scott146

http://wasatchecon.blogspot.com

69 Comments

    • Peltz Signs Confidentiality Agreement With Wendy's [view article]
      Wendy's had better get its act together quickly. Other chains have improved their menus and store ambiance. Wendy's food quality seems to be declining a little bit, and the fact that you have to go ask for a refill on a drink when every other chain lets you do unlimited refills self-service is a real annoyance. I suppose that stagnation is what you can expect when a charismatic leader of a company dies, though. I imagine there have been some power struggles since at Wendy's HQ since then. Aug 29 03:42 PM
    • Garmin, Navteq Soaring; GPS Is Hot [view article]
      I think that the size of the market in unit volume for handheld GPS receivers is going to continue to mushroom as the price for a basic unit drops below $100. At that point, a lot of people who don't want to pay to have a system installed in their car will be willing to buy the handheld as a much cheaper navigation alternative. I have been keeping an eye on the low-end models and have seen some at around $95 on sale.

      I see the handheld as a product that should have a lot of success in the US with the 18-49 middle class male demographic. The gadget factor of this product is appealing to a lot of men, and not having to stop and ask for directions would be a huge selling point as well.       Aug 01 04:03 PM
    • Sony's Playstation 3 Battle Plan Isn't About Gaming - It's About Costs [view article]
      I think that downloadable and physical video will be complementary; I have had very good experiences with movies on demand through my cable provider. The interface was easy to use and pausing and rewind was actually easier than with my DVD player. That said, if there are movies that I want to own (mostly for the kids, as they watch each movie literally dozens of times) I will definitely prefer to buy the physical disk.

      I think that your analysis makes a lot of sense, and reinforces my sense that the XBox division is a giant cash-sucking black hole for Microsoft.       Jul 13 10:40 AM
    • US Airways: Unhappy Pilots Prove Airline Merger Difficulty [view article]
      It appears that the airline industry is analogous to the US auto industry, where a large portion of the industry problems are caused by the unions and the internal union politics. Using seniority as a tool to allocate rewards seems to be one of the worst ways to manage an organization. Perhaps if choice assignments were allocated based on pilot performance rather than seniority, not only would smoothness of flights, on-time performance, etc... improve but these merger issues might disappear as well. Jul 12 12:52 PM
    • Why Microsoft Must Come Clean About Xbox 360 Flaws [view article]
      Microsoft's response so far to this crisis shouldn't be a surprise to anyone. It is an extension of their tactics toward competitors; by non-response to journalistic investigation of the defect problem Microsoft is maintaining uncertainty about the extent of the problem with the intent to maintain sales of the product. I think the company's people in charge of this issue think that given the PS3's problems that console buyers have nowhere else to go and so stonewalling won't be that harmful in the long run.

      N'Gai Croal asks "Did Microsoft's zeal to have the Xbox 360 both launch first and turn a profit--after the first Xbox launched second and lost billions of dollars--cause it to cut corners in a headlong rush to market, resulting in the current debacle?" I think that the answer to that question will turn out to be a resounding "yes!"       Jul 11 05:26 PM
    • Can The Gap Turn Things Around? [view article]
      A really great analysis. Your comment that "You can’t be an edgy clothing retailer when you’re selling large volumes of goods to your desired market’s parents" should be carved into the wall of every Gap executive's office. I am in my late thirties and used to shop at Gap stores because they consistently had the basics, i.e. business casual and denim. When sales growth started to flatten because they had saturated the market with their stores, they started flailing around with more bizarre items and that pretty much turned me off. Their gimmick commercials with retread rock stars did damage to the Gap brand as far as younger shoppers were concerned, as well. Also, there is a limit to how much of the basics a clothing purchaser needs, especially those in their thirties and forties. You aren't growing physically(hopefully) so a few purchases of khakis, some polo shirts, and some denim jeans and shorts is going to last you a while. So I think that the Gap business is going to have to accept that it is a mature business and will need to be managed as a dividend-generating business. Based on that, I agree with your points 1, 2, and 3, but not number 4 as far as the Gap line is concerned.

      I think that the Old Navy line should just be liquidated; long-term I don't think that the business model can survive against Target and Walmart. When your kids are shopping for discount clothes, they don't want to advertise the brand when they wear the clothes. Perhaps they could negotiate a deal to sell Old Navy branded product through Walmart's stores and eliminate the store overhead they have now.

      Last time I looked, Banana Republic's prices were significantly higher for similar items that Gap's. I see BR as competing with Nordstrom. I suppose Gap's theory is that once you get to a certain income level you will shift to shopping at BR from Gap. That doesn't make any sense because it's shifting sales around within the company as a whole.

      My answer to your question is that I don't think Gap management understands its problems and is basically throwing darts and hoping they hit something. I think the best course of action would be for a breakup of the company. Spin off BR as an independent company, liquidate Old Navy stores and cut a deal to market the product through an established big-box discounter, and focus on the Gap brand by reinforcing the denim and business casual product line and accept a position as a value stock rather than a growth stock.       Jul 11 12:33 PM
    • iPhone: A Look Inside [view article]
      So what it boils down to is that this is likely to be hugely profitable for Apple as the contribution margin is either $299 or $380 each. Just goes to show the value of a brand... Jul 02 04:39 PM
    • Recession or Slowdown: What Do the Numbers Say? [view article]
      Thanks for the pointer to the Chicago Fed report and the activity index chart. On your classification chart, including a link to the underlying report or data source would be useful. I think the format with four categories of indicators is good. Jun 26 10:03 AM
    • Gap: Great Potential, But Where is it Going? [view article]
      If Lampert took control, perhaps a sensible strategy would be to move the Gap stores concept into the Sears and Kmart buildings as the mall leases expire; in fact, why not move the Old Navy concept to the Sears and Kmart buildings as well. Jun 14 10:48 AM
    • Hedge Funds and the S&P 500: Too Close For Comfort? [view article]
      It would seem that the S & P 500 is a pretty good index, after all. If after all the scrounging for opportunities done by all of the hedge funds, they come up with returns similar to the S & P, that says to me that the index is a pretty good proxy for the market as a whole. Jun 12 10:47 AM
    • Coca-Cola: Lagging Fundamentals May Impede Further Dividend Growth [view article]
      Increasing the dividend payout seems like a reasonable way to return cash to shareholders when the company doesn't think there are sufficient places to invest the cash in the company's market sector. Jun 11 11:43 AM
    • Crude Inventories Report: The More People Watch It, The Less Useful It Becomes [view article]
      This phenomenon is a confirmation of the efficient markets hypothesis as the trading value of this information has gone to zero as the amount of attention paid to the data increased.

      Although this information is now useless as a trading indicator, it does tell us that crude prices have become disconnected from US inventories. According to the EIA's data, crude inventories have been at the top of their historical range for more than a year...so the price of crude reflects future event risk more than it does current supply concerns.       Jun 06 02:04 PM
    • Oil and Gas Drilling: The Price is Right But The Industry's in Trouble [view article]
      A logical explanation for lack of investment in exploration by oil majors lies in the idea that 80% of the world is controlled by state oil companies and is, therefore, unavailable for competitive investment and drilling. Since future oil finds are likely to be controlled by state companies, oil majors could reasonably either return capital to shareholders through dividends, or alternatively focusing on refining; purchasing crude at market prices and relying on the crack spread for profits. Jun 06 01:48 PM
    • Peak Oil Test Looming [view article]
      Actually, the EIA's This Week in Petroleum reports have been showing US crude oil stocks sitting at the very top end of the historical average for quite some time(see my post US oil and gas update. So in my view, crude supply isn't the problem with respect to gasoline prices in the US. I think the key factor at this point is what US refineries are doing; the changeover to summer gasoline formulations, refinery problems, and the lack of investment in new refining capacity are what's driving gas prices higher. May 29 06:11 PM
    • Private Equity: Discipline Is Giving Way to Momentum and Euphoria [view article]
      In the search for yield to meet their pension/return promises, institutions are spreading money around like never before. A large number of public pension funds have announced increased allocations of capital to private equity; no wonder the PE people are focusing getting deals done. If one PE shop doesn't invest the money, the money will be shifted to another shop. This is a re-hash of the dot-com scenario where some investment bankers resisted doing IPO's for companies with no revenue and no cash flow until they saw that the public was snapping up these IPO's and the competing investment banks were making a fortune. May 23 06:48 PM
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