Sports Apparel Sales Weak: Market Share Matters

Not a good week for sports apparel per SportscanINFO. Both dollars and average price point were down near 10% -- a continuation of the trend we’ve been seeing in recent weeks. Market share matters… While no brands are exactly knocking the cover off the ball, I like Under Armour’s trends the best. Check out Exhibit 3 below.

The S&P 324

If SP500 held to it's $4B market cap hurdle, it would lose 166 components.

JBX – Franchisee Files For Bankruptcy

Nation’s Restaurant News reported yesterday that a JBX franchisee, Kobra Properties, filed for Chapter 11 bankruptcy in Sacramento last week. Kobra operates 71 Jack in the Box units, four Qdoba restaurants and five T.G.I. Friday’s units. The company also owns the fine-dining eatery Crush 29 in Roseville, California and has other concepts in development.
“Like families, governments and businesses everywhere in the Sacramento area, America and around the world, our company is facing difficult financial challenges,” company founder Abe Alizadeh said in a statement. “In the face of these challenges, we’re taking action so we can fairly honor our financial commitments, protect the thousands of jobs we provide and restructure Kobra Properties so we not only weather the storm, but emerge even stronger.”

Clearly, these challenges are not specific to JBX. As I have said before, franchisees in general are more greatly feeling the impact of today’s difficult operating environment, and I would expect to see more franchise operators file for Chapter 11 bankruptcy and/or require increased financial support from their franchisors whether it be in the form of loans or deferred payments (please see my post titled “Franchisees are Really Feeling the Pinch” from November 20 for more details).

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China: The Best Looking Major Country Chart In Macro

The Shanghai Stock Exchange Index (see chart) had another solid day of trading, closing up another +4% at 1,965. Considering the major policy moves the Chinese Government has made in the last few months, this chart looks as fantastic as it should.

Since the beginning of November, Chinese stocks are up over +15% (the USA is down -15%). They are cutting both taxes and interest rates. They are plugging in one of the largest domestic stimulus plans in world history. Who can afford to miss getting this wrong? This is not that complicated.

If we weren’t bearish on China (and Asian growth broadly) at this time last year, I may not understand the bear case as well as I feel my investment team does. We also have a research office there, which gives us both critical contacts and context to make this call. After crashing for a 70% peak to trough move, the nominal slowdown in Chinese growth is baked into the cake.

Commodity Exposure Exposed – Fast Casual and QSR

The tables below highlight fast casual and QSR companies’ commodity exposure and their most recent cost outlook for fiscal 2008 and fiscal 2009. Please see my post from yesterday titled “Commodity Exposure Exposed – Casual Dining” for more details.


I guess Las Vegas casino executives will have to find a new metric to promote to investors. McCarran airport data just released suggest occupancy will suffer a major hit in October. The number of enplaned/deplaned passengers declined 12.8% which was only slightly better than September at -13.2%. September was the worst year over year decline since 9/11 impacted the last four months of 2001.

Operators have consistently used the tool of adjusting room rates to keep occupancy above 90% to leverage the big fixed asset called the casino. The inability to maintain occupancy even with double digit rate cuts is very disconcerting. Gaming revenues are likely to begin declining at a faster rate or the casinos will have to cut rates even more and endure significant margin erosion. Not pretty.

We’ve dusted off our model which has been very accurate in projecting gaming revenues from just the airport data. October 2008 gaming revenues could fall by 17% assuming a normalized slot and table game hold percentage. Last year in October, slot revenue was boosted by an abnormally high hold %. On the table side, October volume was unusually high given the visitation level. October 2008 faces this tough comparison which should amplify the 12.8% McCarran drop.

If occupancy levels track the airport data, this will be a very bad signal for the duration of this downturn. I suspect any sustained Las Vegas recovery is a long way off. This is not good for MGM.

October will not prove to be very kind to the operators based on the airport data

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