A Checklist for Profiting From Retail, Restaurant Stocks

9. Company Brands

Many restaurants or retailers will operate under various brand names. For example, Men's Wearhouse (MW) owns both the Men's Wearhouse and K&G concept stores, and Yum! Brands (YUM) operates the brands Pizza Hut, KFC, Taco Bell, Long John Silver and A&W.

Not all brands are alike. Some brands are standouts and really "carry" the company, while others may be smaller and less significant. Furthermore, from time to time, companies will launch and test new brands. Some turn out to be diamonds in the rough, while others are doomed to failure. Thus, it is important for companies to disseminate individual brand data and for investors to analyze the available brand information -- both as it relates to the whole company and on a brand-by-brand basis.

Where investors can find this data: To learn which brands a company operates, you need to do the usual due diligence, and read the latest available company information and news. A good place to start is a company's Web site.

10. Location

When it comes to retail or restaurants, location is very important. Location plays a part in understanding the company's sales diversification and will allow investors to spot opportunities for future growth. For example, Dick's Sporting Goods (DKS) was a regional retailer when it first went public . Early on, I looked at the company's store location map and immediately saw the potential for expansion coast to coast.

Location takes on three dimensions: geographic diversity, physical location and real estate set-up.

First, what is the geographic diversity or concentration of a company's stores? For example, is the company concentrated in the Northeast United States or it spread out across the entire country? Also, in today's global free-trade marketplace we need to consider the mix of business within the U.S. and internationally.

Second, retail/restaurant investors should concern themselves with the physical structure of the locations. Are the stores self-standing or do they tend to be part of larger shopping strips or self-enclosed malls? Self-standing stores require shoppers to make a separate trip to the store, while mall-based stores get larger traffic flow from shoppers who will make a mall-based shopping expedition.

Finally, be cognizant if the company owns or leases its real estate . This will identify potentially undervalued assets (as with Sears Holdings (SHLD)) or will identify potential risks for increased lease costs or loss of leases.

Where investors can find this data: This information is not easy to come by, but is most readily available from a company's annual reports and SEC filings.

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