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On today's Run the numbers, we explore how to sell over $4 billion in sandwiches and own almost none of the stores. This is The Jersey Mike's IPO S1 breakdown you didn't know you were hungry for. I'm very hungry. I'm staying up here to do this before dinner. All right, let's get to it. Is this thing on yesterday's price is not today's price. All right, what's the origin story here? Peter Cancro was 17 when he borrowed money from his high school football coach and bought the local sub shop he worked at. The shop was called Mike's. Peter's name is not Mike. But Peter is very rich because 50 years later, he sold most of the company to Blackstone in a deal that valued it at $8 billion. And if he's adopting either children or CFOs, I am very available because on the way out, he cut his stepson a $50 million check. His longtime CFO another $40 million check and bought back his private jet for a cool 41 million bucks. And then he threw the deuces Jersey Mike's is in many ways the American dream. Sponsored by private equity and now available in S1 format. I have eaten an unreasonable amount of Jersey Mike's over the years. So I live next to one which was adjacent to a car wash in Florida. And as someone who worked from had very little social interaction, I'd make it a trip on Friday afternoons to get out of the house. I'd get the truck washed, which was my version of retail therapy. My wife's version is much more expensive and does not include oregano or salted meats. And I would sit by myself like Stephen Glanberg. And Mike's like a complete psychopath. What? So I got to sit here and eat dessert alone like I'm Steven Glanberg when a company I have destroyed T shirts using their product files to go public at a number people keep whispering is north of $12 million. I go nuts. I eat it all up. I go through all 291 pages. You do not have to the TLDR here. If you don't get any further. Jersey Mike's does not sell you a Sandwich. More than 630 franchise owners sell you the sandwich. Jersey Mike's sells them the right to do it and clips 6.5% and a little bit more, which we'll get to off the top of every register in America. The filing doesn't hide the ball. They say Jersey Mike's operates a proven highly Franchised asset, light business model that generates stable, diversified and high margin cash flows. If you peel off the sandwich wrapper here, it's really a royalty business that is just firing on all cylinders. Right. It's not really a restaurant business per se. And the only thing I like more than metrics are large Italian subs. So let's get into it. What are the key metrics? A quick rundown before we get into the weird stuff. These are the somewhat clean numbers ahead of what Blackstone did to the balance sheet. Okay, so system wide sales, 4.2 billion in 2025. This was up 13% year on year and up 12% the year before. This is what you call the big number flowing through the entire system. It's not the company's actual revenue. Right. Every dollar that Jersey Mike's makes is a slice of this bigger number. So that's the entire amount of sales going through all their franchisees, their annual revenue. What they get to keep as a company is 724 million. That was up 11% year on year. Royalties and other fees were 483 million of this. And then the marketing fund that franchisees pay into was 203 million. And that roughly actually offset their own ad opex and their handful of company owned stores. They do have a few raked in 38 million. So the royalty line is actually where all the EBITDA lives. Their net income, kind of paltry 55 million. This is very thin against 724 million of revenue. And it's a leveraged buyout artifact. It's not really their actual businesses. Revenue reflection of like what? The engine is the Blackstone section that we'll go through. We'll walk it back to what the actual operating company can generate, which is an adjusted EBITDA of 339 million last year, which is an astounding 47% margin. And these are clearly franchisor royalty economics, not restaurant economics. Right. Most restaurants operate in the low single digits of margin. What is their average unit volume or auv? Think of this as the per shop revenue. So if you own a Jersey Mike's location, on average it pulls in 1.4 million in revenue. And that's actually 3x the average of US subway locations, which are notoriously low. And also the worst thing about eating Subway is smelling like Subway the rest of the day. Same store sales growth, 3.2% year over year growth. This one might be worth circling because it ran hot at about 8.4% in 2023, then it dropped to just 2% in 2024. It wiggled its way back to 3.2% in 2025. And it's pacing at 2.5% in the first half of 2026. A good chunk of the strong years was actually menu price increases rather than traffic. Damn inflation. Can't get a $5 footlong anymore. Net store growth 8.5%. So this is down from 12% the prior two years. The filing pins this on a founder directed development pause in 2024, I. E. The year that he was looking to sell the company. Think about this as after all the stores that shut down and then you add in all the ones that opened, what was the net growth? It was 8.5% year on year. What's it's really small. You get a squint to see it's only 11 million against 339 million of EBITDA franchisees. Fund the builds. So 97% of adjusted EBITDA actually converts to cash. Nice. And they have 12.5 million loyalty members. 42% of their sales are digital. And you can peep the sales mix right here. So about half is through the lunch crowd. And then you split up the other half between what they call the snack crowd. Yeah, that's between two and four. And the people who are getting Jersey Mike's for dinner, which is after five. They also go through the menu mix, majority cold subs. Then you can get into the hot grinders. And then they go through what is purchased digitally versus in person. The majority is still in person today. So that's an opportunity if you wanted to put more units through this store without having to increase your overhead. So what are you actually buying? You're not buying a sandwich company. I'll tell you that. You're buying the company that licenses the right to run a sandwich company and bills for that right in three distinct ways. Which we're going to go over here. So a franchise owner signs an area development agreement which locks up a stretch of the map that nobody else can build in. Right. That's your territory. And they pay $10,000 for the agreement, plus $20,000 every time they open a store inside of it. That is revenue stream number one. So that's like claim your fiefdom. 10,000 bucks to say I have like this zip code or these streets in this area. And then each store within it, I give you another 20 grand on top of that original 10 grand. From there they clip 6.5% of everything that the store rings up and that flows back to the corporate headquarters as royalty. So Think about it like you buy $10 worth of a sandwich and chips and a soda, 6.5% of that will go back to HQ. So it's a simple rip off the top, right? And then they earn another 5% in the form of that national ad fund. So think of this as the marketing commitment. The individual stores must pay back the HQ for services rendered because it ain't cheap to have Danny DeVito in your commercials. So net, net, the real royalty rate is closer to 11.5%, plus some extra fixed fees on the cost front. The franchisee is the one who has to front the build out, which on average is $515,000 to put a location up. And they sign the 15 year lease that ends up going along with that. They staff the line, they absorb it personally. When the price of roast beef decides to move on them, the headquarters does not. The margins that fall out of this look faintly illegal for a food service because property and equipment on an $8.2 billion balance sheet comes in at just that 13 million that I said before. So where's the meat? That's Arby's. The company that hangs its name over the 3,300 sandwich shops owns about one gas station's worth of actual physical stuff, which is astounding because the physical stuff is somebody else's problem. By design, it's. It's more of a licensing play than a restaurant play. So two P&L is one sandwich. There are two completely different income statements worth talking about here. And both of them, they're tasty, they're good, they're doing good. So let's start with the operators. A single store does about 1.4 million in AUV, which is average unit volume. And the annual sales at one location rings up at the register. So after food labor occupancy and the royalty and ad fund, it pays back to corporate. It holds a store level EBITDA margin of around 16%. So after you pay for your opex, as well as whatever you owe Jersey Mike's HQ, you, you have about 16% left over and it costs roughly 515,000 to build. Important to note, like I said, that the franchisee pays for that, not Jersey Mike's. If we run the franchise's return, they make 16% of 1.4 million, which comes out to about $224,000 a year, so approaching a quarter mil on that 515 grand that they spent to open the doors. And so this is what the pros call a cash on cash return. And it's north of 40%, the 224 over the 515. It means for every dollar the franchise E puts in more than 40 cents back every year in profits. And that's why stacking multiple locations is so attractive to operators. Once they've got the playbook down, right, you see that, you're like, oh, I, I get how to do this. The unit level economics are pretty sweet. I'm going to own a bunch of these, right? I'm not just going to stop at 1. Long term, they want to get the AUV to over 2 million to go from 1.4 to 2. They want to get the store level margin up from 16 to 17 or 18. And they think the cash on cash return can be 60% if you stretch it out long enough. Is it wishful thinking? I don't know. Well, more than 330 owners run a single store, but the operators at the top of the system run an average of 60 a piece. And the biggest one out there runs 91. I want to meet that guy. I want to shake his hand. Jersey Mike says north of 90% of its development pipeline is coming from existing franchisees, which is a great flywheel because said another way, the people who are most successful continue to line up to build up more locations, which end up being better locations because they have the precedent to lean on. Hey, thanks for listening. We'll be right back after a word from our sponsors. Here's a growth tax that nobody talks about. 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Now the corporate P and L this is the one you're actually buying a share of if you buy stock, right? So move over 16% because Daddy HQ is pulling down a 47% adjusted EBITD margin. So how is that possible on cold cuts? Well, corporate skipped the lease, it skipped the labor, the roast beef and the build out. And it took its 11.5% that we talked about off the top. Both sides are making money though off the same register. They do have wildly different cost structures, but they're still pumped about it. Right? Which is the trick to successful franchising. Nobody feels like they're being robbed here. Let's go over the Blackstone math. And by the way, this TAM chart that they put in, I know there's no y axis. There are no axes, but this is an area chart. Crime of mass proposal portion. Someone has to call the police. The most misleading number in this whole filing is the 55 million of net income. And it's misleading for a super boring reason. It's because Blackstone financed the holy hell out of this and it purposefully creates a whack of interest payments and non cash expenses. So the first thing that I do with a sponsor owned S1 is hunt down the DNA line. Depreciation, amortization. Because purchase accounting always leaves a mark, in this case a crater. The accountants, artists, they revalued what Blackstone bought and wrote it onto the books at fair value, which is how a $5.7 billion trade name lands on an $8.2 billion balance sheet that holds just 13 million in physical assets. The trade name gets amortized and so does the franchise agreement intangible sitting next to it. And so together they pushed DNA to 96 million in the first year under Blackstone. So they, they created this $96 million charge, up from about 10 million the year before. So keep in mind that none of it is cash, but it's all very real on the income statement. The debt is the other half of the equation. Blackstone dropped 2.1 billion in long term liabilities onto the company through what's called a whole business securitization. What they did was they pledged the brand, the trademarks, the franchise agreements and the royalty streams into a vehicle. And they sold notes against them at rates between 2.5% and 5.6%. That's actually pretty good. That registers at 90 million of net interest in year one. And the Financial Times counted roughly 500 million of dividends were paid out of that debt before the S1 ever went public, which tells you what that borrowing was for. Here's the full walk under Blackstone. So you start at net income of 59 million, but then you add back the net interest of 90. You add back DNA mostly the new trade name and franchise book another 96 million. So their plain old EBITDA is around 247 million. Then you add back area director buyouts, which we're going to get to in a second. That's 52 million stock based comp of 8 million, IPO costs of 7 million, corporate transition of 13 million, yet to an adjusted EBITDA of 327 million. When you add the interest in the amortization alone, you've bridged almost the entire gap. That's how you get to the 327 million or 186 million of interest in non cash amortization. These chunks are derived from the buyout structure and not actually indicative of how Jersey Mike's makes these subs. Net net if you strip the deal Financing off the top in the store level business is 47% margins. The 55 million of net income is just what's left after the LBO eats first. All right, so let's talk about the 2% their CEO is clawing back. This is pretty fascinating. So perhaps the smartest move in this filing is the one that makes the current year look worse. So bear with me here. For most of its life, Jersey Mike's did not sell franchises through corporate it sold them through area directors or independent operators who bought the development rights to region and then recruited and supported the franchisees inside it, collecting roughly 2% of gross sales on every store in their territory in return forever. It's how Cancro grew the system without building a corporate franchising arm. And it meant a slice of the royalty stream was peeled off to middlemen before it ever reached headquarters. It did serve its purpose in getting to scale, but now the CEO is buying that annuity stream back. The company has been paying each area director a lump sum to tear up the contract. Then they pull the function in house and they turn a permanent 2% haircut into a one time cash cost. Pretty smart. That shows up as the 52 million labeled area director buybacks that's sitting in that adjusted EBITDA with more coming as they work through the rest of the territories. So just know that non recurring is kind of recurring since the buyouts are going to keep landing in the ad backs for years while they consolidate the model. Some potential red flags. It's an up C structure. What the hell does that mean? It means you and Blackstone do not own the same thing. So Jersey Mike's is going public through a structure called an umbrella partnership C Corp. Here's what that means for you in practice. When you buy the stock, you're buying class A shares in a holding company that sits on top. That holding company's only real asset is a stake in the business underneath it, where Blackstone and the insiders hold their ownership directly. So you own a piece of the parent they own, a piece of the actual sandwich operation. The two aren't really the same piece because Blackstone gets the tax perks of holding the business at the lower level and gets convert into your shares on its own schedule, which means you never quite know when a wave of insider stock is about to land on top of you. And generally speaking, when a company hands the public the top four shares and keeps the operating company for the sponsor, that's a structure built for the seller's benefit, not yours. And they also have this chart which you would need approximately 20 years of tax experience and a degree in Egyptian calligraphy to make heads or tails of. Number two, the company owes its old owners a check for its own tax savings. What this is called a tax receivable agreement. And I was today years old when I learned what a tax receivable agreement was. It's a cash bill. The business agrees to carry the short version. Here the company gets a tax break, then pays about 85% of that break in cash back to Blackstone and the other people who sold you the stock. You as a shareholder only get to keep 15% of the benefit. It's real money leaving the company you own going to the people who just cashed out for years after they're gone. And they don't even have to hold the stock to keep collecting. They could technically sell it. Number three, this is what you would call a controlled company. So the governance guardrails are pretty optional. Blackstone will hold a majority of the combined voting power after the offering, which lets Jersey Mike's claim the controlled company exemption under New York Stock Exchange rules where they're going to list in plain terms, it does not need a majority independent board and it can skip independent compensation and nominating committees. Number four, there are no dividends coming to you, but the sponsor may take a nibble. The company has no current plan to pay dividends on the Class A stock that people will buy into. But the proceeds from this offering will go towards repaying the securitization debt and funding and distribution to the pre IPO owners. And per the Financial Times, like we said, roughly 500 million was already dividend out through those securitizations before this S1 was public. Number five, the profit number they want you to use leans on a big trust us the 166 million in charitable donations that Jersey Mike's rightly puts on its own own cover as a badge of honor. Pretty cool. Gets added back to make the profit line look bigger for the ipo. This giving was done under the previous founder. So the company adds back all this good stuff and their logic is that this was a founder's discretionary generosity, which won't happen once Blackstone runs the place, which I guess is fair. It also means the founder era profits are almost useless in comparison, and you're trusting the company on what's truly one time, including that $52 million area director buyout that they'll keep paying for years. March is about to get a lot more profitable for Blackstone. Number six. The debt is wicked cheap now and it might not be later. So the 2.1 billion sits in a whole business securitization at blended rates between 2.5% and 5.6%, which is a lot better than my mortgage rate. But then you read the maturity structure. So the notes carry anticipated repayment dates starting in 2029 in legal final maturities out to 2052. My goodness and beyond. Which means the company is expected to refinance these tranches at whatever rates exist at the end of the decade. A brand collateralized Bond issued in 2021 at 2.5% probably does not get refinanced at 2.5% if I was a betting man in 2029. This is not financial advice. Hey, thanks for listening. 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That's why thousands of finance leaders trust Anaroc to stay ahead, talk to an Anaroc sales tax expert for a personalized exposure estimate@anrock.com RTN that is a N R O K.com RTN valuation. Jersey Mike's hasn't set terms, but the reporting has the IPO landing between 10 and 12 billion. And Blackstone, remember, paid around 8 billion for the whole thing in early 2025 with a lot of dollars debt. So restaurant franchises get valued on a multiple of EBITDA. Jersey Mike's did 339 million of adjusted EBITDA in 2025. If you stack the 12 billion equity target on the 1.9 billion of net debt, you're paying about 13.9 billion for the enterprise, which pencils out to 41x trailing EBITDA on next year's estimate, it's around 35x. So here's where the comp sit today. Domino's the best performing stock of the last like 20 years. If you're comparing it to tech companies 18x EBITDA it's mature. It is the franchise gold standard and has the same securitized debt structure that Jersey Mike's uses. So that does make it a good comp. Wingstop this is where the CEO came from 23 to 25x EBITDA. It's the fastest grower of the last decade in Charlie Morrison's old shop. Worth noting that that number is down hard because Wingstop's US same store sales went negative this year and the stock is off about 65% from its peak. But boy is it delicious. Older franchise buy slower brands like Denny's. Del Taco I've never heard of Del Taco. Bojangles. That's fun. 8 to 11 x EBITDA so they're asking 41x trailing for a business growing same store sales in the low single digits against a peer set where the best growth store in the group trades at 25x while it's comp shrink. So how do you get there? Well, to underwrite 12 billion you have to believe two things happen. Unit growth stays high and the international bet in Canada and UK exceeds US level economics. Early call here, but Canada's first few stores are running above the domestic stick auv, which is a start. But hey, it's a small base. So Blackstone's 8 billion from 18 months ago is probably the floor, right? My read is the business supports something closer to 9 to 10 billion on the current comps and 12 billion is going to ask investors to pay up front for the international growth before it ever shows up in the numbers. So here's some miscellaneous stuff of note. This is pretty funny. They're scared of quantum computing coming for the turkey. The risk factors run the standard AI hedge where you just have to throw it in. I guess. Their tools could be incorrectly designed, it could leak their ip, could invite lawsuits. Then it keeps going and warns that their systems could someday be undone by quantum computing. Huh. This is a company that makes subs by hand to order in front of you. So somewhere in the drafting a lawyer walked in the room and made them hedge against a quantum attack on the provolone had the cheese. There's a hidden 53rd week of the calendar. I'm such a nerd for this. So Jersey Mike's runs a 52 or 53 week fiscal year and every few years a 14th week of a quarter will get bolted onto Q4. So most quarters have 13 weeks. The year it happens, the company picks up an extra week of sales the prior year didn't have any annual comp looks stronger for reasons that have nothing to do with more people buying subs. I love seasonality quirks because their fiscal year is no longer like just only ending on a December 31st. It ends on the final Sunday. No drive thru is a feature, not a bug. A Jersey mics cost a lot less to build that 500 grand or so, partly because they skip the drive thru lane that Chick Fil A or Wendy's pays for. This means that real estate is more available, it's cheaper build out and a faster path to a franchisee's return. So what's the verdict here? It's a great business and the subs are delicious. The royalty machine is legit, the operator's clear return worth re upping, and these store level margins are the kind you rarely see attached to actual food. The question isn't whether Jersey Mike's is good, it's whether 12 billion is the right price to buy it from Blackstone after Blackstone already piled the debt onto it, pulled its dividends and kept the votes. So buy the sandwich every Friday. Read the fine print twice before you buy the stock. None of this is investment advice. I wrote most of it on my kitchen table while my dog sat on my feet waiting for the scraps of the Italian sandwich that I got from Jersey Mike's today. Do your own homework. Wishing you the giant extra vinegar and an entry price that leaves something on the table for the rest of us. Peace. Run the Numbers is a mostly media production yelling an intro by Fat Joe. Artwork by Meg d' Alessandro show is executive produced by Ben Hillman. Nothing said on this podcast is intended to be business or investment advice. It's the sole opinion of me, a guy who feeds his dog way too much ice cream and has a history of net operating losses. Lol. If you like this podcast, hit subscribe and give us five stars. It will take like two seconds and our algorithm overlords love it. Drink water, call your mom and have a great day. Peace.