Loading...
Symbols:
Get Seeking Alpha Free Stock Alerts by Email!
Get Free Stock Alerts by Email!
Transcripts
- IntegraMed America, Inc. Q3 2008 Earnings Call Transcript
- Cell Genesys, Inc. Q3 2008 Earnings Call Transcript
- Columbia Laboratories, Inc. Q3 2008 Earnings Call Transcript
- Pacific Sunwear F3Q08 (Qtr End 11/1/08) Earnings Call Transcript
- Mad Catz Interactive, Inc. F2Q09 (Qtr End 09/30/2008) Earnings Call Transcript
- Provectus Pharmaceuticals, Inc. The Wall Street Analyst Forum Call Transcript
- Point Blank Solutions, Inc. Q3 2008 (Quarter End 9/30/08) Earnings Call Transcript
- Navios Maritime Holdings Inc., Q3 2008 Earnings Call Transcript
- Gran Tierra Energy Inc. Q3 2008 (Qtr End 09/30/08) Earnings Call Transcript
- Oxygen Biotherapeutics, Inc. The Wall Street Analyst Forum Call Transcript
-
Editors' Picks
-
Most Popular
- My Reconsideration: Why Share Buybacks Are Pointless
- GM Could Benefit from Bankruptcy
- Throwing in the Towel on This Market?
- General Electric: Genuine Risk of Collapse?
- Food: Against Self-Sufficiency
- The Fed: Now the World's Largest Private Bank
- Full list of Editors' Picks »
- General Electric: Genuine Risk of Collapse? »
- Memo to Warren: AmEx Preferred at 15%, Warrants at $12 »
- Peak Oil's Bell Is Ringing »
- Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor? »
- The Pickens Plan Changes Its Strategy »
- Jim Rogers on China »
- Thornburg Mortgage, Inc. The Wall Street Analyst Call Transcript »
- The Biggest Problem Detroit's Big Three Face »
- Tech May Be a Wreck, But This Isn't 2001 »
- Wall Street Breakfast: Must-Know News »
- Precious Metals Will Depose Cash from Its Temporary Throne »
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
Trading Center
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
Blantonw1
9 Comments
Town Sports International: Overreaction and Opportunity
Would add that GAAP EPS understates the true economics of the business because GAAP depreciation overstates ongoing maintenance capital requirements. The company is ABSURDLY cheap on the basis of owners earnings -- i.e. CFO less maintenance cap exp.
Town Sports International: Follow-Up
Both your original and updated analysis is spot on. Excellent work.
I would just add that the company's competitive position is as strong as I have seen in all industries as they have locked up much of the best real estate in each of their markets. It will be very difficult if not impossible for a competitor to establish a big enough presence in their markets to have a meaningful adverse effect on CLUB. Further, as a result of the clustering strategy, CLUB is the lowest cost operator in its markets. In terms of price and convenience of location (the two primary reasons why members choose CLUB facilities), there are no comparable gyms in the CLUB markets and this is unlikely to ever change.
Also, I believe CLUB could generate meaningful revenue upside from greater penetration of corporate accounts and improvements in personal training services.
The company can definitely improve upon their operations but this only represents upside. Even with sub-optimal operations, this business produce $110 million in adjusted EBITDA during 2007, which represented 10%+ growth.
Town Sports International: Gaining Strength
To the disgruntled employees -- QUIT if it is so bad. There are plenty of happy employees.
To the shorts -- STOP LYING.
Let's stick to the facts as BLAH and Tony Kent have shown.
Cash flow generation is robust.
The company is growing 8-10% per year, top and bottom line.
Cash flow is being invested in new gyms and to refurbish older gyms, which will continue to drive CASH flow higher.
The stock is insanely CHEAP relative to cash flows.
In terms of price point and convenience of gym location, the company faces NO competition. CRUNCH and EQUINOX charge much higher rates and have fewer and poorly located gyms.
The company only raises prices 1-3% per year. There is considerable pricing power in the model.
Risk of bankruptcy is laughable. DEBT/EBITDA only totals 3x. DEBT doesn't mature until 2014, when this company will be generating much more cash flow than today. Company has locked in 5% interest on variable rate debt.
This stock is a HUGE buy.
Whole Foods Market: Different Year, Same Story
In fact, Todd's basic premise is wrong. Todd states "Here is the thing. It really does not matter what you want to try to do to slice earnings, the only thing that matters is what drops to the bottom line."
Sorry Todd but the only thing that matters is cash flow NOT GAAP accounting EPS.
In the case of Whole Foods, the reported GAAP accounting EPS is heavily depressed by non-cash charges stemming from the accelerated roll out of new stores. The company showed EBITANCE so true investors could understand the operating cash generating capacity of the business. I will grant you that the measure of EBITANCE is probably irrelevant to those all-knowing day traders.
So let's take a look -- EBITANCE/share increased 15.5% to $1.19 vs. $1.03 in the year ago period -- not too bad and very good considering the company is also making accelerated cash investments in the new stores, which puts further temporary pressure on the reported results. So the stock is not "trading at an excessive premium to earnings" as you assert. In fact, the most recent issue of Fortune shows that the company is valued at just 12x the cash generated by existing stores.
More importantly, looking forward (which you should do) the new stores will steadily scale in each future period, generating increasing cash flow for investors. So the results are only going to get better.
Now let's touch on the second leg of your bearish view, which reflects a fundamental misunderstanding of the company. You write -- "With organic food being found at about every grocer including club stores like Costco (COST), BJ's (BJ) and Wal-Mart's (WMT) Sam's Club, a pinched consumer is far less likely to visit Mackey's locations." Without getting into my personal view of how out of touch with reality this statement is, I'll just rely on the facts. During the Whole Foods FY1Q08 ending 1/20/08, the company's comp store sales averaged 9.3%. Comp store sales continued to average roughly 9.0% during the first four weeks of the company's FY2Q08. These results are far higher than those reported by COST, BJ, and WMT. These results show your comments to be wrong. Whole Foods is not losing business to discount retailers trying to pass off fake organic food and despite the slowing economy, Whole Foods continues to see an increase in the number of customers shopping at its stores.
Whole Foods Market: On Track for Organic Success
And Alan -- you are not too bright...
First off -- Tesco is spelt with one S.
Second -- the Tesco US effort is already in big trouble.
"LOS ANGELES - A report from Supermarket News (yes, we read everything) indicates that Tesco's Fresh & Easy is doing miserably in the US. "...the 52 Fresh & Easy stores that have opened since November are averaging weekly sales volumes of $50,000 to $60,000, or about $5 a square foot — below the goal of $200,000 a week and $14-$22 in sales per square foot the company had projected." More ominously, even though the stores aren't laying people off, the article says F&E isn't replacing people who leave. [SN]"
Whole Foods: A Stuffing After the Turkey
Good luck.
Whole Foods: A Stuffing After the Turkey
"Well, it looks like both the market and I aren't as clued in to the story as you are." -- the stock has compounded capital at a 21% annual rate since going public. So the market has indeed been clued into the story and rewarded shareholders handsomely over the long term. Stocks bounce around over the short term -- e.g., as a result of irrational fears gripping traders/speculators... Substantiating your view based on short term stock price movements is the height of foolishness. During the very long period over which WFMI shares have compounded at 21% annually, there have been short term declines in the stock price equal to or greater than what has been experienced recently -- these were fantastic buying opportunities.
"Why do you assume that the massive capital spend in front of a recession like we haven't seen in over 15 years will be successful?" -- because a recession has never affected the Whole Foods business. In fact, during a period when the California economy is essentially experiencing a recession, the Whole Foods business is IMPROVING in this state. Further, Whole Foods stores are wildly successful (not one has ever failed) while recessions are transitory by nature...so any short term adverse effects of a recession on the Whole Foods business (which again has NEVER happened -- people still eat every day) would be just that short term and have no impact on the long term success of the new stores.
"Safeway offers consumers similar products at lower cost?" -- not true...again, go to the stores. There may be overlap on some products but in these cases the prices are very comparable. Further, the quality and breadth of the Whole Foods product is far superior to that of Safeway -- customers seem to be voting with their feet. You also can’t trust what you’re getting from conventional retailers – carbon monoxide infused beef for anyone????
"The analogy to SBUX and MCD is one of trading down, something that millions of consumers who have enjoyed raiding the home piggy-bank will have to incorporate into their lives." -- Interesting speculation but not consistent with reality. Unlike virtually every other retailer, Whole Foods same store sales are ACCELERATING.
"Why isn't COH a fantastic example of another luxury-oriented retailer that has both higher margins and a much lower valuation?" -- one of your more fundamental misjudgments. Whole Foods is not a luxury retailer (healthy food/groceries are a necessity not a luxury) and therefore has much less risk of a material decline in their business as a result of an economic downturn. To repeat, unlike virtually every other retailer (high end or low end), Whole Foods same store sales are ACCELERATING.
"You are very caught up on how high the psf sales are. I see this as a risk - they are expanding like gangbusters assuming that they can keep this up. I see this as confirmation of my characterization of the company as a "luxury retailer" (high-end at any rate)." -- ?????????? high productivity = luxury retailer ???????????
"The competition is intense - not just grocery stores adapting but also Tesco coming in, Trader Joe's etc." -- SAME STORE SALES AT WHOLE FOODS ARE ACCELERATING -- management has consistently shown an ability to adjust and adapt to changes in the competitive environment. Further, the market is plenty big enough to support other high quality food retailers. Unionized, conventional food retailers with outdated stores will get eaten alive over time. Additionally, Whole Foods treats its customers, employees, and the local community far better than conventional competitors like Safeway -- this matters as the numbers/facts have shown.
"So, I will defer to the market to decide if I have evaluated this situation correctly." -- The success of any company is measured over the long term and it is the CUSTOMERS who decide not the market.
Whole Foods: A Stuffing After the Turkey
"Obfuscation from a large merger." -- 2008 GAAP results would actually "look" better if the company hadn't acquired OATS...one time integration costs associated with the OATS acquisition depress margins over the near term -- so no obfuscation in the way you implied (although you did impress me with the big word).
"Artificially depressed "E"?" -- YES, re-read comments above re the cost dynamics and GAAP accounting.
"They are generating negative free cashflow" - CFO will be very strong in 2008. Cap exp will indeed exceed CFO but only because the company is investing heavily in new store expansion, which is very positive because such investments will yield meaningful incremental cash flow in the future.
"Same-store sales aren't accelerating! They are benefitting from food inflation. Get real!" -- check your premise and re-read the facts. Not going to explain the basics of the Whole Food business model to you.
"I did very well shorting COH, which is probably still a sell." -- who cares???
"Allow me to give you some free unsolicited advice: WFMI is to SWY as SBUX is to MCD" -- and here is some advice for you, get out of your ivory tower and walk into a SWF and then a Whole Foods...you'll no longer make ridiculous comparisons as a result of finding that the shopping activity at a Whole Foods far exceeds that of a Safeway all of the time -- there is really no comparison. And to reiterate a fact that will bring this home for you in case you can't get out of the office -- Whole Foods avg. revenue/sq foot is app $950 vs $450 for a Safeway. Safeway will certainly have it's place in the world but they will in no way impede the growth of Whole Foods.
Who knows what the stock will do over the near term but long term, the stock is going much higher. Enjoy.
Whole Foods: A Stuffing After the Turkey
seems the yahoo message board even understands the margin dynamic...i've copied and pasted for your education...
"the company has been investing heavily in new store openings...due to abstract GAAP accounting rules, the company has to recognize lease expenses on the income statement before the store actually opens (consequently no corresponding revenues and therefore downward pressure on margins) -- however this is just an accounting dynamic that has no implications for the cash margins of the business...
further, new stores by their very nature carry lower cash margins than mature stores due to lower sales volumes...consequently... in periods with large numbers of new store openings, margins will naturally experience some downward pressure -- this is NOT an implication of weak business trends...quite the contrary, it reflects new store openings, which are tremendously POSITVE for shareholders...as revenues grow in the new stores, the corresponding margins will approach those of the mature stores...
in addition to opening a record number of new stores in fiscal 2008, the company will also be incurring one time expenditures related to the integration of wild oats, which will temporarily pressure margins...these one time outlays should largely be over as we head into the fourth quarter of fiscal 2008...and the longer term benefit of such one time expenditures will be enormous as the wild oats stores realize sales volume and efficiency gains similar to those of a whole foods store, resulting in meaningful incremental cash flow in the future...
in 2008, the company will continue to invest in industry leading healthcare coverage for employees....this is a great investment -- happy employees = productive employees and happy customers, the combination of which will help margins rise in the future...whole foods has repeatedly been recognized as one of the best employers in the country, which further strengthens the company's position as an employer of choice...given that whole foods is so far ahead of its competitors in terms of investing in employee healthcare, any future expenditure increases on this front should have modest impact on margins as the combined benefits outweigh the cash outlays...
with all of that said, it is still NOT clear that margins will decrease in any meaningful way during fiscal 2008, which provides good insight into how strong the business is performing...and guess what is crystal clear -- margins will EXPAND in fiscal 2009 as the temporary pressures on margins subside....
as for valuation, your arbitrary assertion re the appropriate PE multiple for whole foods represents the height of ignorance...the E you use in your analysis is artificially depressed and therefore not relevant....personally... i have no clue what the stock price will do over the near term but i do know that the stock price will be MUCH, MUCH higher over the long term...
and here is the most important fact for shareholders to digest...comparable store sales are ACCELERATING during a period when fear mongers are asserting that the US is experiencing a recession, borderline depression in some states...specifically, for the first seven weeks of the fiscal 2008 first quarter, comparable store sales growth was 9.5% and identical store sales growth was 7.2%. In the immediately preceding quarter (4Qfiscal 2007), comparable store sales increased 8.2% and identical store sales increased 6.0%. This company’s business is continually IMPROVING during a period when virtually every other retailer is struggling…Whole Foods has a tremendously strong and robust business that will benefit shareholders for many years to come."