Eye On Populism...

The State employees of Utah are moving to a 4 day work week, allegedly...

This just in from USA of all places: "Utah this summer will become what experts say is the first state to institute a mandatory four-day work week for most state employees, joining local governments across the nation that are altering schedules to save money, energy and resources"...


KKD - You can't make this stuff up!

The opportunity to take KKD private has come and gone. Daryl Brewster, the Ex CEO, had one shot and he did not get it done. At current prices, KKD is trading at 13x LTM TEV/EBITDA and the EBITDA is not growing, but declining. It's hard to find another restaurant company that is more expensive than KKD. So why would some unknown asset management firm try to buy the company at $7.50? This has to be a joke. If this bid is real, I wish I could short the company buying it.

The best part of the whole story is what is being reported by the Winston-Salem Journal. The article questions the legitimacy of Dee Guess, the managing director of MGL Asset Management. Apparently, Mr. Guess has had multiple lawsuits filed against him and has used known aliases including Mario Guess, J.D. Guess and Jerry D. Guess. The paper also said, "There is no listing of principals in the company, no companies under MGL's management or ownership, and no track record of the principals managing and owning businesses." MGL was listed as incorporating in January on the N.C. Secretary of State's Web site.

There is nothing better than a warm glazed Krispy Kreme doughnut. Unfortunately, stiff competition, razor thin margins and rising commodity costs put significant pressure on the business model. The international opportunity is real, but not enough to offset the pending pressure on the domestic business.

Eye on "Meme Machines"...

There is a great article in "WIRED" today, recapping how natural selection accounts for evolution, titled "July 1, 1858: Darwin and Wallace Shift the Paradigm." I think it's very appropriate material for investors to noodle over as they try to figure out what to do next.

Wallace said, "It suddenly flashed upon me ... in every generation the inferior would inevitably be killed off and the superior would remain -- that is, the fittest would survive."

In a market oversupplied with hedge funds who are replicating one another's investment styles, the power of the "Meme Machine" is going to have inevitable fallout effects.

We are in the midst of a paradigm shift in global stock markets. Patience will pay. Those who have a risk managed process will survive, and new financial industry leaders will be the result.
Photo: Bettmann/Corbis

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CBRL - Needs to Reevaluate its Value Propositiion

CBRL posted June same-store sales results today of down 1.2% and based on current trends lowered its FY08 EPS guidance to $2.77-$2.87 (down from its prior range of $3.02-$3.12 per share). Additionally, the company is now guiding to 60 bps of operating margin contraction from FY07's reported 7.0%.
  • This increased margin pressure is most likely the driving force behind the company's decision to continue to increase its menu prices. Although the company maintains that its average check of $8.70 continues to offer great value in an environment that caters to the entire family, its declining traffic trends would indicate otherwise. CRBL, however, continues to increase its prices further (average check up 3.8% in June), leading to a 5% decline in traffic.
  • CBRL is obviously not alone in terms of weakened traffic trends as the casual dining sector overall has experienced negative traffic every month since February 2006, but CBRL's customers may be more sensitive to rising menu prices as 87% of the company's restaurants are located along interstate highways making the increase in gas prices more relevant to them.
  • SONC recently highlighted that its overly aggressive price increases caused a fall off in traffic, forcing the company to be more conservative with its pricing strategies going forward. We have not heard any such acknowledgement out of CBRL yet and in the meantime, traffic trends continue to fall. During CBRL's recent 3Q08 conference call, management defended its pricing strategy, saying, Our thinking on pricing continues to be geared toward providing a great value to our guest, while covering the dollar cost inflation pressures. We believe this strategy is working for us and although guest traffic declined 3.3% in the quarter, our traffic continues to run ahead of the industry as measured by the Knapp-Track index. I would just add that Knapp-Track is running negative as well.

SBUX - Free Coffee Wednesdays in July!

You know where I stand on the debate, but SBUX is not going to let MCD off without a fight!

This Aussi Central Banker Gets It...

Overnight, the head of the Reserve Bank of Australia, Glenn Stevens, did the right thing in signaling that he is done raising rates for now. Since he has been aggressively raising interest rates to address the inflation levels that he proactively predicted, he has earned the objective right to pause, and focus on worrying some about decelerating economic growth in Asia.

Unlike Bernanke's deflated cheap money 2% Fed Funds rate, the Aussi rate is 7.25%, and earning the Australian population who soberly saves a respectable return on cash.


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