JACK

Warming Up to IBM, Walmart Disappoints Again

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Most of us woke up to the news February 18 that Apple (AAPL) would be vigorously defending the privacy of its customers against a potential “overreaching” by the Federal Bureau of Investigation and/or others. The crux of the matter is whether Apple should unlock a phone that had been used by a shooter in the San Bernardino attacks early December, per the request of the FBI, as doing so may eventually jeopardize the personal safety and security of all Americans. Several tech CEOs have come out to support Apple, but any outcome on the matter will be difficult to predict. In a day and age where privacy is a major hot-button issue, CEO Tim Cook knows he needs to step … Read more

Chipotle Fourth Quarter Comps Suffer Greatly; Could Qdoba Be the One to Eat Chipotle’s Lunch?

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Chipotle’s (CMG) operating performance has come under tremendous pressure in recent months due to a number of reports linking illness in customers to its restaurants. At first, we thought the situation would be relatively contained to just a few dozen instances of sickened customers, but more concerns have come to light since we last commented on the topic. The media is having a field day. Can a company that prides itself on “Food with Integrity” endure, and why so many different causes of illness, from E. coli to salmonella to the norovirus? Could these events mark the beginning of the end of the burrito-making giant’s growth prospects, or is the bad press just a hiccup of indigestion, soon to be … Read more

10 Bucks per Hour; What It Really Means

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Source: US Department of Labor, Walmart Walmart (WMT) is quite savvy. The big box retailer announced February 19 it would raise the minimum wage for all of its US workers to $9 per hour in April of this year and at least $10 per hour by next February. The move comes amid ongoing public scrutiny of its labor practices, elevated worker turnover, and general malaise among the ranks on social media platforms. At face value, the news headlines show Walmart caving to public pressure, and a win for big labor, but in reality, the retailing giant is merely doing what good businesses do – pleasing customers (which are its workers, too) and widening its economic moat. Hiking wages accomplishes both. … Read more

Holy Guacamole! McDonald’s Wishing It Had Kept Chipotle

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Very few investors probably remember that Chipotle (CMG) used to be owned in part by McDonald’s (MCD). McDonald’s had originally taken a stake in Chipotle in February 1998, when Chipotle had but 14 restaurants in Denver. The maker of the Big Mac would go on to own 90% of the subsidiary and eventually spin it off in an initial public offering in January 2006. McDonald’s would receive ~$1.5 billion from the sale, but with Chipotle’s market capitalization now at over $20 billion, it’s clear the burger-and-fries behemoth exited way too early. The most recently-reported results by both restaurants tell the diverging story quite well. McDonald’s reported relatively disappointing second-quarter results Tuesday. The performance can best be described as flat. Global … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Restaurant Industry Update

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The fast-food (quick-service) breakfast wars have intensified. It has become a high-stakes game for all participants, and most have gone all-in to capture market share, to use poker parlance. The NPD Group, a leading global information firm, noted that the pace of expansion for fast-food breakfast across the restaurant industry has been a key bright spot, and executives across the industry are taking note: Quick service, which accounts for about 80 percent of total restaurant morning meals, showed the strongest increase in breakfast visits of all restaurant segments with a 4 percent increase in the year ending December 2013 period compared to year ago, reports NPD CREST, which every day tracks how consumers use restaurants and other foodservice outlets. Morning … Read more

McDonald’s US Comparable Sales Fall

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On Monday, McDonald’s (MCD) reported lackluster November comparable sales. European comparable sales (comps) were solid, up 1.9%, but comps in the APMEA (Asia/Pacific, Middle East and Africa) and US weighed on expansion, falling 2.3% and 0.8%, respectively. Performance in the APMEA was weighed down by weakness in Japan, while US comps suffered from heightened competitive activity and relatively flat industry demand trends that were only partially offset by strength in breakfast, chicken menu choices and expanded value offerings. Systemwide sales advanced 3.1% in constant currencies during the month. The news from McDonald’s is unique in that it runs counter to a report from the National Restaurant Association, released December 2, that the Restaurant Performance Index, RPI (1), hit a four-month … Read more

The Big Burger Trade-up

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Casual dining chain Red Robin (click ticker for report: ) reported strong second quarter results last week. Revenue jumped 6.5% year-over-year to $238 million, just a touch shy of consensus estimates. Conversely, earnings per share surged 48% year-over-year to $0.77, easily exceeding consensus expectations. Image Source: RRGB 2Q FY2013 Slides The most positive news from Red Robin, in our view, was the robust same-store sales growth rate of 4.3%. While the firm was lapping just a 0.8% increase in the year prior period, the increase was a nice jump sequentially, underscoring the effectiveness of the company’s brand transformation. Traffic declined 0.7% year-over-year, but that was far better than the 3.1% decline experienced by the average industry competitor. The combination of … Read more

McCormick Kicks Off 2013 With Strong Cash Flow

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Spices and flavor giant McCormick (click ticker for report: ) started fiscal year 2013 with a solid first quarter. Revenue increased 3% year-over-year to $934 million, easily exceeding consensus estimates. Earnings per share rose 4% year-over-year to $0.57 per share, in-line with consensus expectations. We were pleased to see a strong surge in operating cash flow, which jumped 39% year-over-year to $32 million. McCormick’s first quarter showed a remarkable divergence between its consumer and industrial businesses. The consumer business segment saw sales jump 7% driven by a 14% sales increase in emerging markets, as well as continued strength in the US and Europe. We think McCormick’s spices provide consumers with a relatively inexpensive way to improve tastes, which is important to … Read more