Walgreen Company (WAG) has raised their dividend for the 34th year in a row, and this hike is more substantial than most at 22%. The anticipated yearly dividend will be 55 cents, raised from 45 cents over the previous four quarters. As the company’s CEO Greg Wesson said in the press release, “This dividend increase reiterates our confidence in our key growth strategies and our ability to generate strong free cash flow in the future.” The company has grown impressively over the last five years with an average revenue of more than 12%, but because of the recession the company has slowed new store openings. The increased dividend payout is expected to cost the company $99.2 million this year. It appears that at this time instead of using the capital to continue the breakneck growth, the board sees increasing the dividend substantially as a more appropriate use of the funds.

Walgreen reported 3Q earnings last month and results were mixed as the company reported better sales results but those sales were on lower margin items. This falls in-line with the company’s current strategy to emphasis on “affordable essentials” such as paper products and groceries. Even though this is pressuring margins, in the current consumer spending environment the strategy is tough to argue with. Because of the close competition among drug stores Walgreen’s has never been able to have high margins anyway, and their strategy is much more suited to making up for the lack of margin by selling volume and turning over retail inventory quickly.

The moneygardener darling, US drugstore chain Walgreen Co. (WAG), has increased its quarterly dividend by 22%. This is the 35th consecutive year that Walgreen has raised its dividend. Walgreen has been growing its dividend at a torrid pace over the past few years. In fact, since 2006 WAG has roughly doubled its dividend.

The stock is now yielding only 1.8%, however a purchase during the depths of March, 2009, would have yielded 2.6% on cost. It is interesting that the company is choosing to increase the dividend at such a high rate given the current slowdown in earnings growth. Walgreen's last quarterly earning report was actually down 9% from 2008. The pay out ratio is rising and the company's traditional objective of rewarding shareholders with growth may be shifting to include paying out cash in the form of dividends.

Business Summary

Coca-Cola is a global manufacturer, distributor, and marketer of non-alcoholic beverages. Coca-Cola sells syrups and concentrates to authorized bottling and canning operators. Coca-Cola has equity stakes in 20% (by volume) of these operators.

No slowdown in dollar stores as Americans on Main Street are wrecked by the Great Recession. Family Dollar (FDO) just reported a very nice set of numbers - obviously the Street was under the impression the recession is over judging from the stock the past 2 months. It actually broke down below the 200 day moving average as of the last week.


Despite Wall Street's protestations (and Dennis Kneale's), Americans remain stuck in the Walmart section of retail, not Target [Dec 26 2007: Target Shoppers Turning into Walmart Shoppers]. Remember, since I've started this blog not 2 years ago the percentage of Americans on food stamps has jumped from 1 in 11, to 1 in 9. [Jun 8, 2009: 1 in 9 Americans on Food Stamps] This appears to be helping Family Dollar which unlike most "dollar stores" has food items as well.

Jack in the Box (JACK) is a fast-food restaurant company with 2,670 locations across the U.S. The vast majority (82%) operate under the Jack in the Box banner in 18 states primarily in the West and Midwest regions. About 60% of these stores are company-operated. JACK derives franchise fees and royalties from the remainder.

Jack in the Box restaurants offer burgers, fries, breakfast items, snacks, soft drinks, shakes, and smoothies. It offers a value menu as well as premium products such as entrée salads and specialty sandwiches. Most locations provide drive-thru service, which accounts for about 70% of companyowned store sales. The remaining 18% of stores operate under the Qdoba Mexican Grill banner. The Qdoba menu includes a broad selection of premium Mexican-inspired food items such as tacos, burritos, and nachos. Food is prepared in front of the customer and the focus is on fresh ingredients. Qdoba also provides professional catering services.

Long-time readers may recall our many postings on diamond company Lazare Kaplan (LKI) throughout the years. A perennial net/net, its a company that we owned for a 2 year period until February 2008, when we sold out at around $10. Truth is, we made a little money (26%), but the story had gotten dull, and we were convinced that LKI was just one of those companies that would forever trade below net current asset value.

Interestingly enough, in October 2007, Lazare announced a bizarre 1 for 101 reverse stock split, followed by the buy out of any shareholders owning less than 1 post-split share, and then by an immediate 101 for 1 forward split. This was intended to reduce shareholder roles to save an estimated $25,000 per year in costs. At the time, we thought that the company was aiming to go dark. That has not happened.

With the market being topsy-turvy as of late, consumer staples stocks are coming back into vogue.

The appeal of these stocks is their more stable business models and lower beta. What should really attract you, however, are the rising earnings estimates - particularly for food companies.

Q2 2009 Earnings Call

July 8, 2009 11:00 am ET

Q3 2009 Earnings Call

July 8, 2009 10:00 am ET

So-called “value” menus offering fast foodies a variety of options for a buck or less have proved popular for customers looking for a recession-friendly snack. But a new $1 menu play – a double cheeseburger – from Burger King (BKC) may change the game.

That’s right, two patties for one dollar. While the initiative has not yet been approved, this could be a major summer value introduction.

• Household financial situation has stabilized, as 63% of panelists think that their financial situation is the same as last month, and a few more feel it is better than last month (15% vs. 13% last month) , although 82% of consumers continue to feel their financial situation is the same or worse than last year.
  
• We’re seeing less optimism for the future, though, as fewer consumers believe that their financial situation will get better, with 37% who think their financial situation will improve (vs. 42% last month) and more panelists think it will be worse, at 8% vs. 5% last month.
• Layoff fears, though, are less prevalent in consumers’ minds, as 32% feel that someone in their household could get laid off or receive lower income this year (down quite a bit from 40% last month).
• Confidence in the economy has stabilized, as only 34% of consumers feel the US economy is getting worse this month (vs. 43% last month and vs. 73% in February!), and 22% believe it is improving, vs. 19% last month (and 6% in February!).

Watch this video. This goes directly to the strategy at AutoNation (AN). The luxury auto market was dragged into the recession and will lead the auto market out. The length of time sales spend in it will be dwarfed by domestic and non-premium imports.


Just yesterday I wrote about AutoNation's Mercedes push. When I first spoke with CEO Mike Jackson last year, before the credit market imploded, he was stressing his desire to move the company away from domestic and into imports with a special emphasis on premium brands.

The technicals started to break down three weeks ago. Now the "panic" has begun to set in (nightmares of early March - do we revisit those lows?) Now, everyone has decided what was great in early June is surely going bankrupt. We're seeing a run to Treasuries (oh, those wonderful safe yields. Would anyone really like to hold 20 year Treasuries to maturity at those rates?).

Jos. A. Bank designs and sells formal, business, business casual, and sports apparel for men. This 104-year old retailer has 463 stores across the U.S.

JOSB offers a full line of men’s attire including suits, tuxedos, shirts, vests, sport jackets, pants, overcoats, sweaters, ties, belts, socks, and underwear. It markets multiple tiers of clothing which vary in quality, price, material, design, and availability. Many clothes incorporate wrinkle-free and stain-resistant technologies. The Stores segment generated 89.5% of net sales in fiscal 2009, which ended Jan. 31. This segment includes the operations of 444 company-owned stores across 42 states and the District of Columbia. Most stores offer on sight tailoring services.

Investing is a lot of hard work. The time one has to spend staying current on existing positions, analyzing candidates for new positions and staying on top of macroeconomic events that could take a heavy toll on your portfolio despite the quality of your individual investments, can quickly add up. While we have been blessed with a number of powerful tools, we have also been cursed with access to so much information that the signal to noise ratio is rapidly diminishing.

When looking for new investment opportunities, I have found it useful to look back at positions I once held but are no longer in the portfolio. If an old position is now at an attractive price, it saves me the time required to familiarize myself with the company, the sector it operates in, seasonal effects if they exist and the price history of the stock.

General Electric (GE) and Best Buy (BBY) were both viewed as the apple of investors’ eyes until the last few years. GE had a rock solid reputation for producing steady profits and dividends that were almost too good to believe, in the Bernard Madoff sense. Of course it’s unfair to call GE a Ponzi scheme, but the consistency of the company’s performance should have caused concern. At the opposite end of the spectrum, Best Buy grew like a rocket along with the housing and CD music booms.

Now GE’s appliance and lighting businesses have weakened with the housing bust, and financial services has become addicted to government guarantees to sell debt. The Wall Street Journal’s “Unable to Unload Limping Divisions, GE Invests in Propping Them Up” reports that GE has to renew investments to protect the survival of these consumer businesses it could not sell.

PriceSmart (PSMT), which operates US-style membership warehouse clubs in Central America and the Caribbean, reported monthly sales results for June yesterday. Net sales increased 4.0% to $95.7 Million, while same-store sales were up 1.4% YoY on top of a 20.0% gain in the year-ago period.

Though they are still outperforming their peers, having yet to report negative same-store sales throughout the recession, growth has slowed considerably over the past year.

It’s amazing to see how many retail stocks have booked incredible gains over the past several months. The gains are largely a combination of severely depressed stock prices during the market panic of late 2007 / early 2008, and a very significant change in investor perception regarding how consumers spend available income. The low base coupled with optimism in certain issues has resulted in a handful of stocks with triple digit gains - many of which come from the retail sector.

BJ’s Restaurants, Inc. (BJRI) is one of those stocks which has experienced an incredible rally over the past several months. The stock rallied 174% from its low in November to the recovery high of $18.14 in late April. Since that time, the stock has consolidated its gain as investors attempt to gauge the future growth of the company. On Monday, BJRI was featured in Investor's Business Daily as the “New America” section explained how the company has grown rapidly despite the harsh economic environment.

Executives from Nike (NKE) told Business Week in a recent interview that eco-conscious and "do-good, feel-good" marketing doesn’t fit the ethos of the Nike brand, according to a June 30 story posted on Retail Wire. The irony of that statement may run deeper for Nike than you would imagine. Nike in fact has been cleverly avoiding, in many people’s minds, substantiated accusations of human rights and child labor violations for over 12 years. The central theme of these allegations are that Nike puts profit above human dignity, and, in some cases, human life.

Nike’s gross sales are well above $18 billion worldwide. Its marketing budget exceeds $500 million and is probably closer to $1 billion. Nike has cornered the market on celebrity endorsement and is said to pay Tiger Woods a whopping $22 million per year to wear the Nike swoosh. Yes, $22 million. And Tiger Woods is only the first tee in the bag. It is very hard to miss the Nike logo as it just happens to find itself in the center of photos in publications covering amateur and professional sports. It might be the most prolific sports logo of all time.