Freshii's top shareholder backs CEO Corrin amid stock slide
Freshii Inc.’s (FRII.TO) largest shareholder says he’s hopeful the struggling salad chain and its humbled founder can get back on track.
“People are trying to eat healthier and eating out more. Tie that market trend with a CEO who is totally driven,” David Barr of PenderFund Capital Management, told BNN Bloomberg in a phone interview.
PenderFund owns 11 per cent of Freshii’s shares and Barr says the firm is committed to staying invested for at least three to five years.
Freshii’s CEO – Matthew Corrin, who founded the business in 2005 – called recent setbacks a “humbling experience,” while speaking to analysts on the company’s earnings call in February. “We’ve been trying to do too much at once,” he said.
Freshii was forced to scale back its ambitious expansion plans, following a string of disappointing quarters, which have left its stock price down 80 per cent since the company’s initial public offering in early 2017.
“We met with them before the IPO,” said Barr. “We didn’t like the valuation. It was priced as though they were going to do everything they said they would do. We know building a business is harder than what people think.”
Barr, who has previously invested in restaurant stocks such as Starbucks Corp. and Panera Bread Co., became a shareholder in the second half of last year. While not an activist, he maintains a dialogue with Corrin and says the founder was receptive to his firm’s investment. “He was totally open to it.”
At the time of its IPO, Freshii had 244 stores and planned to have as many as 840 locations worldwide by the end of this year. Instead, the company is now selectively closing some of its worst performing stores.
“If you are that aggressive, you are probably going to bring on franchisees that you shouldn’t have,” Barr said.
Corrin, known for sporting a green, varsity-style jacket featuring a big “F,” was vocal about the benefits of becoming a Freshii franchisee in the lead up to the IPO.
“We are allowing passionate entrepreneurs — in some cases immigrants — to live the Canadian dream or the American dream,” Corrin said in a BNN Bloomberg interview on the company’s first day of trading, which included a ceremony at the TSX, complete with green and white confetti to represent the company’s logo.
Soon after, Corrin made headlines by publishing an open letter to Subway, proposing a partnership to convert Subway stores into Freshii locations, stating “Freshii is now the fastest-growing restaurant brand in the world; we opened our first 200 restaurants faster than McDonald’s, Dominos, and even Subway.”
While PenderFund has become the largest single shareholder, Corrin, who founded the business in 2005, controls the company through voting shares. He also chairs Freshii’s seven-member board of directors, which includes his brother Adam, who is chief operating officer, as well as tech entrepreneur Michele Romanow of the CBC series Dragons’ Den and social entrepreneur Marc Kielburger, co-founder of WE Charity.
In February, Freshii reported a 6.1 per cent drop in its fourth-quarter same-store sales, prompting a one-day stock slide of more than 16 per cent.
“The last quarter was softer than we would have liked to have seen,” said PenderFund’s Barr. “In response to that, the company is focusing on menu innovation and responding to the competitive landscape. It’s also being more aggressive on marketing. And that’s absolutely what Corrin needs to do.”