Economic Woes Weigh on Franchising Index
By Lori Wright, Media Relations
April 16, 2008
Fears of a recession and economic woes pushed the Rosenberg Center Franchise
50 Index™ down in the fourth quarter of 2007, with the index of the top
50 U.S. public franchisors falling 5.5 percent amid a broad market decline.
“Many of the components of the index are in business sectors (restaurants,
lodging, etc.) that are highly correlated with the economy, and the economic
woes have negatively impacted them. Forty-three of the 50 component firms experienced
a loss of value this quarter,” according to Hachemi Aliouche, senior
research fellow with the William Rosenberg Center of International Franchising
at UNH’s Whittemore School of Business and Economics.
The 50 franchisors in the Rosenberg Center Franchise 50 Index™ represent
more than 98 percent of the market capitalization of all U.S. public companies
engaged in business format franchising. The index was down .5 percent over
the year, compared to +3.6 percent for the S&P 500. Since its inception
in 2000, the index is up 81.5 percent, compared to 5.3 percent for the S&P
Ruby Tuesday (RT), the developer, operator and franchisor of casual dining
restaurants, was hardest hit this quarter, losing 45 percent of its market
value. Not only did it produce lower than expected financial results during
its most recent fiscal quarter, it also warned that it was expecting a loss
next quarter as a result of falling same-store sales and increased costs due
to store remodeling.
“Ruby Tuesday is facing a tough business environment where a large number
of similar concept restaurants are fiercely competing in a difficult economic
environment. Many of its customers are shifting to cheaper fast food restaurants.
Its same-store sales fell 10.8 percent at company-owned restaurants this year
compared to a 0.2 percent drop last year,” according to Aliouche.
Bucking the trend, Jackson Hewitt Tax Service (JTX), the provider of computerized
preparation of tax returns and other financial services, gained 13 percent
in market value this quarter.
“JTX’s stock price recovered from the large drop it suffered in
early 2007 after it was disclosed that one of its franchisees was being investigated
by the IRS and the Justice Department for filing fraudulent tax returns. JTX
settled with the IRS and terminated the employment of its CEO and chairman
of the board of directors,” Aliouche said.
For more information on the William Rosenberg International Center of Franchising
or the Franchise 50 Index™, visit the center’s Web site at http://franchising.unh.edu.