- why Yum! Brands' recent results shouldn't sour you on China;
- how to play IZOD's recent sales growth; and
- on feeling smacked by the roller coaster that is fiscal cliff negotiations.
Don't Let Yum! Turn You Into a Chicken Posted at 11:15 a.m. EDT on Friday, Nov. 30 Did they turn on the Colonel in China? The shocking news of a decline in KFC sales in the People's Republic sent shockwaves through parent Yum! Brands ( YUM), as well as the usual suspects that have great Chinese franchises, including Coach ( COH), Starbucks ( SBUX) and Nike ( NKE). The comparisons that Yum! was going against were staggeringly fabulous, virtually unbeatable, a 21% comp store rate, but that doesn't mean we can excuse a minus 4% number. Remember, as much as Yum! is based in the U.S. and has iconic names such as Pizza Hut and Taco Bell under its roof as well as KFC, China accounts for 44% of its sales, and we think of Yum! as a Chinese dog with an American tail. So does this mean that China, which has been showing signs of life, is backsliding and that all of the big expansionist data we have been getting are false tells? I am going to put it on the line: absolutely not. There are too many good things happening in China, including a series of bank reserve injections that have really boosted industrial growth. As for the U.S. companies that are linked with China, it's been a real mixed picture of late. Nike, for example, has had a very nice run in the U.S., but China has been a big disappointment, including concerns of too much inventory. Coach continues to have a robust business in China and is expanding rather rapidly there. Its recent weakness comes from the U.S., not China. Starbucks? I think China is the growth story there, with the biggest issue being the very high-quality problem of lines that are too long. I think we will hear amazing things about China when Howard Schultz has his analyst conference in New York on Dec. 5. In fact, I would use any weakness in Starbucks off Yum! to buy Starbucks ahead of the meeting. With Europe under control, U.S. doing quite well, China expanding and India blooming, not to mention the splendid addition of Teavana to the family, Starbucks has a terrific story to tell.
J.C. Penney's Blip Posted at 3:35 p.m. EDT on Wednesday, Nov. 28 How important is IZOD to J.C. Penney ( JCP)? From the looks of today's action -- when I simply reiterated this morning what PVH ( PVH) CEO Manny Chirico said last night, that its IZOD brand is selling well at J.C. Penney -- it seems very important. But as is often the case, the way to play IZOD is with PVH. IZOD is one of the legacy brands that have gone from being a negative when it comes to growth -- not cash flow, as it is always bountiful-- to being a positive. You have 7% growth in legacy now vs. losses, and some of that is because of the push by J.C. Penney to feature IZOD as one of its key brands. The reason I say that you should play IZOD with PVH is simple: I don't know what J.C. Penney's making on IZOD, but I do know that PVH is being paid its price no matter what. For all I know, J.C. Penney's giving the stuff away.
Dazed From the Roller Coaster Posted at 7:04 a.m. EDT on Friday, Nov. 30 Could it be that the U.S. economy is so smoking hot that we don't need to worry about higher taxes for all? Maybe the defense budget doesn't matter as much because everyone sees the profligate nature of the Pentagon, with its ridiculously expensive fighter planes. Maybe the employment benefits don't mean much because people are working off the books anyway. Maybe, with all the little charities and state programs out there that can make up for the federal dollars, we are wrong to be so fretful. Maybe it's all made up by the media -- and, if we didn't know any better, we'd see the changes as mild and realize the whole thing is overblown. Look, if you are not wondering about these sorts of things, I think you must be brain-dead. Thursday's half-decent rally, coming in the face of horrendous retail numbers and a lack of progress in the talks, makes us feel that the whole thing doesn't matter. Either that or, after the debt downgrade, the public has just become conditioned to believe the consequences aren't meaningful, or that they will at last be avoided. Or, at least, they've been made to feel it has nothing to do with the stock market -- no more than how much the now-evident China expansion has to do with the Chinese stock market.