Franchise Index Falls 11.6 Percent as Financial Markets Spiral

“By March 9, 2009, financial markets, as proxied by the S&P 500 Index, had dropped a shocking 25.1 percent from the beginning of the year, wiping out almost 15 years of gains.

Most firms’ share prices, including the components of the Rosenberg Center Franchise 50 Index, lost a large amount of their market value,” said Hachemi Aliouche, associate director of the Rosenberg International Center of Franchising at the University of New Hampshire Whittemore School of Business and Economics.

“However, by the end of the first quarter, a number of positive developments helped start a recovery. These included stronger than expected home sales; positive reactions to the Treasury Department’s plan to clean up banks’ toxic assets; gains in new orders of durable goods; and narrowing of the trade deficit. By the end of the quarter, the RCF 50 Index lost ‘only’ 11.6 percent of its value, while the S&P 500 Index dropped ‘only’ 11.7 percent,” Aliouche said.

The Rosenberg Center Franchise 50 Index tracks a representative set of 50 US publicly traded companies engaged in business format franchising. The index is down 11.6 percent over the year, compared to a decline of 11.7 percent for the S&P 500. Since its inception in 2000, the index is up 27.1 percent, compared to a drop of 42.8 percent for the S&P 500 over the same period.

Twenty components of the index ended the first quarter of 2009 with positive market gains, including Ruby Tuesday (RT), the developer, operator and franchisor of casual dining restaurants, which was the best performer in the index, up 87.3 percent in the quarter.

According to Aliouche, Ruby Tuesday benefitted from the powerful market rally that started after March 9, 2009; analysts’ positive comments that restaurants in general would benefit from the stabilizing economy; and Ruby Tuesday’s successes in stemming traffic declines at its restaurants through aggressive promotions and more focused advertising.

The worst performer of the RCF 50 Index this quarter was Jackson Hewitt Tax Service (JTX), losing 67.1 percent of its market value.

“Higher unemployment and reduced tax collections as a result of the current recession have had a negative impact on JTX’ business, leading its management to lower their forecasts for tax returns prepared, revenues, and earnings for 2009,” Aliouche said. “Also, in order to conserve capital, enhance liquidity and strengthen its balance sheet, JTX suspended its dividend of $0.18 per share in order to save the company $20 million a year. These actions were negatively perceived by investors and they sold off JTX’ shares, driving its share price down.”

For more information on the Rosenberg International Center of Franchising or the RCF 50 Index, please visit the center’s Web site at http://franchising.unh.edu.

The University of New Hampshire, founded in 1866, is a world-class public research university with the feel of a New England liberal arts college. A land, sea and space-grant university, UNH is the state’s flagship public institution, enrolling 11,800 undergraduate and 2,400 graduate students.

Associate director Hachemi Aliouche is available to discuss the latest Rosenberg Center Franchise 50 Index analysis. He can be reached at 603-862-1884 or hachemi.aliouche@unh.edu.