Modern spice routes

Welcome to the new spice route, the internet! The local buyers market has become the world. According to Paypal cross border shopping has taken off similar to the spice routes of old. It is easy to forget how much buying and selling has changed. Before we were limited to what we could buy in our own country but now we can buy or sell without having to set foot on foreign soil.

Around 16% of online spend is cross border with the most popular destination the US. Overseas customers are most worried about fraud so buyer protection is important (Paypal gets their plug here.) Of course the most used payment method was Paypal!

For retailers these customers are great as they are not just looking for a discount but are seeking quality and authenticity. Even though the spice routes are global they are still regional with German shoppers tending to buy from Austria while mainland Chinese buy from Japan and Hong Kong.

https://www.paypal.com.au/lead_gen/SpiceRoutes/

Mobile shopping is also a driver and has been taken up most in China with 14 million mobile cross border shoppers making up 74% of the cross border population. These numbers are expected to double by 2018. Chinese and Brazilian buyers were particularly keen to be protected showing more concern over security than others. Given our location it should be no surprise that Australians value free shipping over quality and variety!

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in eBay (EBAY) stock which owns Paypal

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Take a seat with Lazy Boy

The US housing market is back! The amount of new homes being built has doubled from the bottom in 2009 (see chart below). This is a big improvement but starts have increased to what has been the trough for previous recessions. This suggests there is still substantial room for improvement given the population has increased 50% since the 1970's.

Source: Bloomberg

Home builder stocks have done well as the number of new home starts have increased. We feel that furniture stocks should benefit more going forward. The most famous furniture stock of all is Lazy Boy (LZB).  LZB is the leading global producer of reclining chairs and the second largest distributor in the US according to Furniture Today. The market value of LZB is just over $1 billion still quite small given they are the leading brand in the industry.

No sitting back and relaxing here
LZB had a tough time during the crisis cutting staff and resizing production. But today the company is stronger LZB can now manufacture the same amount of furniture in their five facilities as they did in nine factories five years ago.

                                                         Source: Lazy Boy annual report

LZB is now a different company as the graphs above suggest. Debt of $150 million has been paid down LZB now has net cash of $125 million. LZB currently has 878 stores with plans to increase to 1,000 outlets, over 87% of sales are just in the US. LZB also signed a deal last year with Kuka Home a large Chinese retailer to sell product in China. The stores will be owned by Kuka home but LZB will receive a portion of the profits.

Sit back, relax and enjoy the ride.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has no long position in Lazy Boy (LZB) stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Investing in online dating (Match.com)

Online dating has gone mainstream with one third of marriages now beginning online. This is according to a study conducted by the University of Chicago and is based on a sample of 19,131 people over the past seven years.

Key to a successful marriage is to meet online
The study found that online couples have longer, happier marriages though it needs to be disclosed that eHarmony.com paid for the study.This does makes sense as I guess you can assume that people dating online are serious about a relationship and interests can be matched. It is also becoming more normal to meet someone online meaning the pool of available partners increases each year.

The people meeting online where likely to be 30-39, employed and had a higher income (not a bad place to start!). The study found the least successful marriages were blind dates, bars and people who met in virtual worlds. Divorce rates for those who met online was around 6% compared to 7.6% for people offline. They also found that people are relatively honest online with lies tending to be around slight exaggerations of weight and height.

How do you invest in the dating game?
Well there are two major players eHarmony.com and Match.com. Unfortunately eHarmony.com is a private company and Match.com is owned within Interactive Corp (IACI) which owns over 50 internet businesses. Match.com is the market leader with 24% market share according to IBIS World.

The only way to invest in this area is IACI which is an internet conglomerate. They also own the largest European dating site meetic.com, OkCupid, Singlesnet and chemistry.com. Dating is around 28% of operating income. In the past year dating segment sales have grown at around a mid-teens growth rate.

The good news for investors is that IACI has a track record of spinning off businesses when they are able to stand on their own and no longer need nurturing from the parent company. In our opinion its possible that with IACI under performing the market and trading at a low valuation compared to peers that match.com could be spun off. Within IACI's businesses match.com is the most likely to stand on its own. It would also most likely trade at a premium to the group with IACI overall trading on 11x forward multiple.

Here for a good time or a long time?
So while there is no pure play dating company it is possible IACI could spin off its dating business. It has a great track record of spin offs with Expedia which then spun off Trip Advisor for a combined market value of $13.4 billion 3x larger than IACI value of $4.1 billion. It's possible that this spin-off history could repeat.

Jason

Come visit our booth at the Sydney Trading and Investment Expo on the 19th-20th of July.

To download your free tickets to this month's Trading & Investment expo courtesy of Decisive Asset Management simply click on the link below and when prompted enter the code DECISIVE. Your free tickets will be emailed to your inbox.

http://sydney.tradingandinvestingexpo.com.au/visitor/register

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Interactive Corp (IACI) stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

The donut (Krispy Kreme) is back

Remember Krispy Kreme (KKD)? It was a phenomenon a few years ago. Flights from Sydney to Brisbane would be filled with trays of KKD donuts because for a time there were no stores in Queensland. Stores then sprung up everywhere as the company expanded too fast. Unfortunately for the calorie counters out there KKD is back (though hopefully the cake below doesn't make it back).

During the KKD growth days the company neglected franchisee profitability which made for good profits short term but made it less attractive for franchisees in the longer term with a few going out of business. KKD also struggled with accounting issues and management was replaced in 2005. While the company grew overseas KKD began the painful process of closing half its stores in the US. Today there are now 748 KKD stores in 22 countries around the world. In 2011 KKD finally increased the number of stores in the US the for the first time since 2005.

Same donut smaller stores
Management has tinkered with the store format introducing stores at half the original size from 4,000 square meters to 2,000 square meters focused entirely on the retail consumer. The new CEO seems to have learned from the previous errors as long term franchisee profitability is now key to the business. The new store formats provide 30% cash on cash returns which is attractive for franchisees. At a company store level returns are even more attractive, since they do not pay royalties company stores can return around 50% on capital. With the new store format KKD is actively marketing again for franchisees and now that same store sales are increasing double digits the returns for franchisees are some of the best in the industry.

Not just donuts
KKD is known for donuts but they want to be known for more. KKD is offering more beverage choices and package deals with goals to increase coffee sales to 12% of sales from 5% currently. As a comparison Dunkin Brands has 60% of sales from coffee, profit margins also tend to be better than food. For the near term KKD is focused on donuts and coffee but they have hinted that they have the opportunity to sell other offerings for different parts of the day.

Same store sales have since increased to 11% source KKD

Approximately 55% of retail transactions are for a dozen or more donuts. Management have found that purchases tend to be for sharing occasions. The typical customer visits once a month and the main impediment to more frequent visits is location and lack of convenience suggesting that there is unmet demand. for more stores.

Dunkin opens more stores yearly than Krispys Kreme's total stores
The number of KKD stores in the US is tiny given Dunkin Brands footprint of 7,300 stores in the US with plans to double to 15,000. Dunkin has plans to open between 330-360 new locations this year more than KKD's US store count! KKD has 250 US stores of which the majority are in the South East of the country with a January 2017 goal of 400 stores in the US. Overall KKD has plans for 1,300 worldwide stores by January 2017.

The only holes in this story are in the donuts
KKD has a market value of $1.2 billion quite small when compared with peers like Dunkin Donuts and Starbucks. KKD also has $200m in operating losses which is available to offset any future tax. Time to get on those diets, KKD is back to growth.

Jason

Come visit our booth at the Sydney Trading and Investment Expo on the 19th-20th of July.

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Krispy Kreme (KKD) stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Noodles the next fast casual powerhouse?

A quick meal in the US means fast food which tends to be cheap but unhealthy. Luckily this is beginning to change. A number of relatively new companies are taking advantage of the gap between fast food and full service restaurants. Known as fast casual restaurants they combine the quality of full service restaurants and food made fresh with the convenience and value of fast food. The food is offered at value prices because there is no tipping and you do not have to sit around for someone to take your order and pay your bill. This growth shows up in industry numbers, according to Technomic in 2011 the 150 largest fast casual concepts grew sales by 8.4% compared with 3.5% for the the 500 largest restaurant chains in the US. The speed, quality and value offered by fast casual concepts means they are likely to continue to take share from casual dining restaurants.

Fast casual=Quality +Value
The main listed proponents of this trend are Chipotle Mexican Grill (CMG) and Panera Bread (PNRA). They are both favourites of mine a typical meal in New York will consist of me having breakfast at Panera Bread and lunch at Chipotle. Both concepts cater to the tend of eating healthy and making things easier for the consumer who no longer has to wait for the bill and tip.

Source: Noodles investor roadshow

There is another
There is another fast casual concept which has just joined the group, Noodles & Company listed last Friday with shares doubling on debut much like Chipotle when it listed. Noodles is a player in the fast casual space focused on you guessed it noodles. Noodles serves pasta and noodles from around the world ranging from Japanese Pan Noodles, Wisconsin Mac and Cheese, Pad Thai and Spaghetti. They also serve soups, sandwiches and salads. Average per person spend is $8.

Noodles has one of the best outlooks for store growth in the fast casual space. They have only 7 stores in California and zero in New York. Panera and Chipotle have great long term growth outlooks just in the US not even contemplating growth overseas but Noodles has even further to go.

                                                     Source: Noodles investor roadshow

After the float the management and directors will own 8.5% of the company. The great part about management is that they are ex-Chipotle Mexican Grill. When Chipotle was owned by McDonalds management helped grow Chipotle to more than 400 restaurants between 2000 and 2005 and have since grown Noodles from 100 to 327 between 2005 and 2012.

Indigestion?
A risk is management's old employer Chipotle, they are beginning to open their own noodle concept called Shophouse Southeast Asian Kitchen. Chipotle expect to have 8 restaurants opened by  mid-2014.

Similar ingredients for long term success
Same store sales are not as great as Chipotle's double digital growth when it listed but then again not many restaurant companies have. The large store growth potential and lack of noodle options/competitors suggest Noodles has similar ingredients for long term success.

Jason

Come visit our booth at the Sydney Trading and Investment Expo on the 19th-20th of July.

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in Noodles stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

New News corp is back to the future

Newscorp's announcement to split into a broadcast and a publishing company has already created value for shareholders, we believe there is still more to come. The broadcast company now known as 21st Century Fox has organic growth with the launch of a new sports network in the US. While the publishing company known as New News Corp will start out with $2.5 billion worth of cash with the opportunity to acquire and consolidate the publishing industry. Going forward both companies have an interesting story to tell but the most misunderstood company appears to be the publishing company which could create an opportunity for investors.

A chance to back Rupert again
If you backed Rupert at the beginning in Adelaide you would have done pretty well. At the investor day Rupert laid out that he has been given the extraordinary opportunity of the chance to do it all over again. Rupert believes there is opportunity everywhere and as stated at the investor day knowledge is the most valuable commodity in the world. Rupert has the track record and $3 billion in cash ($500m available for share buybacks) in News New Corp better than the zero he started out with in Adelaide.

Not just publishing
My stereotyping of New News Corp as being a publishing company is not entirely true. As can be seen below New News owns Fox sports and 61% of Realestate.com.au. Two great Australian assets with good growth outlooks. Australians love their sports, 80% of foxtel subscribers subscribe to sport and Australians love real estate. All that is left is to buy a beer company!

Source: New News Corp investor day

Personally I am not a fan of publishing assets as advertising moves to digital, many newspapers will be structurally challenged. But some publishing assets I believe can do even better digitally. For financial markets timely information is extremely valuable. Having the Wall Street Journal (WSJ) available real time through the internet could save investors or make investors a lot of money with breaking news which was never possible in print. I am a little biased but as a reader the value I get out of the WSJ is much more than price I pay for the subscription. It is also one of the few papers still growing and the demographics of the customers are amazing.

 Source: New News Corp investor day

Time to read the Wall Street Journal

43% of the WSJ readers are millionaires and as News Corp says the other 57% will be millionaires if they continue to read the Journal. Time to be a reader! 

There is also some scope for price increases given the Financial Times charges the equivalent of US$25 a month versus the WSJ at US$22.99. These are digital prices only. The WSJ also has plans to launch local editions in Spanish for Latin American and locally in India.

                                                  

It was interesting to learn from the investor day that 21st Century Fox has agreed to indemnify New News Corp for payments arising out of civil claims and investigations relating to the UK newspaper debacle. Though New News Corp will not be indemnified for any corporate, criminal fines and penalties.

Not just Australian either

                                                       Source: New News Corp investor day

While New News Corp has a lot of Australian assets and has been called the Australian spin off more than 64% of revenue will be earned overseas. This overseas exposure is much larger than most global companies listed in Australia. New News is more American than Australian.

Not an Australian publishing asset

There are many misconceptions relating to New News Corp, it is actually more global than most Australian companies and if you are to own a publishing asset (which do have structural headwinds) the WSJ is the one. Financial information has always been valuable, real time breaking financial news delivered over the internet and not the day after in print becomes much more valuable to readers and followers of the share market. The volatility likely created by American fund managers exiting the "Australian publishing company" to focus on the faster growing American broadcasting assets could create an opportunity in the first few months of listing for local investors to get in at a discount.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive does not have a position in New News Corp or 21st Century Fox stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Under Armour the next Nike?

Under Armour (UA) is a sportswear brand that is focused on helping athletes win. UA supplies hi-tech performance sportswear for athletes and casual apparel for weekend warriors like myself. UA recently outlined their aspiration to double sales over the next three years. In their words UA is armoured for growth.

UA built brand credibility by supplying performance apparel first to university sport terms and then to the majors in the National Football League and Major League Baseball. UA has moved on from its background as a "tight t-shirt company" with their signature compression apparel representing only 14% of sales down from 63% in 2005. UA is moving into other categories such as run, golf, underwear and outerwear.

Still just American
UA is very much a North American brand their opportunity is in going global. UA is looking to be the next Nike, the main difference being UA is the leader in apparel and Nike is dominant in footwear. UA has 70% awareness in apparel versus 14% in footwear. Nike has 35% of worldwide market share in footwear while UA released their first football cleat in 2006.

FY12 (bn)	NKE	UA
Market Cap	$54.40	$5.90
Revenue	$24	$1.80
Gross Profit	43.3%	47.9%
International	63.0%	6.0%

UA oversees sales are only 6% of overall with plans to double to 12% of sales by 2016. Locally UA has been in talks with Rebel sport to act as its exclusive wholesale distributor in Australia. With the exception of Japan UA's global market share is insignificant. In Europe and China UA sales are less than $0.10 and less than $0.01 per capital respectively versus $US5 in North American.

A recent initiative has been kids with their alter ego line of performance clothing. The clothes transform these kids and even some adults into superheroes. The line sold out in a matter of weeks.

Another opportunity is in womens wear. Like everyone else they are targeting Lululemon and believe that the womens business could one day be larger than the mens.

CEO pays himself $26,000
The CEO and Founder Kevin Plank owns around 20% of the company, a company he started from his Grandmas basement. As the self proclaimed "sweatiest guy on the football field" Plank designed shirts that would wick the sweat making athletes lighter and faster. Kevin is aligned with shareholders taking a base salary of $26,000 his approximate salary when he founded the company.

Injuries?
Customer concentration is an issue with Dicks Sporting Goods and the Sports Authority combining in 2012 for 22% of sales. Though both these companies have plans to accelerate store growth and UA is still under penetrated especially compared to the category leader Nike. See Merrill research below. Meanwhile the North American operations are expected to grow with plans to double the number of shop in shops from 800 to 1,600 by 2016.

UA has the potential to be a much larger company not many companies have crossed Nike and lived to tell its story. If UA can compete with Nike in North America maybe it can compete against Nike across the globe. As a weekend warrior I'll be watching with interest from the armchair.

Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in UA stock

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.