RAVE Restaurant Group (RAVE) Sophon Profile

A $50M market cap pizza chain franchisor led by a former Domino’s executive, trading at 11x LTM EBITDA

View: Pass

Sophon Score: 55/100 (see evaluation rubric at end of note)

We’re passing for now given negative unit growth and softening same-store sales. If the “Reimage” program proves to be a catalyst for comp and unit growth, we’d revisit the name. We’re constructive on CEO Brandon Solano, whose prior track record as an exec at Domino’s gives us confidence in execution should the strategy gain traction.

Company Overview
RAVE Restaurant Group is a micro-cap pizza franchising and licensing play, running two distinct concepts: Pizza Inn and Pie Five. The company’s story is less about flashy innovation and more about operational discipline, brand differentiation, and steady growth through franchising.

Concepts

• Pizza Inn is the legacy brand, known for buffets, house-made dough, fresh mozzarella, signature sauce, and a “small-town, family-friendly” vibe. Units range from traditional buffets to delivery/carry-out (Delco), express formats, and now ghost kitchens.

• Pie Five is RAVE’s fast-casual concept, launched in 2011, with personalized craft pizzas, sophisticated ingredients, and speed. They also operate ghost kitchens here.

• Smaller formats like Delco, Express, or PIE kiosks are essentially ancillary — they don’t move the needle individually but support growth opportunistically.

As a pure-play franchisor, RAVE benefits from a business model that emphasizes recurring revenue streams (royalties and incentives) with relatively lower direct operating costs. This model is designed to deliver increased earnings per share due to a reorganized corporate structure and continued focus on cost controls, as noted by the CFO. The company has achieved 20 consecutive quarters as of Q3 FY2025, demonstrating the effectiveness of its cost control measures and financial strategies.

RAVE competes in a crowded pizza market but leans into two things: distinct concepts and operational execution. Ghost kitchens let RAVE exploit Pizza Inn’s latent brand equity in markets without physical locations, driving incremental unit economics without heavy CapEx.

RAVE’s strategic focus is clear: reimagine Pizza Inn, optimize Pie Five, and expand without overextending. Key levers:

• Reimage Pizza Inn buffets (25% of units targeted FY2025), new openings (21 domestic sites contracted)

• Menu innovation to broaden appeal and drive ticket growth

• Tech upgrades: POS, online ordering, and e-commerce platforms

• Opportunistic expansion of Pie Five with experienced franchisees

• International growth in select markets (Middle East) where franchising makes sense

Revenue Mix
Pizza Inn Franchising: $10.3M, representing approximately 84.73% of total consolidated revenues.
Pie Five Franchising: $1.7M, representing approximately 14.19% of total consolidated revenues.

SSS Trends:

Component Definition

• Franchise royalties: RAVE makes money from a cut of sales at franchised restaurants, and they recognize this income as those sales happen.

• Supplier and distributor incentive revenues: This comes from the products RAVE sells to franchisees through distributors. The amount depends on total sales across the chain, number of restaurants, and what products are sold. RAVE counts this as revenue when ownership of the goods transfers.

• Franchise license fees: When someone signs a franchise agreement, they pay a fee. RAVE spreads this revenue out over the life of the franchise (5–20 years). If a franchise closes early, any leftover fees are recognized immediately.

• Area development and foreign master license fees: These are paid for the right to open multiple restaurants in a certain area or country. RAVE records the fees over time as new restaurants open, and for sub-franchise rights, the revenue is spread out over the contract term.

• Advertising funds contributions: Franchisees contribute a percentage of their sales to marketing. RAVE manages the ads and reports both contributions and spending as revenue and expenses, which usually cancel out. These are billed weekly or monthly.

• Supplier convention funds: These are money from suppliers for events or conventions. RAVE only recognizes it as revenue when the event actually happens.

• Rental income: Some restaurants are subleased, and rent is counted as income when it’s received.

• Other income: Miscellaneous stuff that doesn’t fit elsewhere—like tax credits or one-off gains.

Retail Sales per Unit

• Pizza Inn Buffet Units: ~$1.35M/unit in FY2024, driving the bulk of domestic revenue.

• Pie Five Units: ~$703k/unit, up from FY2023 despite fewer locations.