Giggles N’ Hugs, Inc. (OTCQB: GIGL), is owner and operator of family-friendly restaurants that bring together high end, organic food with active, cutting-edge play and entertainment for children. It opens restaurant locations that serve as a sort of intersection between healthy (but fast) food and playtime/exercise.
On March 8th 2017, GIGL announced its partnership with Jillian Michaels, a fitness expert and renowned life coach. Through the partnership, Michaels will become one of the largest shareholders in GIGL and the global brand ambassador, bringing her experience in expanding worldwide businesses to the California-based family restaurant and children’s play space.
As per management, this partnership is the first strategic alignment for GIGL & is a significant milestone towards its mission to satisfy every parent’s need for a space that serves healthy, delicious food and provides entertainment that appeals to both parents and children.
GIGL’s business risk profile is likely to derive strength from business acumen of Michaels, focus on healthy eating and an active lifestyle & her extensive international community of followers. All these points are expected to benefit GIGL, while it aggressively work to increase its footprint with new locations in numerous markets and to explore the brand presence through consumer product goods.
At a time when the economy is experiencing a moderated growth and many sectors are struggling to grow, one sector that has somewhat bucked the trend and grown rapidly is specialty & theme based restaurants.
In a short span of time, GIGL has been successful in creating its brand & niche in an industry, which is characterized by high brand mortality and strong competition. GIGL is now looking to expand, and wants to do so by way of a combination of franchises and company owned locations. Its rapid expansion plans along with the recent celebrity endorsement are the factors that are expected to provide substantial impetus to the business. The company is in talks with investment banks for securing more traditional financing options for the needed expansion capital.
On Feb 16, 2017, GIGL also announced that it repaid its 8% Convertible Noted issued to Iconic Holdings LLC. Management confirmed that Iconic converted the entire balance of their convertible debt holdings into common shares. There’s been some selling pressure on the company stock in the recent past based on this conversion, and the completion should serve to remove this pressure.
The company’s stock has unsurprisingly found enormous strength in the recent past. GIGL reported increase in the stock price backed by these announcements laying foundation for expanding its market size and overall business growth.
Description & about the Company:
Giggles N’ Hugs are specialty restaurants that brings together high-end, organic food with active, cutting-edge play and entertainment for children. Every Giggles N’ Hugs location offers an upscale, family-friendly atmosphere with a dedicated play area that children 10 and younger absolutely love. It feature high-quality menus made from fresh and local foods, nightly entertainment such as magic shows, concerts, puppet shows and face painting, and hugely popular party packages for families that want to do something special.
Business model in brief:
GIGL is adopting a model of opening restaurants that are designed to be upmarket, hygiene, clean and fun, while offering an exhaustive range of healthy foods for both parents and their kids. The venue put on shows in the evenings and has recreational areas in which kids can play during the day. Additionally, It’s also a big birthday party and other event venue.
Right now, its locations are centered around California, and specifically, LA, but a franchise rollout and significant expansion is expected over the near to medium term.
Recent announcement of Celebrity endorsement:
GIGL recently announced a multi-faceted partnership with Jillian Michaels, a foremost fitness expert and renowned life coach. Through the partnership, Michaels will become one of the largest shareholders in GIGL and the global brand ambassador, bringing her wealth of experience in building world-wide businesses to the California-based family restaurant and children’s play space.
Michaels is a health and wellness star in the US and is engaged in proudcing self branded workout DVDs, books, recipe based applications amongst others.
She has an international community of followers 100 million+ strong. From her hit TV shows, successful DVDs and exercise streaming platform FITFUSION, to her eight New York Times best-selling books, live speaking engagements, award-winning podcast, social media channels, top rated app and her personal website, Michaels continues to empower and produce health and fitness results to millions around the world.
A fraction of these extensive followers base could very quickly translate into GIGL customers, and this could sginficantly add to the company’s overall valuation.
The deal also sees her become a big shareholder of the company. Therefore, a substantial dilution is a mitigating factor for an otherwise sweet deal like this. GIGL doesn’t have enough liquidity to meet its incremental capital requirement, so a capital raise is almost inevitable.
Key Stock Influences:
Some key influences that might govern future stock price performance include:
- Notwithstanding GIGL’s niche and unique differentiating factors, this industry is highly fragmented and there is stiff competition from organized (domestic and international) as well as unorganized players. To beat competition, GIGL will have to consistently setup new outlets, as older ones tend to mature in few years.
- Also, company continues to suffer from its small size. Scale of operations remains small, with quarterly revenue at $628,357 only and the company is unlikely to scale up the operations significantly over the near term.
- GIGL is in expansion phase and looking at ways to grows its market position. However, the company does not have adequate liquidity & financial flexibility to fund its aggressive expansion plans. Therefore, any delay in sourcing additional funding will adversely affect the company. Moreover, significant funding through equity exposes GIGL to stock dilution risk.
Earnings Review:
Net sales for thirteen weeks ended September 25, 2016 and September 27, 2015 were $628,357 and $901,251 respectively. The decrease of $272,894 (-39.3%) was mostly attributable to the closing of the Century City store. For the continuing store operations, net sales increased by $15,900 (2.6%) over the comparable period in the prior year.
Profitability:
The overall net losses of $650,739 and $426,489 for the thirteen weeks ended September 25, 2016 and September 27, 2015, respectively, reflects an increase in the net loss of $222,650 (-53%). This increase in the operating loss is mostly attributable to both higher financing costs ($251,021) and charges for the fair value of the derivatives related to certain notes payable ($205,128), but partially offset by the reduced operating loss ($217,413) from the closing of the Century City store at the end of the 2nd quarter.
Cash Flow & Balance Sheet:
As of September 25, 2016, the Company has $110,816 in cash and cash equivalents, $27,888 in inventory, and $19,704 in prepaid expenses and other.
During the thirty-nine weeks ended September 25, 2016, GIGL incurred a net loss of $1,218,841, used cash in operations of $578,502 and had a stockholders’ deficit of $1,975,772 as of that date. The ability of the Company to continue expanding its operations is dependent upon its ability to raise additional funds and implement its future business plan.
At September 25, 2016, it had cash on hand of $100,816 & management is currently seeking additional funds through sponsorships and promotions to operate business.
Stock Performance
On Friday, March 10th, 2017, GIGL shares declined by 2.24% to $0.131 on an average volume of 6.49 million shares exchanging hands. Market capitalization is $9.66 million. The current RSI is 77.05
In the past 52 weeks, shares of GIGL have traded as low as $0.00 and as high as $0.18.
At $0.131, shares of GIGL are trading above their 50-day moving average (MA) at $0.05 and 200-day MA at $0.04.
The present support and resistance levels for the stock are at $0.1229 & $0.1420 respectively.
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