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People Need to Eat

The two pie charts pictured, which illustrate category spending as a percent of total personal consumption expenditures (PCE) for 2004 and 2008, led me to two conclusions: 1.) People need to eat and 2.) Casual dining operators are highly responsible for their current weakened condition.
  • As you can see in the charts, as energy, health care and housing costs have grown increasingly more expensive, they have eaten up a larger percentage of the consumer's spending. Over the same time period, however, food purchased at grocery stores and purchased meals and beverages have held relatively stable. Consumers are cutting back in other discretionary segments, such as autos and clothing/shoes, in order to maintain their ability to eat.
  • At first glance, I was surprised to see that the percent of the consumer's dollars allocated to dining out has stayed level at 7% relative to what we have all witnessed within the casual dining segment. Casual dining traffic trends have decelerated every year since 2004, turned negative in 2006 and have remained negative every month since February 2006. The disconnect between these two data points stems from the fact that the PCE trends do not account for the over supply of casual dining restaurants. Demand has remained at 7%, but supply (until just recently) has rapidly accelerated.
  • While people needing to eat has helped restaurants thus far even as consumers start to cut back on other discretionary purchases, consumer spending patterns could still get worse. As Keith McCullough pointed out on his portal yesterday, despite people thinking that the worst of the U.S. consumer has been discounted, U.S. consumer spending has remained positive for 64 consecutive quarters.

Garnett/Li-Ning Win, Adidas Loses

Kevin Garnett had a layup (excuse the pun) marketing opportunity to plug Adidas after his NBA finals victory. He took the shot. Unfortunately he scored for the wrong team. Doh!


I love Darren Rovell's commentary on Kevin Garnett's post-game interview after the Celtics beat the Lakers in the NBA finals. (Personal note: I missed the game because I was doing my evening research routine). When asked how it feels to be a champion, he responded by saying "Anything is Possible!" That's great, but the problem is that his sponsor Adidas' slogan is "Impossible is Nothing."

I went back and You Tubed the interview, and it is definitely not a complete disaster. But the salt in the wound is that the number 3 brand in China behind Nike and Adidas is a local brand called Li-Ning (traded in Hong Kong). Li-Ning's slogan is "Anything is Possible." When I traveled the streets of Shanghai and Beijing I counted at least 4 instances where there was an outdoor advertisement (usually billboard) for Adidas with an athlete saying "Impossible is Nothing", only to have Li-Ning leverage the eye traffic and have its own "Anything is Possible" ad across the street. It's quite funny, actually.

If I'm running marketing at Li-Ning, and I've got a basketball-obsessed nation that is gearing up for the Olympics, I'm salivating over this. If I'm running basketball marketing at Adidas, I'm in for a sleepless week.

Not an event of material investment significance as it relates to Adidas, but this blunder was too noteworthy for me to pass up.

HBI Cleaning Up. GIL Watch Out.

Hanes is absolutely cleaning up. Collectively, Hanes and Fruit of the Loom (owned by Berkshire Hathaway) account for about 75% of the mass market underwear business. But late last year, Hanes really started to pull ahead. Recently however, HBI stepped on the accelerator and its market share lead accelerated meaningfully. The April numbers show a 10 point market share lead - which is pretty huge given that FTL had the pole position just 2 years ago.
  • Both price point integrity and sell through rates (near 35%) remain strong. The reason is that there's finally a team in place at HBI that is running this business for growth, instead of being milked (better yet, bled) by former parent Sarah Lee. But at the same time, Gildan is going after HBI's share in mass channels. My sense is that Warren Buffett won't let FTL lose share forever. They'll push back. I remain of the view that GIL is underestimating the margin implications as it clashes with the titans.
  • This remains one of my favorite 'negatively inflecting business model' stories. Check out my 6/2 GIL posting. It lays the story out appropriately.

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Gold Rush: Every Time Gartman says sell it...

Analyst, Dennis Gartman, has a great commodities research product, but unfortunately he has succumbed to being held hostage by CNBC's "Fast Money" community for short term trading calls . This of course, has led him to making some pretty bad trading calls. He is an analyst, not a trader. This is no market for analysts to be trading. Maybe the Mets should get their 2nd baseman to start pitching, but I doubt that works for them either.

I'll continue to push being long cash and gold, until the "Fast Money" is washed out of the game. This note is not meant to embarrass Gartman, it's simply to hold him accountable.

Gold (via the GLD etf) was +1.2% today and the S&P 500 was down -1%. Being long Gold on a day like today is called alpha. Being long the market is called beta (Gartman is in print with something called a "watershed" call of being bullish on stocks). Being levered long the market is called a really bad idea.
KM

(chart courtesy of stockcharts.com)

MCD: Yep, Still A Short...

On 6/11, in the face of the sell side love fest with May sales results (its June), I wrote "MCD: Staying Short". Yep, Ronald was Red today, trading down -1.7% in what we call a negative alpha day.

See my Partner Howard Penney's Research Portal for his team's outstanding work on proactively managing towards what will happen at MCD next. Don't get caught looking in the rear view mirror at what has been.
KM

(chart courtesy of stockcharts.com)

WMT: Now It's On Sale...

On 6/11 I issued a note titled "WMT: Buy On Sale", and here we have it approaching our level in the $57 range. Patience pays. Buy Low, Sell High.

I am plenty short the US Consumer, and this is one of the few companies I can own who proactively managed their capex and expenses lower ahead of the downturn.

Wall Street might be shopping there soon too...

*Full Disclosure: I am long WMT again in my fund.
KM

(chart courtesy of stockcharts.com)

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