, driven by strong
royalty growth of 13.3 percent. This led to a 15 percent sequential
growth in its operating profits,” according to the researchers.
Papa John's International (PZZA), the operator and franchisor of
pizza delivery and carry-out restaurants, was the second-best performer
with a 29.7 percent gain in market value. According to the researchers,
a number of factors contributed to this strong showing: much improved
financial results, increasing domestic system-wide comparable sales,
and significant cash generated from operations.
“Of much significance to investors, Papa John’s International
increased again its earnings guidance, and raised the authorization
for its stock repurchase program to $500 million. It continued its
expansion in China with the planned opening of two more restaurants,
bringing the number of its restaurants to 15 in Shanghai and five
in Peking. It plans to open 250 new restaurants in China over the
next five years. In September, it introduced Papa's Perfect Pan
pizza, the largest new product roll-out in the company's history
and the first new crust it has offered in about 10 years. It has
enlisted the services of football Hall of Famer Dan Marino to launch
this new product,” according to the researchers.
The bad news continued for Blockbuster Inc. (BBI), the worst performer
this quarter. Blockbuster, one of the world’s leading operator
and franchisor of video, DVD, and video game stores, lost 48.2 percent
of its market value as concerns over the sustainability of its core
business and its ability to meet its financial obligations mounted.
The company posted a $57.2 million loss, down from a $48.6 million
profit a year ago, and announced it would not pay a dividend this
quarter to save cash. Two analysts downgraded shares of BBI, which
reached an all time low of $4.17 Sept. 21.
“The in-store video rental business has been declining since
2002 as consumers are increasingly shifting towards DVD sell-through,
online DVD rentals, and video-on-demand,” the researchers
said. “Quarterly revenues dropped by 1.6 percent, with a $120
million shortfall due to Blockbuster’s decision to drop most
late fee charges in an effort to attract and keep customers. It
is notable that shares of Blockbuster’s rival Movie Gallery
fared even worse, dropping 63 percent this quarter.”
McDonald’s (MCD), the world’s largest restaurant chain
and the RCF 50 Index’s largest component with more than 20
percent of its market capitalization, rebounded strongly this quarter,
gaining 18.8 percent.
The full Rosenberg Center Franchise 50 Index third quarter report
for 2005 is available at http://www.unh.edu/news/docs/F50Q305.pdf.
For more information on the William Rosenberg International Center
of Franchising or the Rosenberg Center Franchise 50 Index, please
visit the Center’s web site at http://franchising.unh.edu.