The International Council of Shopping Centers (ICSC) is blaming Shrek 2 for retail sales' 0.5% drop off last week. That compares with a sales rise of 5.5% in the same week a year ago.
The numbers are immaterial. We have always warned to look out for business leaders who lay blame for underperformance on external factors beyond their control. But this takes the cake. According to ICSC, retail sales were down because too many people went to see a movie about a jolly, green ogre.
Give them credit for creativity, but couldn't the ICSC have at least come up with something more legitimate? Like people are afraid to leave their homes because in certain parts of the country drunken 17-year cicadas are having the party of their short-lived lives?
In today's Motley Fool Take:
- Krispy Kreme: Up in the Air?
- Shameless Plug: Motley Fool Stock Advisor
- Schwabbing the Decks
- Discussion Board of the Day: Discount Brokers
- Heinz on a Roll
- Quote of Note
- Cingular Sells Out
- More on Fool.com Today
Krispy Kreme: Up in the Air?
By Alyce Lomax (TMF Lomax)
It wasn't entirely unexpected, but Krispy Kreme Doughnuts
When you exclude the loss resulting from the Montana Mills closure, Krispy Kreme reported first-quarter earnings of $14.3 million, or $0.23 per share, which matched its reduced expectations. On a more upbeat note, total revenues increased 24% to $184.4 million. Same-store sales eked out a 4% increase, overall, while company store sales were up 5.2%.
However, Krispy Kreme did say it's cooling down on the expansion front, cutting the number of outlets it plans to open this year to 100 from 120.
Krispy Kreme's been a hot topic here at the Fool, since we've hosted quite the duel during the days following the company's warning. Rick Munarriz provided a cautiously optimistic stance, and Bill Mann penning a view that is downright cautious. Meanwhile, the "Hot" light is on at the Krispy Kreme discussion board, where investors have been exchanging opinions as to whether it's time to buy, sell, or hold this Motley Fool Stock Advisor stock.
Despite today's recent tentative increase in stock price, it's little consolation, considering the stock has fallen 37% in recent weeks, ever since it warned of coming disappointment.
Personally, I'm not convinced that Krispy Kreme's niche in doughnut decadence is a thing of the past. As I've said before, I've been wondering if the mass appeal of low-carb dieting is beginning to subside, as most diets that reach the officially crazed "fad" status do.
However, were I to consider sampling shares of this doughnut purveyor, it seems pretty prudent to give some time to look for recovery, and to carefully track some of the hints that things may not be as they seem. As much as profits down the road could be sweet from these levels, right now it seems like one risky sugar rush.
Alyce Lomax does not own shares of any of the companies mentioned.
Krispy Kreme was a Motley Fool Stock Advisor pick long before its sugar-spiked rise in price. Want to know what other stocks Foolish co-founding brothers David and Tom Gardner are recommending? Take a six-month free trial for a spin.
Schwabbing the Decks
By Alyce Lomax (TMF Lomax)
Is a commission war on tap between the discount brokers? Charles Schwab
Schwab, a Motley Fool Stock Advisor pick, said it intends to cut trades for clients with more than $1 million in household assets to $9.95. For additional clients, it is reducing the commission fee to $19.95, and for those who make more than 30 trades per month, the fee falls to $14.95.
The discount brokers have enjoyed some hectic times recently as the stock market has recovered. While Ameritrade and E*Trade have both reported stellar quarters, Schwab hasn't quite matched that torrid pace. One reason may be that its commission rates were higher than its discount rivals. And the lower the commission rates, the more attractive to individual investors.
Low commissions, of course, are not the only value proposition in the space -- so is a drive toward providing the tools for investor education (an ideal we adhere to here at the Fool; check out our Fool's School). Investors are likely to look at all their options in terms of getting the most value for their money. Last winter, when Rick Munarriz compared brokerages in Don't Get Blindsided by Your Broker, he recognized that while Schwab's commissions were skewed toward the high end, it has gained popularity through its solid reputation and large network of Investor Centers.
Schwab shares fell nearly 6% in recent trading, and the other discount brokers followed suit. It is, after all, a tough time to up the competitive ante. The stock market is traditionally slow in the summer. Just take a look at your own lives: It's a hotter time for surf, sand, the open road, time shares, and blocks of cell phone-free vacations (with any luck, right?). Meanwhile, investors are likely still worried about several things that could cool off consumers, business, and the market: the specters of rising interest rates, gas prices, and the like.
While it may make the short term rocky, in terms of growing revenues and earnings, the move may help Schwab persuade some price-sensitive investors to defect from its upstart rivals. And speaking of shopping, all the brokerage shares noted above are trading well below their 52-week highs. Though the lazy summertime is almost here, it may be an apt point to evaluate stocks in the space for the long haul.
Alyce Lomax does not own shares of any of the companies mentioned.
Do you want tips for your own foray into trading? Do you love your discount broker and want to talk about why? Talk it over with other Fools on the Discount Brokers discussion board. Only on Fool.com.
Heinz on a Roll
By W.D. Crotty
Ketchup king H.J. Heinz
Heinz, General Mills
Ignoring carbs for a moment, Heinz has been shaping up its balance sheet and building cash. The cash conversion cycle -- the time it takes to make a sale and get that cash in-house -- declined from 75 days to 64 days. That is outstanding -- especially for a company Heinz's size. A 200 basis-point increase in return on invested capital (ROIC) further reflects that ability to manage cash.
Others, like Disney
While the long-term strategic plan ultimately calls for capital spending at 2.5% of sales, the plan for 2005 is to stay at the 3% level. If nothing else, Heinz's capital-spending program speaks volumes about the confidence this company has in its operations. And investors get something else of great value -- transparency. The company has a clearly articulated strategy plan and tracks its performance against it.
For all this, the stock trades at 16 times 2005 earnings guidance and yields 3.1%. As such, management's 5.5% to 10% annual earnings growth target makes Heinz a candidate for conservative portfolios. After all, if the low-carb craze is indeed peaking, Heinz should find the high end of its guidance within reach.
Fool contributor W.D. Crotty owns stock in Disney.
"An expert is a person who has made all the mistakes that can be made in a very narrow field." -- Niels Bohr
By Dave Mock
With a $41 billion deal to purchase lesser rival AT&T Wireless
The deal to sell a major portion of its network will terminate a network-sharing agreement between the two companies that has been in place since 2001. The deal allows Cingular to use Deutsche Telekom's New York network in exchange for the use of Cingular's Los Angeles network. Without the agreement, both companies would miss out on a major market in the U.S.
The move to replace this agreement is a smart one for Cingular, too. First, it helps the company raise much-needed cash for the purchase of AT&T Wireless. The Deutsche Telekom deal will reportedly bring Cingular a net $2.3 billion when it is executed. Only $38.7 billion to go.
But the divesture helps in another big way -- regulatory approval for the merger. When telecom companies merge, U.S. regulators put the partners through a fine-toothed comb, looking for areas where a company could gain monopoly control of any given market. In Cingular's case, both it and AT&T Wireless own significant amounts of spectrum in many major California and Nevada markets.
Usually, companies will be forced to divest assets as a precursor to the merger, keeping the playing field level for all parties. By selling its California and Nevada network, Cingular is removing concern for this duplication and will just migrate its users onto AT&T Wireless' network in these markets -- if and when the merger goes through, of course.
Cingular's parent, SBC, has had a busy day, also announcing a new union contract with 100,000 of its workers after a four-day strike. The strike had virtually shut down the customer service aspects of the business, though automated phone services remained intact.
Both announcements help ease some controversy about SBC as analysts fret over continued customer defections at AT&T Wireless. The jury is still out, however, on how effectively the new wireless juggernaut will stack up against the No. 1 wireless provider, Verizon Wireless (part of parent Verizon Communications
Fool contributor Dave Mock will reportedly divest his rock collection assets to avoid unnecessary scrutiny by the IRS. He owns no shares of companies mentioned here.
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