Position Updates - LUCK, BGC, CMP

Lucky Strike Entertainment (Ticker: LUCK)

Few companies continue to disappoint like Lucky Strike. Pulling full-year guidance with two months remaining says all you need to know about recent trends. Corporate business is struggling, which was confirmed by TopGolf as well.

Comps were -5.6% in the quarter broken down by January comps down 3% y/y with a headwind associated with California wildfire impacts & a “significant” pullback in corporate events, February down ~10% tied to unfavorable weather and macro uncertainty, and March down similar to January (-3% Y/Y) and April continued to improve. Retail business was flat, while league revenue was +LSD, and events business was -DD. Comps in Q3 were easier than Q1 & Q2, with Q4 having the easiest comps of the year. My traffic estimate for the quarter was -8.5% y/y. I remain negative on the name through the first half of 2026, as comps continue to be challenging. Additionally, the bowling alley roll-up story is just not occurring as they had envisioned. They added three centers in the quarter, and 13 y/y. 2025 is shaping up to have centers grow 3.4% y/y, decelerating further in 2026. Traffic must stabilize for this business model to work. Given the large, fixed cost base, these trends are very concerning. Food & Beverage revenue, which has benefited from premiumization over the last few quarters, shows signs of slowing. Q2 F&B revenue declined 0.3% y/y, and rose 2.1% y/y in Q3, though food comp was +HSD, while beverage was -HSD, due to the continued effects of lower alcohol sales. These results are a far cry from the +6% to +20% y/y growth experienced in the prior four quarters. On the bowling side, pricing was a tailwind for several quarters, and F&B was a tailwind for 4 quarters as they transitioned menus from classic bar food to premium menu offerings. As they lap existing menu conversions, where pricing was a tailwind, benefits from this in the previous year present challenging comparisons in the upcoming years. Assuming F&B transactions declined in line with foot traffic, food pricing was near a +20% tailwind in the quarter.

On the positive side - Management has found ways to reduce costs, with labor cost/center -7.3% y/y. Additionally, and most notably, their capital allocation priorities are changing. They are pairing back capex to only the highest ROI new builds (sounds like rolling up mom and pop centers is no longer in play), along with prioritizing deleveraging instead of buybacks. While it’s not a great look buying shares from $17 down to $9, this transition is a step in the right direction. “We probably bought back too much stock, but that's something that can be dealt with.” (Referring to the low float of the stock) As noted in prior write-ups, the operating & financial leverage this business possesses makes it incredibly fragile, and likely unable to withstand any economic slowdown. In their two seasonally strongest quarters, they generated EBIT of $64m and pre-tax income of ~$11m. Should weak trends persist, they will likely need to raise additional debt or complete a transaction to raise incremental cash in 2026. These steps have made me incrementally more positive on the name. However, same-store sales need to stabilize and improve, allowing them to pay off debt. While they pay a $0.22 dividend (2.4% yield), ~$34m/year of cash outflow, I believe cutting this dividend would show they are focused on deleveraging. Given the high insider ownership, the dividend is more akin to a left-to-right pocket transaction, as 80% of Class A stock and 100% of Class B stock are held by insiders. The dividend allows them to gain excess liquidity without needing to sell shares.

Summer season pass – Management stated summer pass sales are up 200%+ or ~$4.5m. Lev Ekster additionally noted that they are approaching 100,000 season passes sold. In 2024, they sold $8.5m of summer passes. In their Q3 2024 call, they stated they sold $1.5m worth of passes as of 5/6/24. Sales increased $7m between Q3 and Q4 2024 results. I suspect this year, customers took advantage of ongoing promotions (shown below) to buy passes ahead of time and also purchased earlier to receive the full benefit. Last year, they had a goal of hitting $10m- $15m. With 2025 pass prices up 25% y/y, and center count +LSD% %, summer pass sales will likely come in around $11m. On total revenue, this equates to less than 1% of quarterly sales, and provides a ~2% tailwind to bowling & shoe rental income. Finally, to bring home why I am not invested in LUCK, the summer pass ad on their site is all one needs to know. They are advertising the summer pass as if it’s a pass to a nightclub, not a bowling center. I don’t know if they understand their customer, which is arguably the most essential part of the business.

Upcoming Catalyst:

- Potential dividend suspension

- Water Parks open for the summer season, decreasing seasonality of the business

- FCF generation goes towards debt reduction

BGC Group (Ticker: BGC)

Coming into the quarter, ongoing market volatility and continued growth of their Energy, Commodities, and Shipping segment, FMX Futures updates, and Howard Lutnick’s share disposition were the focal points.

Market Volatility – Fenics Brokerage revenue grew 18% y/y, driven by strong growth in Rates, where revenue grew 35% y/y. Ongoing rate volatility continues to be a significant tailwind. Additionally, on 5/16/25, Moody’s downgraded the US credit rating from Aaa to Aa1. This likely drove significant volumes on Monday, 5/19, and should be another tailwind to their rates business. During Trump’s first term, CME, NDAQ, ICE, and VIRT outperformed due to increased volatility and trading activity. Throughout the first 100+ days of term two, not much seems to have changed, except that rates are much higher compared to his first term. With Lutnick in Washington, and news/commentary from Washington driving market sentiment, BGC is in a better position today than it was 8 years ago.

Energy Commodity Shipping – On 4/1 BGC closed the acquisition of OTC Global, which, was initially expected to add over $400m, however, based on the Q2 organic vs guidance, Q2’s guide embeds $115m of revenue from OTC Global, or $460m annualized, a 15% increase to the $400m figure generated in 2024. The negative side, and the potential opportunity, is that the margin profile of OTC Global is more dilutive than my and the market's initial expectation. OTC’s Adj. Pre-tax margins are likely in the low teens, compared to BGC’s 20%+ margins. BGC can reduce back office costs and consolidate operating systems, driving margins higher. Management stated margins should increase over the next several years as this unfolds. OTC Global also provides more cross-selling offerings with existing BGC energy products. Over time, the question remains: How much of the energy revenue can transition to higher-margin electronic revenue? Today, energy is all lower-margin voice/hybrid business. Should they be able to transition a portion of this revenue to Fenics-type margins, the earnings uplift would be significant, given energy is now BGC’s largest revenue segment, which I estimate will account for ~40% of 2026 revenue.

FMX Futures – In Q4, BGC stated they would launch FMX UST Futures at the end of Q1, which did not occur as ongoing market volatility caused delays. While this is believable, FMX has experienced nothing but delays. On 5/18, BGC announced that 2-year and 5-year futures are now live on FMX. Again, volumes will be low as they continue to onboard FCMs.

Lutnick Share Divestiture – On 5/19, BGC released news that shareholders have been waiting for. BGC is repurchasing 16.4m shares from Howard at an average price of $9.20 ($151m), while the remaining shares were sold to private investors and/or transferred into a trust. 16m shares represent ~3% of shares outstanding. No shares traded in the open market as expected, with the trust option coming to fruition. This was significant relief due to the sizable stake Howard had in the company. Josh Harris’s 26North and Oak Hill Advisors founder Glenn August will both become minority holders in BGC.

Upcoming Catalyst:

- Q2 earnings Results

- FMX Trading Volumes and the launch of the 10y Treasury Future

- Energy business integration and margin improvement timeline.

- Estimate revisions – 2025 increased from $0.30 to $0.40 (Adj. EPS) – Note that both estimates factored in the OTC Global acquisition

Compass Minerals (Ticker: CMP)

After researching and posting our initial write-up on Compass Minerals at $9.58, the stock proceeded to go vertical over the ensuing month+. After a ~85% share price decline, we knew sentiment was at all-time lows, setting up a nice entry point. I’d go on record saying the research depth and quality were likely the best/most we have ever done on a name. We conducted multiple interviews with distributors, shareholders, FOIL requests, and on-site inventory & production checks at competitors. Our conviction in the turnaround increased daily.

Coming into the quarter, I was well above consensus at $460m in revenue, $418m from salt, and $42m from the plant business (JPM – O/W rating Revenue estimate was $438m - $389m from salt). Results blew away expectations, with Salt revenue coming in at $433m (+39% y/y), driven by highway deicing revenue +43% y/y and C&I +30% y/y. January & February were much colder, icier, and snowy than historical averages, driving higher salt volumes. Free cash flow came in at ~$170m, stemming from a $147m inventory reduction. In Q3, we should see another working capital release from accounts receivable normalizing. My 2025 EPS estimates increased from $0.50 to $0.73, 2026 & 2027 estimates increased from $1.93 and $2.17 to $2.35 and $2.60, stemming from improved pricing and volume trends at both the salt and plant businesses.

Production costs in Q2 were higher than normal, stemming from lower production volumes at Goderich. While management didn’t explicitly state it, Goderich is likely operating near 100% capacity utilization. Depots are empty for the upcoming winter season. Thus, we will see increased demand for highway salt in the forthcoming bidding season. Our channel checks suggest pricing will grow at a higher-than-average rate. Pricing in the quarter declined 5.2% y/y as these contracts were locked in July/August 2024, during periods of excess inventory. With inventory depleted and salt producers struggling to meet demand, Compass is in an advantageous position to be a supplier in new markets or a supplier of last resort when supply is unavailable from a municipality's contracted supplier. In times like this, Compass can charge higher prices, like what we saw in Erie County, where emergency supply was rumored to be contracted at $82/ton compared to $71/ton Compass reported in Q2. Bidding for the upcoming winter season is ongoing, and we expect both volumes and prices to increase for the 2026 winter. Running Goderich at normal production volumes will drive cost/ton down, improving margins. As leverage is reduced, the investor universe widens as concerns over potential liquidity issues abate.

In addition to the positive results in the salt business, the plant business also showed signs of improvement, posting a slight loss of $1.8m with volumes rising 26% y/y and pricing +3% y/y, the first y/y price increase since Q2 2023. Management continues to focus on reducing costs and improving efficiencies at the Utah facility.

Compass’s assets are incredibly valuable, and even post the recent stock increase, it remains a very cheap stock. The high and declining leverage will be accretive to equity holders over the next several years.

Upcoming Catalysts

- Winter bidding season concludes in July/August – Management should provide 2026 winter guidance in Q3-Q4.

- Competitors – any production volume improvements