Driven Brands (DRVN) provides automotive services globally. Its services and solutions include paint, collision, glass, vehicle repair, maintenance, aftermarket parts and consulting services to auto and collision repair shops. The company has a presence in 15 countries.
Recently, Driven Brands delivered robust Q2 numbers on both top line and bottom line fronts, added 70 new stores and raised its Fiscal Year 2021 guidance.
Let’s take a look at the financial performance of the company and see what has changed in its key risk factors that investors should know.
Driven brands’ Q2 revenue surged 123% year-over-year to $374.8 million, beating the Street’s estimates by $51.9 million. While system-wide sales of the company increased 65% to $1.2 billion, net store growth was 34%.
The President and CEO of Driven Brands, Jonathan Fitzpatrick, said, “Initiatives we implemented last year, coupled with strong execution from employees and franchisees drove compounding same-store sales and store growth…Given our scale, the significant whitespace in this fragmented and needs-based industry, and our robust cash generation, our business model remains well-positioned to maximize long-term value for all of our stakeholders.”
Earnings per share jumped 79% year-over-year to $0.25, beating consensus by $0.09. (See Driven Brands’ stock chart on TipRanks)
Additionally, Driven Brands has raised its Fiscal Year 2021 outlook owing to its strong operating performance. The company estimates 2021 revenue of $1.4 billion and adjusted earnings per share of $0.83. It foresees low double-digit same-store sales growth with positive same-store sales across all segments.
In response to the earnings beat and increased guidance, Robert W. Baird analyst Peter Benedict, on July 29, reiterated a Buy rating on the stock and increased the price target to $40 from $37.
Benedict highlighted that while Driven Brands’ management remained prudent with the 2021 outlook, the fundamental setup for the company remains positive.
Based on 5 Buys and 1 Hold, consensus on the Street is a Strong Buy. The average Driven Brands price target of $40.33 implies 39.9% upside potential. Shares are up 8% since the company’s listing on January 15 this year.
Now, let’s look at what’s changed in the company’s key risk factors.
According to the new Tipranks’ Risk Factors tool, Driven Brands’ main risk category is Finance & Corporate, which accounts for 30% of the total 77 risks identified. Since June, the company has added one key risk factor.
Under the Legal & Regulatory category, the company highlights that it may be deemed to be a joint employer with its franchisees under certain new laws and regulations. In July, the U.S. Department of Labor (DOL) announced a final rule, to be effective on September 28, on the definition of joint employer under the Fair Labor Standards Act (FLSA). This rule will expand the previous narrow criteria under FLSA in which multiple entities could be found to be joint employers.
Driven Brands anticipates that the DOL will go back to the previous more flexible “economic realities” test to assess if a party can be deemed a joint employer. This may increase a franchisor’s risk of liability compared to the joint employer standard in effect previously.
Furthermore, the DOL may issue further guidance or adopt a wider interpretation of joint employer, which may lead to franchisors being held liable or responsible for FLSA violations by their franchisees. This poses a major risk for Driven Brands.
The Finance & Corporate risk factor’s sector average is at 40.2%, compared to Driven Brands’ 30%.
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