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TRAVEL AND TOURISM: IT’S CERTAINLY GLOBAL THIS TIME

Growth in worldwide travel and tourism is slowing and, in some cases, falling in many areas. After perusing my daily First Rain update on this industry, I was taken aback by the number of negative data points coming from across the globe. I’ve included a few in this post.

Keith McCullough has hit on the global macro theme of “It’s global this time” aggressively over the past few months. I’m certain we are seeing a pretty dramatic slowdown in tourism and travel with big negative implications for the hotel industry. As the excerpts below show, Singapore, China, Canada, India, and the UK, to name a few, are struggling to attract tourists. In my 8/18/08 post, “US HOTEL REVPAR ‘LINKED’ TO THE DOLLAR”, I outlined the impact of a now stronger dollar and slowing global growth on international visitation to the US. Most of these hotel companies maintain significant international exposure as well. The US RevPAR growth story died earlier this year and the global RevPAR story is on life support. The only growth story left in lodging involves the continued demand for branded hotel product from overseas owners. With this in mind MAR is the only stock I’d in which I’d even consider a long position. Unfortunately, I’m still a ways away from making that call.


Article excerpts discussing negative travel and tourist trends

Ugly, Ugly Macro Chart... Running Japanese Investment Over By A Bus

When my teammate, Andrew Barber, brought up this data point in our morning meeting today, I said "pardon?"!

Toyota reported sales in Japan for the month of July today. For the 23rd consecutive month, the number of trucks & buses sold by Japan’s largest auto company in their home market declined on a percentage basis vs. the same month in the prior calendar year.

Ben Bernanke and Co. please look at this chart. This is what happens when economies are ran into the ground by Keynesian easy money bailout policy makers. No one wants to invest domestically/commercially, even though the money is free!

KM

BKC – Not Too Unlike its Competitors

BKC announced yesterday that it is adding menu items to its BK Value Menu. New items will include the Cheesy Bacon BK Wrapper and the Spicy Chicken BK Wrapper, which will be available for a suggested retail price of $1.39. Both items will also be offered as a Value Meal, which will include two wraps and will be priced at $3.99 for the Cheesy Bacon and $4.59 for the Spicy Chicken. BKC’s President of Global Strategy, Marketing and Innovation Russ Klein stated, “Unlike our competitors, Burger King Corp. is helping cash-strapped customers by adding to our BK(TM) Value Menu, not cutting back.” I found this statement kind of amusing because it seems like all of BKC’s QSR competitors have been adding more value items to their menus. And, they (BKC included) are doing so regardless of the impact on margins. Just last week, BKC reported that its 4Q08 U.S. and Canada restaurant margins (net of the reimaging program) declined 230 bps despite a 5.5% same-store sales lift.
  • NPD data point to a significant increase in the number of visits driven by deals within the QSR segment, particularly the hamburger segment (which includes BKC, MCD, WEN, etc), and based on recent menu introductions, we will continue to see the QSR segment chase less profitable traffic growth.
  • Other recently announced QSR promotions and added menu items at lower price points:

    Nation’s Restaurant News reported yesterday that 400 Wendy’s units in Florida will give away coupons for more than a million free Double Stack hamburgers on Labor Day. For reference, the Double Stack typically sells for $0.99 on the company’s value menu and is made with two hamburger patties, cheese, onions and pickles. At $0.99, this menu item is already cutting into margins, and now the company is giving them away for free!
  • Earlier this week, Jack in the Box introduced its Pita Snacks, a new product platform of snack-sized, wrap-style sandwiches, which will be offered at $1.99.

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Industry Nuggets from BWS Conf Call

Several interesting call outs for the industry from Brown Shoe’s 2Q results and conference call.

• Though traffic was down 5.2%, and total comps down 2.9%, athletic comps were +1.3%.
• Nike, New Balance, Reebok and Puma all stand-outs.
• No mention of Skechers.
• Skate doing especially well.
• Fashion and juniors down.
• Will be shifting more inventory to Athletic
• California, Nevada, Arizona and Florida all the most troubling markets. Ironically, Dick’s and/or Sports Authority are adding stores in all of them.

Eye On Two Americas...

Toxic levels of consumer confidence on Main Street remain. This is happening despite Wall Street's call to arms that we should "drill, drill, drill", bring down oil prices, and solve all problems inflation related in one fell swoop.

The US$ has recovered alongside the US stock market this month. Gas pump prices have fallen alongside oil's decline. But every week the ABC/Washington Post Consumer Confidence reading shows no dice. No change.

At a -50 weekly reading, all time lows remain reality in Main Street confidence. Two Americas remain as a result. Get used to Obama's attack dog Democrats reminding Wall Street of the same.
KM

Spain's Stagflation

Below is a chart putting a picture to Spain's ominous economic situation. This week Spain reported producer price inflation at a 24 year high of +10.2% year over year. As the Euro currency depreciates, European countries have an accelerating feature in imported inflation.

Why do global macro investors care about Spain's GDP? Well, for starters, it's still the 8th largest economy in the world. It's also one of the country's who levered up their balance sheet aggressively to the asset leverage cycle.

Stay tuned...
KM

(chart by Andrew Barber, Director, Research Edge LLC)

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