In January 2018

As North Carolinians have learned over the last 40 years, a Bojangles’ biscuit is heavenly just out of the oven, but not as delectable a few hours later. Shares of the Charlotte-based fast-food company have shown a similar trajectory, going from scrumptious to stale. Praised for its cultlike following in the Carolinas with ambitions to expand beyond the Southeast, the company raised $147 million in an initial public offering in May 2015. Amid lots of hype and bolstered by five years of steady growth, shares jumped more than 20% to top $23 on the first trading day.

Two and a half years later, Bojangles’ trades for about $13 and faces intensified competition from 800-pound gorilla McDonald’s breakfast push, and increased pressure from rising labor costs and customers looking for deals that bust profit margins. The company’s shares have declined more than 40% since the IPO, compared with a 26% gain in the Standard & Poor’s 500 index.

Chief Executive Officer Clifton Rutledge says Bojangles’ underestimated the impact of the discounting wave that swept the industry in late 2015 and continues today. Sales at stores open at least a year gained 4.1% in 2015 and 1.3% in 2016 and slipped 1.8% in 2017. “We’re seeing ‘two for $2.50’ and ‘two for $3’ [deals] that are almost like the 99-cent days,” Rutledge told analysts in November. “We just can’t compete at $1.69 on a vast majority of our menu.”

It’s nothing the chain hasn’t faced in its first four decades, the Arkansas native says in an interview at his southwest Charlotte office. “It’s been tough, no doubt about it.” Rutledge, 53, came to Bojangles’ in 2014 after 14 years at San Antonio-based Whataburger, another beloved regional chain. “You have to be more creative and more clever and not give our food away at low prices.”

Kathryn Galloway

Bojangles’ will “get through this and get on another run for 27 straight quarters [of same-store sales gain] just like we did before” from 2010 to 2016, Rutledge says. While Bojangles’ has added about 50 stores a year recently, Rutledge is slowing the pace slightly in 2018. About 60% of Bojangles’ 750 restaurants are in the Carolinas, with the rest in nine other states. The company has plans to enter Indiana, Mississippi and Ohio. Almost 60%, or 430 stores, are owned by 90 franchisees.

Bojangles’ has been through several owners since founders Jack Fulk and Richard Thomas opened the first store near downtown Charlotte in 1977. Five years later, they sold the business to New York-based Horn & Hardart. Its goal of taking the company national bombed, prompting its sale to two private-equity groups in 1990. After floundering for years, Bojangles’ took off after Falfurrias Capital Partners, the Hugh McColl Jr.-led Charlotte private-equity group, bought the business in 2007. Veteran fast-food executive Randy Kibler was installed that year as CEO, and Bojangles’ store count grew by 50% to 550 during his seven years at the helm. Still a Bojangles’ director, Kibler didn’t return requests for comment.

But the biggest financial winner in Bojangles’ history is Boston-based Advent International Corp., which bought the business from Falfurrias in July 2011. Advent invested about $173 million and has since pulled out $388 million in dividends and stock sales, according to a March article by a stock-market newsletter writer for Seeking Alpha, a crowdsourced investment website. Advent also still holds a 51% stake, or 18 million shares valued in mid-December at more than $230 million. That would be a return of more than 3.5 times Advent’s investment, even at Bojangles’ depressed share price, according to Seeking Alpha.

Steve Tadler, an Advent partner who oversees its Bojangles’ investment, declined comment on the newsletter’s estimate. The private-equity company, which manages more than $43 billion in Lululemon Athletica and many other companies, has been a strong backer, Rutledge says. “Advent believes in the brand, and they are not overbearing. Of course you have to hit your target, but it’s not about trying to do this on the cheap at all like a lot of private-equity groups do.”

Most PE funds tend to sell after five to seven years, so a change in control “could happen tomorrow, and if it does, it does,” Rutledge says. “I’m sure there is somebody out there right now trying to figure out how to add us to their portfolio.” The “final vote” is up to Advent, which he says hasn’t shown a desire to sell.

Bojangles

Bojangles’ majority owner Advent International recruited CEO Clifton Rutledge, above, away from San Antonio-based Whataburger in 2014. He had worked there for about 14 years, the last four as chief operations officer.

Restaurant companies are under pressure to consolidate, and a key buyer has been Germany-owned JAB Holdings, which acquired Panera Bread for $7.5 billion. Its roster includes Einstein Bros. Bagels, Caribou Coffee and Krispy Kreme Doughnuts, the Winston-Salem-based chain it bought for $1.35 billion in 2016.

Integrating Bojangles’ would be tough, given its distinctive food-preparation strategy, Rutledge notes. Its biscuits are made in a 48-step process that requires some skill, while the chicken marinates for 12 hours. Keeping Bojangles’ heavily promoted iced tea fresh also takes effort. “It’s not a microwave business,” he says.

That complexity makes it harder to work at a Bojangles’ than at many rivals. “You have to want to work here,” he says, noting that the company competes for workers with other retailers and, increasingly, Amazon warehouses. With low-wage jobs widely available, annual turnover at company-owned restaurants has doubled to more than 200% in the last five years, Chief Financial Officer John Jordan said at a November investor conference. Wage rates are likely to increase in the mid-single digits in 2018 due to higher medical bills and more full-time workers, he said.

What can’t change are the tried-and-true recipes for biscuits and fried chicken dating back two generations. “You can’t fake flavor,” Rutledge says. “You can try to make it easier from the cooking perspective, but something out of a microwave is not going to taste the same.”

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