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Rotten to the Core: Weekend Buyback Reader

Looking for some Saturday morning Doomsday Reading? Sure you are!

Start with my recent pieces on Buybacks. I continue to think the best shorts of the next few years will be merchants who have been issuing debt to buyback shares.

To sum up the basic theme: low-margin companies taking on debt to repurchase stock is dumb on the surface. The fact that it’s been sold to America as “returning cash to shareholders” is going to make us all look like fools in 25 years.

My collected buyback screeds from the last month:


Wall Street Screwed You Again!

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Still iDiotic: How’s the Buyback Going, Apple?

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Macy’s is Dead (from Jan 7)

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Big Blue Bloodbath (Jan 20)

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How’s The Buyback Going, AutoNation?

My insanely awkward 2013 chat about buybacks with AutoNation CEO Mike Jackson.


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Wholey F-d: WFM Shares Drop Below Buyback Bottom

Actual quote from Whole Foods' November 4th conference call!
Actual quote from Whole Foods’ November 4th conference call!

Low rates make this a “perfect situation” to fund buybacks with cash.. said Whole Foods in November with the stock in the 30’s.


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Daily Buyback Disaster: Whole Foods $WFM

Shares of Whole Foods Market are getting kicked in the face with organic-covered boots, down 5% and below $30.

It’s the lowest WFM has traded since the company missed estimates and announced a $1 billion debt-funded buyback program last November 4th!

Actual quote from Whole Foods' November 4th conference call!
Actual quote from Whole Foods’ November 4th conference call!

“Stock buybacks are accretive in the short-term and the long term” raved CEO John “No Relation” Mackey. Nothing about that sentence is necessarily true. Coming as it did at the same time as an earnings warning, which the company presumably didn’t see coming, it’s just gibberish talk.

Mackey said he intended to spend most of the $1 billion in the first half of the year (meaning starting immediately as this WFM’s Q1 2016 started November 1st). So presumably some of the money chasing WFM higher in December came from the company itself. It’s unclear if WFM is still buying now that shares are at 2011 levels.

Remember, retired shares aren’t re-issued. They just disappear along with the money it takes to buy them on the open market (or the other ways WFM mentioned). What remains are the debt payments.

Whole Foods has an organic margin problem with no easy solution. It knows profits are declining yet insists buying shares is a good idea despite the fact that doing so comes with interest payments that make future profitability less likely.

Shareholders have a larger share of a less profitable business with reduced potential and higher debt.


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