Short This Lemonade Stand

by Johnny Debacle

FailuresThis Lemonade Stand operates on the corner of Washington Street and Lincoln Avenue. It was founded in 2009. It’s primary business is as a leading provider of drinks and assorted packaged commercial food items to local customers. The main drink offering is “lemonade” and “cool-aid” both proprietary formulations. This Lemonade Stand charges customers 50 cents for a “small” (approx. dixie cup size) and $1 for a “large” (approx. solo cup size). The main packaged treat offerings are Kellogg’s branded rice krispie treats, priced at retail for $1. Revenue is estimated to be $30 per day. On a non-rent basis they are cash flow positive with 60-70% margins on the drinks and 40% margins on the food; if you factor in the rent attributable to their footprint within the greater property owned by the ParentCo (see org chart), it’s likely This Lemonade Stand is burning cash at a high rate, a situation that is unlikely to abate for at least 15 years.

A Reputation for Poor Quality

This Lemonade Stand was founded on a promise of fresh beverages to “keep you cool” on a hot day. Instead management oversees an operation that merely adds hose water to powdered mix drinks at incorrect ratios. For this they charge above market prices. The lemonade mix is bought in from Crystal Lite, not made from scratch like a premium lemonade ought be. The taste is awful — it has a certain unpleasant bite to it likely from the unholy combination of municipally treated hose water and random amounts of powdered mix. The “cool-aid” is an unidentifiable sugar-free red concoction. Both drinks are of such low quality that many customers pour out their drinks as soon as they are out of view from This Lemonade Stand. While management continues to lean on neighborhood sympathy to eke out what revenue they can, their high costs and reputation for poor quality are causing a flight towards substitutes such as “people’s own fridge” and “nothing”.

Illegal Work Practices

This Lemonade Stand appears to have no business license, no restaurant license, and no permits of any kind. The hygiene of the staff is notoriously bad as they are frequently seen returning from the bathroom with unwashed hands, picking their noses, and leaving their cups on the ground. They make no effort to hide the fact that they source water straight from the hose. Their claim that a portion of their revenue goes to the local animal shelter is unverifiable and possibly untrue. And the baristas who man the stand appear to be no older than 9, clearly not of legal working age. While their customers have been willing to look the other way when it comes to poor quality product, outrageous prices and unclean operations, they are unlikely to tolerate child labor in the long run.

A Study in Unsustainability

While This Lemonade Stand is not currently rated by any of the three two rating agencies(who are we kidding, seriously Fitch give it up), Melissa Moody’s Ratings Alternative Service rated it as BFFLSEBDTTWYMBTARD (Best Friends Forever Little Sister’s Edition But Don’t Trust Them With Your Money Because They Are Really Dumb), one notch above default; such a rating calls into question whether they will remain a going concern. They are burning cash at an alarming rate. To abate that, they would need to increase sales significantly, while improving on the reputation of their offerings enough to ensure repeat business. At present time their liquidity is acceptable, if only because it appears that ParentCo has the will to continue to fund the losses at OpCo. If ParentCo’s cash flows were to come under stress, OpCo would likely be forced to cease operations.

Recommendation: Short This Lemonade Stand, as they are quickly burning through their endowment of goodwill. It has been difficult to find shares to borrow. The market seems to be unanimous in the opinion that This Lemonade Stand is a bagel.

Related Reseach:

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  1. Pleb
    May 12th, 2009 | 12:55 pm

    As counsel I am compelled to remind the readers that our earlier use of the term, “Recommend You *Blow* This Lemonade Stand” has been retracted due to concerns that the term might have been an inadvertant allusion to illegal sex practices, rather than a simple admonition to leave behind, depart, or stay away from said lemonade stand. Suffice to say, LoSC does not advocate or participate (usually) in sexual activities that are prohibited in most jurisdictions.

  2. chin
    May 12th, 2009 | 2:32 pm


  3. Novice
    May 12th, 2009 | 3:14 pm

    Counterparties should reconsider their risk exposure. ParentCo is the neighborhood equivalent of Ron Perelman and will screw any creditors in the event of an OpCo default. Nanna and her board feign ignorance with the diffidence of a Gary Oldman-portrayed tycoon.

    However, in the short run suppliers may see significant gains if they suggest a new payables method to OpCo, legal under GAAPIZ: I’ll-give-you-three-shiny-quarters-for-that-dollar financing.

  4. SBMA
    May 12th, 2009 | 3:44 pm

    Gray is the best

  5. RichL
    May 12th, 2009 | 6:57 pm

    Can the business get SBA credit under the new rules? All OpCo has to do is have GrandParentCo fund the acquisition of a McDonald’s franchise with a GRAT at the current Federal interest rates, and your short is TOAST!

  6. May 12th, 2009 | 9:32 pm

    Shocker, Egan Jones wouldn’t touch that with S&P’s dick.

    Also, just let the structured finance guys (they have alot of time on their hands now) loose on this situation and voila, we’ve got $2bn of AAA paper that can withstand massive shocks through all tranches due to substantial credit enhancement (from ParentCo, mainly).

  7. Bean Counter
    May 13th, 2009 | 1:22 pm

    What about the strategery of offloading all the debt and losses onto DoraCo, spinning it off into it’s own seed-selling business and just keeping what little good things they have?

  8. Pleb
    May 13th, 2009 | 3:19 pm

    >>>>Egan Jones wouldn’t touch that with S&P’s dick.

    Hah! Made you say P!

  9. To The Hilt
    May 13th, 2009 | 4:10 pm

    Sounds like a perfectly normal REIT to me.

    They should raise equity while the raisin’s good.

  10. May 13th, 2009 | 10:33 pm

    @ Hilt

    Did Merrill fund/hold any of their debt? If so, then its a near certainty.

  11. geniu8s
    May 18th, 2009 | 12:07 pm

    China’s Stimulus Restores Confidence, Shows Recovery (Update1)
    Share | Email | Print | A A A

    By Eugene Tang

    April 18 (Bloomberg) — China’s 4 trillion yuan ($585 billion) stimulus plan has shown

    “better-than-expected” results in reviving growth in the world’s third-largest economy and

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    “China’s rapid

    The stock market keeps going higher

    dow 14000 soon according to experts


  12. To The Hilt
    May 19th, 2009 | 11:58 am

    ah yes, the old “billion people in China” bull case.

    foiling short theses since 2007.

    long lemonade stands!

  13. Matt Albers
    May 21st, 2009 | 3:57 pm

    Are you guys just going out quietly?

    No final email, no guns ablazing?

    It’s been over about ten days now…

  14. HF
    May 25th, 2009 | 5:57 am

    This is a great company to buy! You buy the company (a new bike or playstation will do the trick), trow the formulation to waste and sell the right to use the location!!

  15. HF
    May 25th, 2009 | 6:01 am

    I forgot to mention the right to use the hose water! imagine you could sell those to some water intensive business!!!!