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Market Share Blowout

I commented last week about my 'Athletic Footwear Rebound' theme, and FL being the best and most levered value-play on this trend. It probably makes sense to look at market share trends with the different brands as well. The trends are very telling.

Nike and Brand Jordan. What's there to say here? Business is solid. The brands have collectively gained 5 points of share thus far year-to-date (and not slowing). They won't give it up anytime soon. I wish I could say this about Nike's apparel business, which still can't find its groove. But with 46% share of a $9bn wholesale footwear market, Nike needs about 1.5 points of share gain to maintain the 3-4% top line growth rate necessary to fuel its broader financial model. 5 points gets Nike's USA team a strong finish to a solid year.

AdiBok: Adidas and Reebok can't get out of their own way. Brand adidas is not doing badly - market share consistently down by half a point (but getting less bad on the margin), and order levels are healthy. Adi might fare well in an athletic rebound as the brand never lost relevance (especially in apparel). But Reebok's chart almost suggests that share is going to zero. Almost every retail contact I have in my arsenal agrees that there is absolutely no reason to buy Reebok. The consumer simply does not want it. Reebok's share is down to 3-4%, but keep in mind that its share in lower-end department stores is closer to 8%. Yes, this is very very bad. With cost pressures heating up, and Under Armour coming in (Reebok owns the NFL license, and UA is all over football) my bet is that RBK loses another point at a minimum over a year. That might not sound like much, but it cuts the size of the US business by another 25%, or $90mm wholesale. While not a death sentence for AdiBok, UA has got to have its eye on this one.

One statistic I've got to throw out there is that New Balance - which has 9% of the US market - is larger than both Reebok and adidas combined. It now stands as the number 2 brand in the US measures in sales. Though with 80% of its sales in running and cross training (the two categories UA is targeting) I suspect that things will get ugly for NB.


Chart below shows year/year point change in market share by brand. Courtesy of NPD Fashionworld.

GMCR - Barron's and GMCR

Barron's pointed out that GMCR is slightly over priced! The clever writer at Barron's asked the question is coffee the new black gold? At 44x NTM EPS people are buying into the single serve coffee brewing revolution. As I pointed out a few weeks ago, the GMCR business model has a few small holes in it, because a licensed roaster can't make any money. Importantly, GMCR is a regional company and does not have national manufacturing capabilities. As a result, it will be very expensive for the single serve revolution to spread past the North East.

...the Donger need food.

Yes, this title partially refers to the character Long Duk Dong in the 1984 hit '16 Candles.' But more importantly, it refers to the crisis with the Vietnamese Dong. The currency is coming off its greatest 2 month slide since the Asian currency crisis 10 years ago. Why does this matter to me as an apparel/footwear analyst?
  • Vietnam is the #2 producer of footwear outside of China. While its share is only 5% vs. China's 84% (it is also 5% of apparel vs. China at 40%), it serves as a low cost buffer for production when China takes up prices and/or cannot meet production needs.
  • With inflation running at 22% and workers are striking because wage hikes as high as 14% are not enough, and the currency doing nothing but go down, I can't possibly see how this is a good thing. This is not good for anybody in any industry.
  • While I think that numbers look very good at Nike, I'd be remiss to not point out that 31% of its sourcing is in Vietnam. Adidas is 28%

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MCD - News from Europe

Over the past three years, McDonald's same-store sales in Europe increased 2.6%, 5.8% and 7.6%, respectively. The primary countries contributing to the strong trends performance included France, Germany, Russia and the U.K. In total, Europe represents 38% of McDonald's 2007 operating income. Here is what we learned today about two important European economies:

According to Experian Group Ltd., the number of Britons visiting malls and town-center stores dropped in May as higher food costs, fuel prices and mortgage rates cut into disposable incomes. The shopping statistics in May dropped 1.5% from last year and 3.4% from April.

Retail sales in Germany, Europe's largest economy and McDonald's largest European market, unexpectedly dropped for a second consecutive month in April as faster inflation left consumers with less money to spend.

The three year stack in same-store sales is as difficult as it's ever been for McDonald's and European consumer spending is slowing.

YUM - CEO's Comments on China

Comments made by David Novak, CEO, of YUM brands speaking at a conference:

in that province - just one part of province, we had 73 restaurants, all but two of them are back in operation today. We've made significant contributions to people in need there. We had some financial issues with some of the stores in that particular province. So when we look at the business, we think we probably had about around a $5 million impact overall.

He went on and implied that the three day of mourning slowed same-store sales trends. The obvious question is how much have sales slowed and for how long?

RRGB - Buying back stock because?

RRGB put out a press release stating during the board of directors meeting on May 28, 2008, the board reaffirmed its intent, as previously announced in a press release dated August 16, 2007, to repurchase up to $50 million of the Company's common stock.

Buying back stock makes no strategic sense to me. Is this a great use of shareholder's capital? At 15x NTM EPS, I guess the stock looks cheap, but given the Q1 miss the earnings estimates may be aggressive. Is the board trying to send a signal that everything is ok? Even though the advertising campaign did not lift same-store sales as expected. Between buying back franchisees and it's accelerated pace of development, the company is burning cash. If we add in cash spent on buying back stock, RRGB will be taking on more debt, adding to the P&L volatility.

In this environment, debt is s dirty word!

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