It’s been a recurring theme with the large scale selling in the market but uWink (NASDAQ: UWKI.OB) in particular, as those that own these stocks panic and try to make sense of their investments.

We’re at that juncture where it’s time to once again check in on uWink and their latest quarterly earnings release (or rather the 10-Q), and what this means for our investment going forward.

One thing is certain: the economy has hit uWink’s restaurants hard, and while I’ve written countless times how uWink is not a restaurant company, but rather a software development company, we are now at a critical juncture in the company’s genesis in that with the stock price where it is, and uWink’s cash burn rate, something will need to happen one way or another rather quickly.

uWink’s shares aren’t for the faint of heart, but for those interested in uWink’s Q3/2008 results, as well as in where uWink is headed and what progress is being made on getting their terminals inside more restaurant chains and other hospitality venues, read on.

New to the uWink story?

uWink is an entertainment and hospitality software development company that develops casual, interactive, social games, in addition to licensing the rights to those games and their proprietary touch-screen ordering and gaming interface to restaurants, entertainment venues and the hospitality industry.

uWink also owns and operates three restaurants under the uWink brand name that utilize this technology.

uWink’s CEO is Nolan Bushnell, who also founded Atari Inc. (OTC: ATAR.PK) and Chuck E. Cheese’s, now known as CEC Entertainment (NYSE: CEC).

Want More?

• Start: with my initial buy recommendation and company overview here.
• OR: read about uWink’s latest deal to test their terminals at a Chili’s Too Margarita Grill, and possible expansion plans to other Chili’s restaurants here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Woodland Hills Continues to Struggle
• Other Business Highlights: Cash on Hand: How Long Can uWink Survive?
• Where Is uWink Headed?: uWink Has Several Pilot Projects in the Works
• Bottom Line: Something Will Happen, One Way or Another

Hit Me With Some Numbers

Another Steep Decline in Same-Store Sales

Before we can look ahead, we need to analyze what just took place.

uWink’s Q3 was a disaster in terms of comparing their sales year-over-year from their Woodland Hills, CA location, even when including the 2 recently opened locations in Hollywood, CA and Mountain View, CA.

Here’s a brief overview of the carnage:

uWink’s earnings highlights (growth from previous year’s Q3/there are no analysts that cover uWink):

• Q3 sales of $1.03 million (up 53% vs. $.67 million in Q3/07)
• Sales of $2.08 million for the 9 months ended September 30, 2008 (up 5.5% from the same period in 2007)
• Q3 operating loss of -$1.66 million (a increase of 62.6%, from a -$1.02 million loss in the prior year)
• Q3 net loss of -$1.64 million, or -$0.13 per diluted share (a increase of 11.0%, from -$1.48 million, or -$.23 per diluted share, (There was a lower share count last year.)
• Gross margin of 71.1% (flat sequentially from Q2/2008, and down from 71.3% from prior year)
• Same-store sales down 48.7% (ONLY at the Woodland Hills location, was also down 38.2% in Q2/2008)

Per restaurant revenue breakdown (3/9 months ended September 30):

• Woodland Hills: ($338,232/$1,304,601) vs. ($659,560/$1,899,532 in 2007)
• Hollywood: ($527,082/$609,152)
• Mountain View: ($74,527/$74,527)
• The percentage of revenue attributed to uWink’s 3 restaurant locations was 91% in Q3/08, and 96% for the 9 months ended September 30, 2008 (vs. 98% and 96% for the same periods in 2007)

My Take: Now if we parse the numbers further, we see that there are some decent things and bad things to be found.

Let’s start with the bad.

If you notice, uWink’s 9-month period ended September 30, 2008, showed revenues that were essentially flat with the same period in 2007.

This is a big problem in that this year’s comparable period includes revenue from 3 locations vs. just one location last year.

The only caveat is that the Mountain View location was only open for 2 weeks during the reporting period, so we can scratch those numbers as immaterial, but the Hollywood location was open for the entire period.

You can see that the discrepancy occurred as a result of a huge shortfall in the year over year comps at the Woodland Hills location, where the tough economy is wrecking absolute havoc on uWink’s operations there.

The shortfall is essentially a 50% decline in same-store sales at this location, which follows a 38% decline in same-store sales from last quarter as well.

As I wrote last time around, it’s a damn good thing uWink isn’t looking to their restaurants to prop up their future growth or continued execution, or else they would be in big trouble.

As it stands now, uWink is in the process of renegotiating the lease agreement with the owner of the Woodland Hills location so that the lease terms become more in line with the current economic climate, and thus allow uWink to continue their goal of being cash flow even to positive in all 3 locations.

My last conversation with management I was told that as of now, they are cash flow even or better at all locations except the Woodland Hills location, which once they renegotiate lease terms, will then fall into this same threshold.

So what’s the good news?

It’s small as of right now, but portends the future of what uWink is trying to do and their continued execution in that realm.

It comes in the form of the restaurant revenues becoming a smaller percentage of their overall revenues.

This year uWink has started to secure some of the deals and revenue that they need to survive in the form of software licensing deals from their terminals, which is what they are ultimately after.

The restaurants merely serve as testing grounds for their technology and software, and as examples for what it can do for those companies in the hospitality industry that uWink is trying to court for long term relationships.

Bottom Line: uWink is getting crushed on the retail front. The good news is that they won’t be relying on their restaurants to prop up future revenue and profit, and therefore, as long as they can break even with these locations, they are useful for promotional purposes as well as testing grounds for uWink’s concepts.

Now let’s take a look at uWink’s liquidity position…

Pages: « previous page 1 2 3 4next page »

Rate this article: (No Ratings Yet)

 Loading ...

 email to a friend