Tuesday, January 17, 2017
Joined Oct 26, 2011
18 Blog Posts

$RH – “YOU KNOW” GARY FRIEDMAN IS MENTALLY ILL. THAT IS ALL.

LOS ANGELES, CA - NOVEMBER 04:  (L-R) Host Committee Member Rashida Jones, Chairman and CEO of Restoration Hardware Gary Friedman, Bella Hunter and actress Gwyneth Paltrow attend the unveiling of the RH Modern Gallery in Los Angeles on November 4, 2015.  (Photo by Joshua Blanchard/Getty Images for RH)

First take a gander at this shit —

http://ir.restorationhardware.com/phoenix.zhtml?c=79100&p=irol-videos

Dont worry, you’ll have to cut and paste the link, as hyperlinking does not work to the piece of shit site. They mandarins at RH don’t want that shit going viral.

A quarterly earnings release link that is dead.

“Nearly thorugh the most uncertain stages of our transformation.” — says Gary Friedman, the venerable and mentally ill CEO of Restoration Hardware. Time to GET LONNNNNNG? FUCK NO. First and foremost, any person who uses the phrase “you know” roughly 230 — yes, you read that right two hundred and thirty times during a 57 minute call, is mentally ill. I personally, do not need any more data. Also, he has no college degree. Just stating facts here. No elitism.

The Q+A call was so disgusting, so vile, that I will deal with it in two parts, if I feel like it. There is nothing new and/or earth shattering here. Just the same ol’ garden variety BULLSHIT spewed in a mildly dolourous tone. With all the reassurances that ol’ Gary himself is an investor right along with your dumb ass. Unless of course, you’ve been heeding the warnings of the one and only JG.

per the WSJ:

Sales at stores open at least 14 months fell 6% in the quarter ended Oct. 29, and the company lowered its profit and sales targets for the rest of its fiscal year. Profit for the fourth quarter is now expected be at least a third below Wall Street’s target.

Overall for the third quarter, the company reported a profit of $2.5 million, or 6 cents a share, down from $20.7 million, or 49 cents a share. Revenue rose 3.1% to $549.3 million.

For the current quarter, the company expects revenue between $562 million and $592 million with adjusted profit on a per-share basis in the range of 60 cents to 70 cents. Analysts surveyed by Thomson Reuters were expecting $637.6 million in revenue and $1.08 a share in earnings.

For the fiscal year, the company said revenue would be between $2.11 billion and $2.14 billion, which represents a range of no growth to a 1% climb. Previously the company expected revenue to grow between 1% and 3%. The company also sharply cut its adjusted earnings outlook to a range of $1.19 to $1.29 a share, from a previous projection of between $1.60 and $1.80.

Some notes —-

The Membershiip Program = FUCKING JOKE = Let me pay you $100/annum to get discounts. And this fuckers thinks that 200,000 unsuspecting Americans will join his club in 2017? Amounting to $20 million of 100% margin business. I don’t even want to expend any energy on this.

home-design

Here’s an anectode:

It’s a rip off. They marked up everything in their store by 25% then offer a 25% discount to those who purchase their membership card. I bought a bookcase from RH Baby and Child in 2014. I wouldn’t have but I couldn’t find anything I liked anywhere else and it was practically perfect though overpriced. It was $749 back in 2014 before there was a Grey Card. It went on sale for $649 so I bought it because that was the best I was ever going to do. I am pregnant with my second and decided I wanted to purchase the same bookcase for my next child. I now see that the exact same bookcase is $999 and $749 for members. In order to get the $749 I’m going to have to pay the $100 membership fee. I feel so ripped off that I’ve decided not to purchase it after all. It was already overpriced and now I’m going to have to pay $200 more for it if you consider the membership fee and no sale. I’m very disappointed since I truly love the bookcase.

These fuckers have no idea what they are doing. No idea how to price their products. And are blatantly asleep at the wheel. They are throwing shit at the walls and seeing what sticks while snorting lines of coke on Mount Tam. And now they are entering the logistics business too!? Interior design services (headcound doubled). And of course we can’t forget hospitality! The shit is so inane that I had to stop listening to the call. I will post my notes below to half of the call, and post the rest later. Annotating this shit was fun at one point, but now its just lame.

If you care here’s a little background on the stupid Waterworks deal. Assuming hte company is not bleeding cash, this is a clear throwback to RH’s roots. The company was founded by some dude in bumfuck Northern California who sold unique fixtures at premium prices. They had cute odds and ends. Screwdrivers, lip balms, leather conditioners, etc. Shit that was useful. Now the showrooms are an abyss of nothingness. As a side note the chat boards are referring to the “feel” of their showrooms with the terms “dirty fog” and “corpse-like” — !

The transaction with Waterworks was valued at approximately $117 million, which is subject to changes in working capital and other adjustments, and funded from RH’s cash balances. Waterworks is expected to be accretive to RH’s fiscal 2016 earnings. Waterworks has long been the definition of the well-appointed bath, and is the only complete bath and kitchen business offering fittings, fixtures, furniture, furnishings, accessories, lighting, hardware and surfaces under one brand in the market. Waterworks is comprised of the Waterworks, Waterworks Kitchen and Waterworks Studio brands, all built on a foundation of impeccable style, design integrity, quality and craftsmanship. Waterworks products are sold through its 15 showrooms in the U.S. and U.K., as well as its boutique retail partners, hospitality division and online. The Company prides itself on its deep relationships in the design community and the technical expertise and tenure of its people.

As for new store openings:

Outlets are a liquidation channel for “nick and dent items” that come back from a returns and exchanges. We did open a number of temporary outlet to get us through the inventory SKU rationalization and get rid of the occupancy, and avoid occupancy, so a lot of the locations, 8 of the 12 that we’re going to open this year are temporary, so anywhere from 12 to 24 months and we’ll be out of those.

Good to know that so much shit comes back that they have to open stores to get rid of it.

As a sidenote I’m thrilled that the popchips founder and CEO is now on the board, in case Gary’s got the munchies.

Some details from the call:

RH – Restoration Hardware Holdings Inc
Q3 2016 Restoration Hardware Holdings Inc Earnings Call
December 08, 2016 / 10:30PM GMT

================================================================================
Presentation
——————————————————————————–
Editor JUNGLEEGIRL
——————————————————————————–
Matthew Fassler of Goldman Goldman Sachs
——————————————————————————–
Good afternoon, evening. My question relates to underlying demand as best you can address it. As you said in video that written sales are not quite up to expectations in the third quarter and certainly that was the case it sounds like in November.
If you could talk about the cadence of demand [JG: THERE IS NO FUCKING DEMAND DIPSHIT] and the impact that some discreet items might have had on it, specifically your discussion of the later mailing of the books, and also just the ad in November and perhaps what you have seen in the brief couple of weeks since then.

——————————————————————————–
Gary Friedman [6] ——————————————————————————–
Sure. Matt, this is Gary. There’s [JG: LEARN SOME GRAMMAR FUCKFACE] really three things we can kind of look at and somewhat quantify today, and that is, you know, there’s a real softness in November. November got off to a very slow start. We think that was, you know, created by some distraction around the election. At least that was our hope early on. [JG WAIT, SO YOUR HOPE EARLY ON WAS WHAT? THAT YOU WOULD GET OFF TO A SLOW START DUE TO THE DISTRACTION OF THE FUCKING ELECTION? — ARE YOU FUCKING KIDDING? THE GOBBLEDYGOOK BEGINS]

As we got past the election, you know, our business was building at a slower rate than we had anticipated, and as we dug into look at some of the implications around that, you know, one of the things that stood out was our books were getting in home slower in November specifically than we had planned. [REALLY, YOU DECIDED TO DO A 600 PAGE BOOK AGAIN WHILE YOUR FUCKING BUSINESS IS IMPLODING? RECALL THE ECO-BLING UPROAR IN THE DOWNTOWN PALO ALTO STORE, WHERE YOUR CORE CLIENTELE (IN TERMS OF INCOME) STACKED ALL THOSE PAGES OF DRIVEL IN FRONT OF THE STORE TO BLOCK THE ENTRY? — YOU THINK THIS IS STILL A GOOD FUCKING IDEA? ARE YOU OFF YOUR ROCKER? UMM, YES, YOU FUCKING ARE GARY. YOU FUCKING ARE!] So beginning in November, we lost about a month of books in the delay.

And, you know, so and also impacting the businesses is really just a poor performing holiday collection, and we believe some of that in looking back is from probably being too aggressive and pulling too much of the holiday content out of the store.

Our thesis was we could consolidate holiday, consolidate the inventory in the DC, move more of the sales to direct, offer free shipping, and we could run the business at a more productive level and at a higher margin, and our thesis, it proved to be incorrect. [WRONG AGAIN, BECAUSE YOU ARE TOO BUSY POPPING OXYCONTIN GARY. HAVE YOU SEEN THE PUPILS OF THE CEO AND CFO ON THE INANE “EARNINGS VIDEO? — I HAVE NOT EITHER BECAUSE THEIR EYELIDS ARE HALF CLOSED — IM TELLING YOU THESE ASSHOLES NEED SUBSCRIPTIONS TO ALTA MIRA. COZY, QUAINT, AND JUST DOWN THE ROAD IN SAUSALITO. DON’T WORRY, IT’S A RORT TOO. TAILOR MADE FOR FUCKFACES LIKE FRIEDMAN, AT $30K A MONTH. DON’T WORRY RH HEALTH INSURANCE WILL PROBABLY TAKE CARE OF THE BILL. AIN’T AMERICA ALREADY GREAT? ‘TIS THE ONLY LAND WHERE YOU ARE REWARDED FOR BEING A FUCKUP AND GET A SECOND CHANCE WITH A VIEW OF THE GOLDEN GATE BRIDGE]

I think we’re just losing too much of the conversion from the store traffic in the store, so one of the things we’re considering is next year, layering back in some of the holiday decor, and gift items. We won’t put the it stocking stuffers back in. We think that’s a legacy business that doesn’t associate with our business, and you know, with our current content. [WOW BIG FUCKING DECISION THERE GARY — NO STOCKING STUFFERS FOR 2017. BITCHES BE BE NAUGHTY, AND GARY HAS A DIRECT LINE TO SANNY KLAUS]

That’s really the key things. [AHH, YES, THE “KEY THINGS” — RIGHT — THE STOCKING STUFFERS AND THE ELECTION — HOLD ON, LET ME DO ANOTHER LINE HERE OFF MY IPHONE 7]

You know, for us right now, I think what’s difficult is, you know, as we sit here today, how do we think the business will build into January, and how do we think the business will build as the books get in, and also as the impact of our kind of gallery conversions and remodels where we put modern and design, you know, how long is that ramp. [JG: SO WHAT IS DIFFICULT IS THAT YOU HAVE NO FUCKING VISIBILITY WHATSOEVER. YOU HAVE NO IDEA WHAT THE FUCK THE IMPACT OF THE CATALOG MIGHT BE. YOU KNOW WHY GARY? BECAUSE THE HISTORICAL IMPACT WAS SO FUCKING SHITTY AND LARGELY UNQUANTIFIABLE THAT YOU JUST DECIDED TO GIVE IT A GO AGAIN! AREN’T YOU GLAD WE’RE RICH! SITTING ON YOUR TINY LITTLE ASS IN TIBURON, NOT A CARE IN THE WORLD. FUCK! LET’S DO THIS AGAIN! SERIOUSLY, YOU ARE OUT OF YOUR FUCKING MIND. PERHAPS THE INTERIOR DESIGNER B!TCHES THAT YOU BEND OVER GIVE YOU POSITIVE FEEDBACK ON THE CATALOG GARY. BUT LET ME TELL YOU, THE REST OF THE WORLD FINDS IT TO BE AN EGREGIOUS WASTE. ONWARD.]

In New York, when we converted that store and modern last year, it took about 6 to 8 weeks to build to the level, you know, where modern built to a level where it was doing consistent run rate, so it took about that long, so we think we’ve got probably, you know, we’ve got a build coming from the investment we made in the stores, we’ve got a build coming from the books in-hoping and a month later versus where we are, and the holiday mist is going to go away, right, so, you know, at the end of the month, the drag of the holiday reduces considerably, you have some holiday mark down sales in the first few weeks that are a little bit of volume, but then it falls completely off. [JG: MORE TO LOOK FORWARD TO FOR 4Q16 — WOO!!!!!]

As we look forward in the next year, and we rebuild our base off of next year, you know, off of where we think this will land, and I think I would characterize it as we’re being conservative, and in Q4 today. Because we just don’t have visibility in the builds, right, you know, it could be a little better, but today, based on where we sit, we thought it was right to take a conservative view based on how we saw the rest of the December and January. [JG: AGAIN NO VISIBILITY, PER GARY. LET ME REPEAT, NO FUCKING VISIBILITY FOR 4Q16]

So but when you build and YOU look forward and you take a look at next year, and you build off the base where we think we’re going to end, and you take a look at the four revenue and earnings drivers next year as you look forward to 17, anniversary of the cost related to our RH Modern, which we have estimated around 20 million. We moved beyond the timing issues related to the launch of RH membership and expect membership revenues and earnings to increase by about 20 million year over year, and that’s on the P&L affected, right, so we’ll pick up about 20 million there. Those fall straight to the bottom line. Those are 100% margin. [JG: YA, IF WELLS FARGO CAN FABRICATE ACCOUNTS, SO CAN MOTHERFUCKING RESTORATION HARDWARE. A CONVENIENT LITTLE OPENING FOR JIGGERY-POKERY GARY. OR WAS IT THE IDIOT CFO’S IDEA? JUST THE RIGHT SHADE OF BLONDE TO RUN SOME PUSSY-MAGIC ON DEPRIVED MANAGERS #IMWITHHER]

JG: SO FOUR REVENUE DRIVERS: 1) ANNIVERSARY RH MODERN LAUNCH (LOL) 2) PRODUCT MARGINS WILL REBOUND (WHAT IS YORU FUCKING RATIONALE HERE GARY?) 3) MEMBERSHIPS (FAKE ACCOUNTS AND/OR LAZY/FORGETFUL RENEWALS) 4) RH MODERN BOOK (ONCE AGIAN, MENTAL ISSUES COME TO THE FORE).

And we’ll begin to cycle the efforts to reduce our inventory and rationalize our SKU could wants and we expect product margins to rebound year over year beginning in the first quarter and the fourth point, which is the one that, you know, we’ll have to watch as we build through the end of this quarter, and into first quarter, but we expect revenues to increase based on the fact that we just mailed the books, and we’ll be up against no source book throughout the first three and a half quarters of next year, right, and then we’ll mail the modern book in the first quarter. So, you know, that should provide substantial revenue lift year over year, and you add to that new stores that are flowing from this year into next year, and you add the new stores that were opening next year. So we feel very good about looking at how we see 17. You know, and what I mentioned in the video, with each passing quarter, we have more certainty as it relates to how we look at 17. We have, you know, a lot of data now about membership. [JG: SO LET ME GET THIS STRAIGHT. YOU HAVE NO VISIBILITY INTO 4Q16, BUT YOU ARE “FEELING GOOD” ABOUT 2017 AND HAVE “MORE CERTAINTY” ON 2017. IS THAT RIGHT? OK, JUST MAKING SURE. ONWARD.]

You know, the only open issue I would say about membership that we don’t know next year, but I think we’re conservatively forecasting it, is how we’re forecasting renewals, right. But we do know from signups today, that a very minimal percentage are opting out saying don’t auto renew me, so, you know, we believe based on, you know, what we have studied in other companies, and what we think renewal rates will be. We think we’re conservative, and we have that forecasted in a conservative rate, so, you know, so we have a lot of data now. We feel very good about how memberships are rolling through. And, you know, as we think about 17, we think we’re going to, you know, bridge into next year, and be very happy with where we land. [JG: READERS, PLEASE GO AN PICK UP A COPY OF SELLING AMERICA SHORT BY RICHARD SAUER. THE ‘FORGETFUL CUSTOMER’ THAT AUTO-RENEWS IS THE OLDEST TRICK IN THE BOOK]

——————————————————————————–
Matthew Fassler of Goldman Sachs [7] ——————————————————————————–
I guess a brief follow up just to get clarity, are you getting any comfort from the build that you’ve seen since business presumably around the election. Is it driving closer to a rate that would be consistent with your launch in growth expectations or is it still subdued given the holiday issues and the mailing of the catalog, the timing of the mail.

——————————————————————————–
Gary Friedman [8] ——————————————————————————–
It’s clearly subdued and we forecasted it to be subdued, you know, from a demand and revenue point of view through the rest of the quarter. My point being is if you take that new base, right, and you build off the base into next year, we feel very good about, you know, what next year looks like, and, you know, the bridge back to, you know, business performance that would be, you know, more in line with, you know, what we’d expect. [SO THINGS WILL GET SO SHITTY IN 4Q16 THAT 2017 WILL BE A SLAM DUNK, PER GARY]

——————————————————————————–
Oliver Jen from Cowen and Company [11] ——————————————————————————–
I had a question regarding the, why did you pursue a little more aggressively than you originally expected and also on the cap X line, do you have flexibility to continue to kind of tweak that number down in the event that your free cash flow doesn’t materialize, you know, how you would like it to, and Gary, I think you articulated this, but if you could have done this over, you know, over the past year, just what would you have highlighted that, you know, some differences you would have made, and I think also we wanted to know about the source book, why was it a little bit later. You had mentioned that it was one month later than — later than planned.

——————————————————————————–
Gary Friedman [12] ——————————————————————————–
Sure. Let me kind of address those from bottom to top. I’m going to take it backwards, but, you know, the books in later than planned. One, we’re one of the few people that mail a book our size and our complexity. Some of our books are mailed in bundles. We mail 600 page book. Our printers don’t really, you know, have other books of that sides besides phone books, so our books don’t go through like a typical catalog goes through a facility, and our book goes through multiple facilities, so there’s always a chance that there’s going to be some delay in the printer, which we had some delays, and like wise, when you go through the US mail postage system with a book of our size, you know, at each of the books that, each of the points that it moves through, whether it’s going to the printer from BMC or an FCS special center facility, and then breaks out to a post office, and then the post office’s ability to handle it and move it, you know, our books can be somewhat imperfect in predicting how they move through all those points and all those steps. So we have some delays as we move throughout printers and we have delays as we move throughout postal network, and those delays were compounded in the postal network, which didn’t anticipate. It’s the first time we mailed and had books going in in November, you know, and in December, so November books is where we missed, and I think we missed because, you know, we went into, you know, a very crowded time, right, so you have all the holiday mailings and the other point is you had, it was very unusual, we had all the postage that was going through based on the election, so if you think about early November, a lot of election postage going through the pipeline, so, you know, that’s the feed back and the insights we have been able to give, so that’s the impact as it relates to the book being later. [JG: BLAMING THE POSTAL SERVICE AND ABSENTEE BALLOTS. AND OTHER HOLIDAY MAIL. MENTAL ILLNESS CONTINUES.]

We lost about a month of in-home, about 30 days of in-home. What would I do over, and clearly we decided to use this year as kind of a transformational and transition year, and take a lot of, you know, make a lot of moves with the business from moving from a promotional model to a membership model which we thought was right for the business long-term. You know, we clearly, you know, in the first quarter, we were still in the early days of the the launch of RH Modern so we had to figure out how to ramp that business. You know, we, you know, we decided to reevaluate our supply chain and the way we were moving against our supply chain and we were ready to put a shovel in the ground to build another DC. We decided not to. One of the ways to avoid that was to reevaluate our inventory, be more aggressive in moving through SKUs that we’re not long-term that we didn’t think hit the performance, you know, hurdles and metrics to be in the assortment so we decided to accelerate that this year, avoid building a distribution center, give ourselves time to reevaluate the network, and you know, design the supply chain network in a way we thought could be more productive and more impactful to capital usage, and terms long-term. [JG: WHY BUILD ANOTHER DC WHEN YOUR PRODUCTS SUCK DICK AND NO ONE WANTS THEM? NOT TO MENTION, YOU HAVE NO FUCKING IDEA WHAT YOUR CUSTOMERS WANT, AND YOU HAVE NO PLAN FOR REPLACING SKUS — BECAUSE YOU DON’T HAVE A CLUE WHAT THE CUSTOMER WANTS! THIS SHIT IS GOING THE WAY OF LEVITZ UNLESS FRIEDMAN GETS THE BOOT.]

You know, and as far as several other initiatives, right. We redesigned the entire source book and to do that, we delayed that, and also we delayed it to give our vendors more time to catch up on modern and we remodeled all of our stores, rolled out that design to liaison and doubled the size of our interior design team. [JG: LOL DOUBLED THE SIZE OF THE INTERIOR DESGIN TEAM] When I look back at many of those things, and there’s some other things we did, too, but those are the big ones and I say to myself, what would I have done different this year, the biggest thing, if I had to make a decision over again, I would not have delayed the source book. [JG: THE BOOK. ITS THE BOOK DAMMIT. IF WE JUST HAD THE BOOK OUT ON TIME.]

I think the vendors in Modern, you know, recovered and caught up. I don’t think that mailing the source book would have the impact, you know, we thought it could have, you know, the risks we thought it could have on the vendor base, and the efforts to redesign the source book, while I think it looks fresh, new, and very impactful, the lost source of mailing it 6 to 8 months later, you know, cost us, you know, significant revenues in earnings, and I think that created the biggest risk on the year, so that’s what I would have done over. [JG: FLAT OUT BLAMING THE FACT THAT A COFFEE TABLE MARKETING BOOK HIT YOUR REVENUE LINE ALL YEAR LONG. LET ME TELL YOU SOMETHING GARY. THE BOOK IS FUCKING STUPID. AND NO ONE CARES ABOUT THE FUCKING BOOK. YOU KNOW WHY? BECAUSE NO ONE ACTUALLY LOOK AT THAT SHIT AND THINKS, HEY LET ME ORDER THAT $7000 CHINESE MIRROR ONLINE. NO FUCKFACE. NO. STOP BLAMING THE BOOK. THE ISSUE IS THAT YOUR “CONCEPT” OF A STORE HAS JACKSHIT FOR INVENTORY ON PREMISE AND SO THERE IS NOTHING IN STOCK FOR FOOLS TO BUY OR EVEN PONDER TO BUY — BUT DON’T WORRY THEY CAN GRAB A SANDWICH AT THE CAFE, GO UP AND DOWN THE SWANK ELEVATORS AND “FEEL RICH”. LEAVING YOU WITH THE TAB FOR THE PSYCHOLOGICAL SHORTCOMINGS OF THE 250K MIDDLE CLASSS. GOOD WORK GARY. AND YOU KNOW WHAT IF YOUR FUCKING BOOK WAS 6 TO 8 MONTHS LATE, PLEASE DONT BLAME THE FUCKING POST OFFICE AND THE ELECTION. ITS INSULTING TO THE USPS, WHICH IS ONE OF THE GREATEST INSTITUTIONS EVER KNOWN TO MANKIND. TRY SENDING A PACKAGE TO FUCKING BANGALORE WITH TRACKING AND YOU WILL APPRECIATE MY WORDS]

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Oliver Jen from Cowen and Company [14] ——————————————————————————–
Karyn, I was curious for investors that are concerned about free cash flow, it would be right to be briefed on your thoughts around that CapEx. And why were you incrementally more aggressive? Was that an effort to make sure you were clean? Because it looks like you’ve been prudent about aggressively managing inventories as well.

——————————————————————————–
CFO [15] ——————————————————————————–

Our working capital has been something that we’re very interested in. Making sure that those inventories get down as you guys saw. We ended last year with our Q4 miss with much higher inventory than we wanted: so some of that, the ongoing assortment, we managed through lower receipts, but there were the critical evaluation of the SKUs as Gary mentioned to see what we no longer needed in the assortment. So we have been making great progress in that initiative as you can see at the end of Q3, our inventory was at, you know, plus 2, and that includes the Waterworks so really great progress with that, but as we’re heading into Q4, you know, with some of the slow down and what we saw in November, whether it was the election or consumer, whatever the reason, we don’t want to be sitting on some of that inventory, and we want to move through it. We went to, at the beginning of the month or about the 11th, we went to 20% off sales. A lot of stuff on sale is the SKU rat (?) merchandise and deeper mark downs on some of the planning, to continue to do that through the end of the quarter and make sure we’re clean by year end and get through what we wanted to get through. [JG: HAHHAHAA. SO THIS B!TCH IS NOT CONVINCED IT WAS THE ELECTION. HAHAHAHA. “OR THE CONSUMER” — HAHAHAHHAHA] That had a positive impact on the cash flow as we head into next year if we can continue to make improvements with your inventory down. The second piece with the capital took our range down, that’s based on the lower sales. We’re taking a critical look at what projects we have on deck, what’s in flight, where do we need to be more critical in that spend. I still feel really confident in what we have the ability to affect to effect both in the real estate and other projects, what’s nice to have, what need to have, and we’ll continue to be diligent to make sure we reach the free cash flow positive goal in 2017.

Honestly, I don’t know if I’ll get the to rest — its utterly idiotic. It is complete chaos in this joint. There is simply no substance in this entire operation. Vapid.

Gary, check yourself in. Do us all a favor. Just do it.

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Obesity. Mattresses. Sleep Apnea. $RMD $TPX $MFRM $SHPG

Can Sleep Apnea Be Deadly

Obesity. Mattresses. Sleep Apnea. . . and Jennifer Aniston.

Well, the disease that is MFRM is a moot point now, but you ham and eggers should know that it was a consumer finance operation in drag, as so many operations are these days.

Pardon me if you are already familiar with this, but AAN is the leasing operation behind MFRM — 0% 60 months, etc.

Founded in 1999, Progressive Leasing, a wholly-owned subsidiary of Aaron’s Inc.[NYSE: AAN], is a steadily growing company, already surpassing $1B in annual revenue. Our scalable, customer payment software product provides lease-purchase technology solutions through 16,000+ retail locations in 46 states.

Just FYI on Progressive Leasing— “no credit needed” is the slogan. The other “financier” involved ==> financing the 90 day deal is good ol’ SYF (Symphony Financial).

After a 60% haircut from it’s peak in November 2014 this piece of shit MFRM that was running 4x Debt to EBITDA gets scooped by some “Ikea of Africa” with a German name for a cool $2.4 Billion. Steinhoff is a German-listed $22 billion furniture conglomerate led by South African retail mogul Christo Wiese who is also Steinhoff’s chairman and largest shareholder.

The company said it would push into the U.S. as well, acquiring Mattress Firm for $64 a share in cash. The offer represents a 115% premium to Mattress Firm’s closing price the Friday prior of $29.74. Steinhoff described the deal as one that would “create the world’s largest multibrand mattress retail distribution network.”

More importantly, the interesting tide in this bullshit industry is the fact that adjustables are all the rage.

Here’s some “old” data from the glorious industry rag known as Bed Times (no joke).

Tempur-Pedic was one of the first major mattress brands to encourage consumers to pair its foam mattresses with its Ergo adjustable bases and recently has been promot- ing adjustables heavily with a multimedia advertising campaign.
The efforts have paid off. According to Mike Mason, director of brand development for the Lexington, Ky.- based company, the attachment rate for the Tempur-Pedic Ergo base was 19.4% in 2010 but had jumped to 28.6% by the middle of this year. Some dealers report selling 40% of their Tempur-Pedic mattresses with an adjustable base, Mason says.

Overall, Jimmy Grimes, senior group vice president of sales for power foundations at Leggett & Platt in Carthage, Mo., estimates that the adjustable foundation category has grown about 10% in the past five years but “in the past year or two,” he says, “it has been closer to 25%.” Kelley Clenet, president of adjustable base supplier Ergomotion in Santa Barbara, Calif., agrees that growth in the category has been steady for the past five years, “but the most compounded growth has been in the past 18 months.”

Niles Cornelius, general manager of Hickory at Home, Hickory Springs Mfg. Co.’s direct-to-retail division in Hickory, N.C., has seen solid growth in the category industrywide and says Hickory at Home’s adjustables business specifically has grown between 25% and 50% during the past few years.

“We are on target to have 50% growth this year,” Cornelius says. “I think it will be more next year.” These sales figures illustrate the shifting—and
growing—position of the product category within the larger mattress industry.
“In the past couple of years, electric adjustable beds have gone from being a niche product to a product that is becoming mainstream among retailers and consum- ers,” says David Jaffe, president of Mantua Mfg. Co. in Walnut Hills, Ohio.

Adjustables began as medical products and the contract market remains enormous. When the category moved into the consumer realm, many models retained their hospital-like feel. Today’s adjustables continue to be mar- keted as being able to alleviate medical conditions—from acid reflux to back problems—making them attractive to demographics like aging but active baby boomers. But many adjustable bed makers have rebranded their products, replacing the stern medical detailing with more aesthetically pleasing, user-friendly details that appeal to consumers’ needs and sense of style. Motors are quieter; remotes wireless. High-end mattress fabrics coordinate with consumers’ bedroom decor and massage features ease muscles sore from a gym workout. “The purpose of this product is to create a bedroom space that is a lifestyle and luxury choice. It may not be for any medical-based need but simply a decision based on comfort and functionality,” says Darren Nelson, sales and marketing director of Jin Ju Furniture, a manufactur- er of adjustables with a facility near Shenzhen, China.

Also, from the venerable Tempur Sealy International Inc. CFO on 4q15 call :

——————————————————————————–
Barry Hytinen, Tempur Sealy International Inc – EVP and CFO [28] ——————————————————————————–
Hi, Seth, good morning. Without getting too granular, I can tell you that our mattresses as a component of the bedding were positive and we also had a steady attach rate on adjustable on our Tempur-Pedic brand. We do see adjustables over the long-term as something that, from an attach rate perspective, has room.

Particularly on the Sealy brand side, where as you mix up within the brand and we have innovation that we’ve had with Stearns & Foster and our Posturepedic Hybrids, we think that there’s an opportunity there for additional adjustable sales and attach rates. As you may remember from the Las Vegas bedding, we just recently introduced the new adjustable, the Ease by Sealy, which has really features and functionality at a sharp rise point, so we expect improving performance from adjustables over time.

Now this is not some kind of mind-bending puzzle. Obesity can be a factor in shitty sleep. And shitty sleep of course is reported to doctors, who then love love love to diagnose sleep apnea. In fact, a hat tip to DeVry [ticker: DV] Doc for minting coin on this phenomena.

Listen to this shit, despite being “old data” —

The number of office visits with insomnia as the stated reason for visit increased from 4.9 million visits in 1999 to 5.5 million visits in 2010 (13% increase), whereas the number with any sleep disturbance ranged from 6,394,000 visits in 1999 to 8,237,000 visits in 2010 (29% increase). The number of office visits for which a diagnosis of sleep apnea was recorded increased from 1.1 million visits in 1999 to 5.8 million visits in 2010 (442% increase), whereas the number of office visits for which any sleep related diagnosis was recorded ranged from 3.3 million visits in 1999 to 12.1 million visits in 2010 (266% increase).

THEFUCK!!!!!!!!!!!!

On that note, go take a look at shares of ResMed [ticker: RMD], supposedly purveyors of the “best in class devices” — of course, every single person (user) that your correspondent has spoken with hates any and all of these devices.

Old data, schmold data. You catch my drift?

Note also that our man, experienced short seller @alderlaneeggs has made the following comments on TPX:

I’m very intrigued with Tempur Sealy (NYSE: TPX) as a short. I haven’t talked publicly about it yet. I’ve been short this thing 5 or 6 times in my life, and it’s been good to me. When they first went public I noticed the top two guys in management wore wigs. I am 10/10 in shorting guys who wear wigs. It’s another indicator of mine. I don’t know what it is with guys who wear wigs but they make great shorts. At the end of the day, they sell foam mattresses. TPX is a commodity business. They sell foam and now everyone can sell foam. You can buy foam in a box. You can buy foam at Costco. You can buy it everywhere. There’s nothing magic about what they do. The bed industry grows about 1%- 3% a year. The share has been taken and I think the road for them ahead is rocky. TPX is a sales-driven model. In a sales driven model, when you miss on revenue, you tend to miss for 3, 4, 5 consecutive quarters. When they beat, the opposite happens. This past quarter was the first quarter of misses. The stock is down, but it could get more than cut in half from here. The company is highly leveraged and activists are involved. They threw in a new board and a CEO who is a former rental car guy. I have no respect for players who encourage the company to take on more leverage to buy back their worthless stock. That’s what the company has been doing. If they want to buy the stock here, great, I’m selling it to them. I like TPX as a short.

Seriously fuck mattress purveyors.

And remember: go big or go home. Yaa b!tches, horse-tail hairs ‘n shit [not to be confused with pubes].

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PS: per the FT . . .

SHPG Jennifer Aniston is one of the millions of Americans who experience symptoms consistent with Chronic Dry Eye. Commonly referred to as Dry Eye, Aniston has revealed how the condition gets in the way of her daily life. In partnership with Shire plc (LSE: SHP, NASDAQ: SHPG), Aniston is encouraging people to make eye health a priority, and is raising awareness and understanding about Chronic Dry Eye symptoms, like the ones she experiences. She hopes to educate and inspire people to chat with their eye doctor about what’s really going on with their eyes.

The fuck? is this the next sleep apnea?

#keepaneye —– no pun intended

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TIME KEEPS ON TICKING….$MOV $FOSL $SWGAY

…. into the future. Folks, I apologize for degenerate behavior. A posh site like this deserves more. Like my innaugural piece on TheStreet.com — this one will also come in the form of correspondence with a fellow pm, analyst, trader, wealth manager . . . whatever title tickles your fancy. It’s all the same shit. As one Icelandic gent I ran into said in his “native” accent . . . “the idea is to grow the capital”.

I promise to be better folks.

With that . . .

===========

dear penis-addled money-manager,

the horology space is interesting.

i have been following the demise of FOSL and UHRN:SWX or US ADR SWGAY —— swissies of course has unexpected issues added when the CHF depegged from EUR

the weird thing is that idiots at TIF are “relaunching” men’s high end watches — 3K to 15K [ unclear what % of the business this aims to be, but the fact that they are taking it that direction is a bit nutty, albeit a high margin biz ]

men make up 60-65% of high end watch buyers, fyi (or perhaps watch recipients)

meanwhile, they are touting “NEW YORK” and being a “new yorker” as the case for the brand and the fact that its scarce in watches as the reason emotional buyers will be interested in their baubles

quoting:

CEO Frederic Cumenal: “Frankly, I’m more interested in the specifics of the company, of the brand, not about generalization. Generalization are extremely interesting for public debate, but here, we are very much focusing on Tiffany. And frankly, one of the differences that we have at Tiffany is – and I’m using that a little bit as a teasing line, but I’m the ultimate New Yorker. I’m even not American. I live in New York. I always live in big cities around the globe. And this is what New York is made of, attracting – I don’™t know if I’m talented so I’m putting myself in this category, but it’s a very creative or talented people or people that are just dying to change their life or to do something else. And the spirit transpires, is going through the brands such as Tiffany, this obsession to go for innovation.”

collectors won’t touch this shit, imo

quoting:

“The second emotion can be summarized with this gesture. When you want to show your watch, when you want to be seen with your watch, you want to show your success with an expensive watch. Here again, we want our watch collection to become iconic but our products are not designed with the goal of signaling [status]. Quite the opposite, we think we could flip the argument and becomes the best alternative to some of the big brands. Sometimes you go at a dinner and maybe in this room and you see many people with the same watch. Where is [this credibility] here? Tiffany, during its launch, has a terrific opportunity to become the refined alternative to all those big watch brands, these are best [secretive] stone, the watch of the one in the know who want to be different, yet not ready to go for niche brands but instead to go for one of the most desirable brands in the world but not too distributed yet in watches.”

a sidenote on gem prices:

Petra Diamonds managed to bump up production levels in the year to June, which helped it to eke out a forecast beating rise in revenues even as diamond prices dropped. Revenues rose 1 per cent to $430.9m, topping analyst forecasts of $408.9m, while diamond prices dropped 6 per cent year on year. Production rose 16 per cent to 3.7m carats, which puts the FTSE 250 diamond miner on track to hit its long term target of 5m carats per year a year earlier that previously expected in 2018, it said. The diamond market has been struggling in recent years. Similarly to other commodities, the diamond market has been rocked by declining retail demand from China and the strong US dollar. It has also suffered from a series of more specific issues, such as an excess of polished diamonds which have swelled inventories and cut demand and prices and liquidity problems plaguing for many suppliers. However, diamond prices improved in the second half of the year as the US dollar weakened. Johan Dippenaar, CEO of Petra Diamonds, commented: Petra has recorded further strong growth, leading to record production levels. Petra is fully financed to completion of its expansion programmes, all of which remain on track, and its financial position is in line with expectations, including the related debt facility covenant measurements. The company said it expects capital expenditure to drop 26 per cent to $218m next year, $130m in 2018 and $85m in 2019. It said it hopes to become free cash flow positive in 2017, anticipating a ramp-up in production from all its recent investment coming on line.

meanwhile FOSL call, paraphrasing here . . .

for 3 quarters we had stable headwinds, but in 1q16 there was another leg lower in wristwatches

they bot a small indiegogo funded operation to slap some fitness tracking tech into all their wholesale lines in one swoop . . . all rolling out for xmas this year

details: http://blogs.wsj.com/venturecapital/2015/11/12/fossil-group-to-buy-misfit-for-260-million/

let us see what happens here, i am not convinced that the purveyor of psychological atrocities TIF doesn’t see another leg down (not sure how silver prices impact . . . probably + for top line, but pressure on GMs)

per Archie, excellent horological youtube analyst in below vid :

“The maaahket in in the shitttaaaa faaahakkkkkkas” —

lastly, have you been following the SIG saga?

probably more to go there . . . specialty finance masquerading as retail once again

JG

ps: per last quarter’s MOV call : 50% of their “focus group” (n=1000) was not interested in smart watches — go figure.

pps: go big or go home — for a cool $700,000

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$BUFF $FRPT – YOUR PET IS NOT HUMAN, YOU ARE ANIMAL

applaws founder

POLICY:

Pet food consisting of material from diseased animals or animals which have died otherwise than by slaughter, which is in violation of 402(a)(5) will not ordinarily be actionable, if it is not otherwise in violation of the law. It will be considered fit for animal consumption.

Anything goes (myths as well) in the world of pet fodder, as ordained by the illustrious FDA.

Except Chinese shit.

You may recall, in 2007, an outbreak of sorts. 4,500 furry friends, dead in their tracks. Many thanks to Menu Foods and its Chinese Burrito supplier of wheat gluten and rice-protein concentrate, adulterated with melamine and cyanuric acid, no less. All to save a few pence, surprise surprise. In such matters, dosage is key, and “larger” doses cause trouble. Crystals in urine, kidney damage, death. A tragedy of epic proportions, if you consider the FDA’s reponse. 400 minions mobilized, a 24 hour hotline to manage complaints, subcommittee hearings, inspections galore. Chiptole chompers get less attention.

Here is the best fucking part, per the FDA

If you’re a pet owner wondering what to feed your pets, keep in mind the following: Although many different types of pet food are affected by the recall, the recalled products represent only about one percent of the total pet food available for purchase, according to the Pet Food Institute, the trade association for pet food manufacturers.

“There remains an ample supply of safe cat and dog food available at stores throughout the United States,” says Stephen F. Sundlof, D.V.M., Ph.D., Director of the Food and Drug Administration’s Center for Veterinary Medicine (CVM). “We encourage the public to continue to use pet food that is not subject to the recall.”

ONE FUCKING PERCENT. HELLLLO! ANYBODY HOME?

Seriously, what the fuck? I do understand the notion that food-supply systems for pets and humans might be interconnected, so perhaps this warranted serious attention for tangential reasons.

In fact, this here little scare invoked the US of A to send 33,000 inspectors to Sina, conduct 10,000 insepctions, and shut down 150,000 unlicensed food companies. Meanwhile, its food and drug head was executed for taking bribes. No joke.

Maybe “they” were just looking for an excuse to inspect Burritoville. Or maybe, just maybe, PET PARENTS nee PET GUARDIANS, are a overzealous bunch of animals (not humans) when it comes to their fucking pets, and the damn FDA’s reponse was right in line with their hutzpah regarding the matter of Fido and Puss in Boots.

I don’t fucking know. And frankly, I am not here to speculate on the likely incompetent, CPG-controlled tea-baggers at the FDA and what exactly motivates their vocational pursuits.

What I do know, is that it is patently obvious that humans are animals. So the notion that “humanization” of pets is what is driving this here inane spike in the “super premium” pet food category is misguided. In fact, its the “animal instinct” of mankind, more and more dependent on creatures that are no longer a beast of burden, but a source of companionship for survival. Six of one and half a dozen of the other, you might say. Fine with me.

More importantly, “all’s fair in love and war” and a pet-love affair it is!

Currently, treats are all the rage. In fact, “usage occasions” are being created out of thin air (dental, vitamins). Is your dog pregnant? How about a photo-shoot, a push-gift, and a fucking pre-natal supplement while you’re at it. Pet candles (aromatherapy and fart-redux), vitamin-infused water, custom apparel. These are some of the less egregious items in which a pet-parent might indulge.

You know the story, dear friends. The humanization of pets, the animalization of humans. Two sides of the same coin, perhaps. Alas, I am not here to rank what is and isn’t shockingly bizarre in the world of pet-rearing, either.

I am here to tell you that the pet-food business is driven by melodramatic emotion and abject lack of scientific evidence. In fact, this here musing is likely to incite even the most rationalist of pet-owners, proving my point.

In any case, your stupid “premium pet food” is a veritable Potemkin Village. Even if you are cooking your pet’s every meal or going to the butcher, it is unclear what imbalances, detriments, or benefits come from Alpo versus Marlow and Daughters. The dominant paradigm suggests that CPGs have the budgets to come up with sturdy scientific rationale to hawk their wares. But how can you ignore the bias inherent in Waltham Labs, owned by Mars, the biggest purveyor of pet-vittles in the universe by dollar volume.

Per Bernard Meunier, head at Nestlé of Europe, Middle East and Africa pet care, craft — unlike in beer — will not fragment the industry. He says: “It requires a lot of scientific knowledge, research and development capabilities to develop and market pet food.” And thanks to this “scientific knowledge” . . . we invoke mass-customization once again. White hot, as ever.

Nestlé Purina’s Just Right range lets owners customize recipes, then delivers them with their dog’s name and photo on the bag for individual dogs.

Innovation! Precision! From table scraps to algos! What the fuck? Am I missing something?

Based on the information collected and a proprietary algorithm developed by Purina experts and nutritionists, pet owners will receive a Purina recommendation for a personalised food product. All Just Right by Purina food product formulas meet or exceed the Association of American Feed Control Officials complete and balanced standards.

Sure Bernie, show us the data.

Per data wonk, chiming in, upon hearing of this tomfoolery:

“No one knows your dog as well as you do … so let us sell you this more expensive placebo so you can feel special.”

Snake oil for the pooch. Doesn’t quite get better than this.

Listen here, friends. None of these buggers know what they are doing in this here field of dreams. I’ve seen dogs that eat home cooked meals obese as fuck and blind from diabetic retinopathy. And I’ve heard of dogs “magically” bursting with energy after a switch to Blue Buffalo.

Cornell’s Wakshalg says it best:

Joseph Wakshlag, a nutritionist on the faculty at Cornell University’s College of Veterinary Medicine, recalls becoming aware of Blue Buffalo in 2005 when he worked at a vet’s office in Woodbury, Conn.: “They had salespeople who paid for ‘lunch and learn’ sessions where they talked about the owner’s dog, Blue, who had died of cancer, and now they had a new dog food that prevented cancer. I asked for the data, some evidence. They said, ‘Look, it has blueberries.’ There was no data.” Wakshlag, who since has done paid consulting for Purina, says he doesn’t “think Blue Buffalo is necessarily worse than other brands, but there’s no real evidence it’s any better.” (Bishop speculates that Wakshlag “misinterpreted” the sales pitch. “We have never claimed the product prevents cancer.”)

It is lack of data and scientific evidence with a twist of anthropomorphizery (or reverse), which is unabashedly fueling the “super-premium” category. Anything goes, as long as it mimics the patterns of thyself. And why the fuck not. I’d rather eat animals that don’t eat their own shit and/or diseased carcasses. Wouldn’t you?

For if I eat grass-fed beef, then my dog deserves the same dammit!

But just know that this “humanization” angle ain’t nothin’ new, though industry babble peddles the notion that is the trend du jour.

From a 1981 article:

”Anthropomorphism is the key to the industry,” says Bill Stiritz, a Ralston Purina executive. ”People attribute human traits to their pets.”

Anyhoo, speaking of BLUE BUFFALO, in a few short years, the goons at the helm over there have managed to effectivley double the top-line from $523 million to $1,027 million. Not bad. But to put that into context, Mars and Nestle are doing ~$30 billion per annum. Could this be the Boulder Brands of Pet Food? A stair-stepping revenue story, with all the fixin’s palatable to The Street’s finest. That is, a little “au natural” flair. Supplicants are fawning over it, waiting in line for a secondary offering, obvi. MS and JPM bullish as ever, Wells Fargo and Barclays right behind. Wedbush, the only naysayer at pixel time.

BUFF has been battling an age old issue for retailers, unbridled early growth at the expense of quality. In the case of BUFF, they’ve gone as far as to misrepresent ingredients “unknowingly“. Ultimately, management played dumb and blamed a supplier out of Texas for the ingredient fiasco.

Like many similar names that consumers trust, the company isn’t primarily a pet food manufacturer. It’s a marketing firm with limited control over what goes into the food it wraps its packaging around. Its founder, Bill Bishop, is a career advertising guru who cut copy for a tobacco company before eventually founding the SoBe energy drink empire. When Blue Buffalo announced its April 2007 recalls, it blamed its manufacturer, American Nutrition Inc., and a commodities supplier called Wilbur-Ellis.

The dominant meme is that “production is coming in-house” — that the company is taking charge of quality control etc. In 2014 the company opened its Heartland Pet Food Manufacturing facility, located on 34 acres in Joplin, Missouri. The 416,000 sq. ft. facility includes a dry pet food manufacturing plant and an attached full-service distribution center. Per the 10-k they run a “hybrid network” of owned and contracted manufacturing facilities. It is unclear what percentage of product is churned out “in-house” as opposed to contracted. And uncertain what that will look like after the proposed build out. But don’t worry they are slated to spend roughly $200 million over the next 3 years (per 3/18/16 call) to “expand the manufacturing footprint” and “strengthen research and development”.

Management expects 2016 capex to be $70-80 million, or “1/3 of the total expenditures” through 2018. So the total would actually be $225 million at the midpoint, eclipsing the $200 million that was stated. But no big. Just a $50 million (est) cost over-run over the next few years, $387 million in debt due 2019 (issued to pay a special dividend lol), roughly $800 million in total contractual obligations over the next five years, and a $32 million cash outflow in 2016 related to the Purina drama. Working capital was $286 million in the full year 2015, up from $202 million in 2014 and Net Income dipped to $89.4 million (reflecting charge of $32 million for legal provision) in 2015 from $101 million in 2014. Notably, SGA ramped by 20.7% year over year or $38.9 million. Wow. As a percentage of sales. SGA is up 280bps since 2013. Hmm. Got to blab to sell. Pet Detectives and all.

Mark my words, costs will get out of hand. An operations guru not, Bill Bishop will botch this operation (crystal ball), particularly as the company expands manufacturing facilities. I also suspect this very “on-trend” sashay into the veterinary channel will be a spendy pursuit. They’ve said that the ROI on that spend won’t be seen until 2017. Don’t hold your breath.

As a side note, what the fuck is up with this sales-leasback agreement with the County of Jasper, Missouri (off-balance sheet) for $55 million worth of equipment? So let me get this straight. Jasper issues bonds for $55 million. BUFF buys the bonds. $55 million goes to Jasper. Jasper then uses the $55 mil to buy equipment off of BUFF which then leases the equipment back. Ownership will be transferred to BUFF at the end of the lease term, qualifying it as a capital lease. Why o why? Other than having another $55 million to finance ops. Makes sense since it appears to be a free cash flow negative operation, at heart.

I’m wary of the short side, as CPGs have nothing going for them but Pringles in Africa and Gluten-Free Honey Nut Cheerios. Though debt covenants do state state that the company is barred from “certain types of mergers or consolidations” — whatever the hell that means.

All in all, we’re dealing with consumer psyche. How long can they keep up the ruse of prescription, natural, etc.

Jim Myers, Petco’s chief executive, says his company did not have a single negative quarter throughout the recession. Fewer people traded up to more expensive items during the downturn, but he said they didn’t trade down, either, sticking with a “premium and higher-level range of food products.”

“Our perspective is that, thankfully, we are in a pretty emotional category,” Mr. Myers says.

True dat.

Product quality at risk due to unbridled growth, possible. Operational fuck-job, possible. Levered to gills, for certain.

Consumers turning against it, not yet.

For now, BUFF is “awesome and amazing” — and the “natural” movement isn’t receding anytime soon.

IMO, that wily fool from Artal group which owns 58.6% of the company, is just waiting to pounce on this piece of shit in a fire-sale.

Admittedly, your correspondent’s bark is louder than her bite here.

Risky either way.

JG

ADDITIONAL NOTES:

Customer concentration significant:

Over the last three years, we have diversified our customer base, with 70% of our net sales generated from national pet superstores in 2015 as compared to 75% in 2013. We expect our net sales to accounts outside of national pet superstores to continue to grow faster as we make BLUE more widely available across different specialty channels.

Product Mix:

While we have only one reporting segment, for purposes of discussing our net sales we categorize our products as (1) Dry Foods or (2) Wet Foods, Treats, and Other Products. Dry Foods contributed approximately 81% of our net sales for each of 2015 and 2014, with the remaining 19% attributable to Wet Foods, Treats and Other Products.

Manufacturing:

Our products are manufactured in the United States through a hybrid network of owned and contracted manufacturing facilities and distributed from owned and contracted distribution centers. In September 2014, we commenced manufacturing operations at our Heartland facility in Joplin, Missouri. Our Heartland facility is expected to provide us with the majority of our forecasted dry food production needs over the next several years. We have also commenced plans to expand our internal manufacturing capabilities to provide additional production capacity in the future.

Geographic Mix:

The primary market for our products is the United States, which represented approximately 96% of our net sales for both 2015 and 2014 and 97% in 2013 with the remaining 4% and 3%, respectively, for each of those periods attributable primarily to our operations in Canada, where we also market and sell our products. In 2015, we also had minimal net sales in Mexico and Japan. As part of our growth strategies, we intend to continue to expand our international operations to select markets.

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$FXB – £QUID PRO QUO

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Apologies for the prolonged silence. Coincidentally, your correspondent is stationed on the Isle at the moment. Some observations: a hovel, roughly a stone’s throw from Kensington Palace will run you about 15,000 quid a month. The “hottest” joint in town is a dump 705 feet in the sky known as Duck and Waffle. There you will be served the finest liquor in the most uncouth manner, for about 10x. And don’t worry, the Congestion Charge is a bargain. The Congestion Charge is an £11.50 daily charge for driving a vehicle within the charging zone (downtown) between 07:00 and 18:00, Monday to Friday.

Listen to me very quietly, there is no shortage of (albeit, credit-fueled) demand for this fucking nonsense. Aspirants abound, in droves. I don’t have much more to say on the topic other than this bustling town is not going away, nor is demand for its physically incongruent notes. The sun will not set on this motherfucker, ever. It is THE cultural capital of the world. Period.

The quid RARELY dips below 1.40USD, and I advise you to take note. Brexit is a reindeer game. Another episode in the immigration drama. Of course, immigration is what keeps this shithole the cultural capital of the world (no ISIS).

Gun to my head, I’d rather hoard pounds than dollars. That is all.

PER FT:

Last week’s EU-shaped clobbering for the currency is showing no signs of reversing yet, with sterling still nestling under $1.39 against the dollar early on Monday.

Writes Kit Juckes at Société Générale:

The move last week reflected the relatively light positioning and had somewhat run out of steam by the end of the week. However, what is now very clear indeed, is that the EU referendum campaign will be bloody and very negative. The more the ‘in’ camp stress the dangers of leaving (as opposed to the advantages of staying), the more the market has to take into account how bad a decision to leave would be. As long as polls remain evenly split, the maths for sterling is bad.

Putting the decline in context, US bank BBH writes:

Sterling lost nearly 3.7% over the course of the week, and the selling does not appear to have exhausted itself. Since the end of Q1 1986, sterling has experienced only 3-4 periods below $1.40. However, this time is likely to be extended as the significance of the June referendum overwhelms whatever other supportive fundamentals may emerge. And if anything, the economic data is expected to show some moderation in economic activity.

20160226-Fast-GBP-Weeks-Past-Decade

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$LNCE – “DRIVING FOR $10”

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Are you all familar with the term milquetoast? A wonderful descriptor. Less timid soul and more wimp. Still inaccurate. Pussy is not quite the right term either (no offense to G. Steinem & Co). The best way to comprehend this term would be to actually hear a milquetoast in action. So, I present to you dear friends, excerpts from the LNCE preliminary 2015 results originally broadcast on January 27, 2016 from Charlotte, North Carolina. Mind you, who we have on the mic is Carl Lee, CEO of America’s second largest “salty-snack” company known as the illustrious Snyder’s Lance.

Before you listen to said excerpts, a few things to know:

This here heap of meconium was created by merging a pretzel-maker and a purveyor of crackers and cracker sandwiches. Soon they are adding a nut-processor -cum- chip purveyor, known as Diamond Foods. Yes, the same Diamond Foods that bungled the deal to buy Pringles and had a Director off himself in 2011.

One will also hear the company use “three” excuses for the revenue miss. A key customer. Plant shutdown. Industry trends.

No surprise, that one of the outfit’s main distribution channels happens to be America’s General Store, with its “fanatical insistence on low prices.”

When management avoided calling the entity by name during the entire call, and used the honorific phrase “very large customer” instead, my ears perked up. Just for the record, said honorific reference was made no less than 8 times during the obligatory call.

At some juncture, a rogue gent from BMO Capital Markets unabashedly said it :

Hi, good evening, everyone. A couple of questions here. So just to continue to on the Walmart issue, it looks like you’re doing what you can to improve but expectations are that it wouldn’t impact 4Q or certainly not 2016 but it looks like it’s going to.

Let it be known that both DMND and LNCE have 15-20% “Walmart Exposure” — and shit is fucked up over there.

Quoting Lanchester:

“. . . when Wal-Mart decides something, it has real effects. In the early 1990s (this example is from Fishman) Wal-Mart decided to do away with cardboard cartons for containers of anti-perspirant, and behold, they are no more – with the result that a billion cardboard packets no longer go into landfill every year. As Hegel used to say after his fourth stein of lager, quantity changes quality. If Wal-Mart instituted, say, a zero-tolerance policy against developing-world factories abusing their workforces, and simultaneously brought in a regime of unannounced factory inspections combined with anonymous, off-site interviews with workers, it would probably do more to change the working conditions in Third World sweatshops than any government on the planet.”

On a contradictory note. Listen to the call, and you will hear several mentions of the stellar top line. While at the same time, blatant admission that Walmart was a huge “drag” on the topline in 4Q15 and will continue to weigh on the company for the duration of 2016.

Quoting the eloquent Carl Lee, CEO of LNCE:

Then we continue to face something that most all of our peers are facing. We’ve had some strategic changes at a very large customer that continues to impact our overall revenue. Our customers impacted both their space and display support. They’ve also been watching store level inventories very carefully and that’s impacted our branded business. We’re working with that very diligently and very carefully with that customer in particular. We’re also working with other customers to begin to try to make up that revenue, but we do foresee that this will continue into 2016.

He continues . . .

It is primarily just the volume headwind. It’s the — as I mentioned earlier it’s the space, displays and inventory challenges so it’s harder to get the right volume in and get it on display like you normally would and then get it to sell through. So it’s not so much pricing, it’s more strictly volume-related and the merchandising that drives the volume.

Next we have the plant shutdown. 8 days for a laughable “$6 to 8 million” in lost revenues. For more milquetoastery, fast-forward to the Q+A (audio below).

——————————————————————————–
Brett Hundley, BB&T Capital Markets – Analyst [4] ——————————————————————————–
Thank you. Rick, I had a couple questions for you to start. Could you quantify the bakery shut down at all in the quarter, whether that’s in absolute EPS terms or just percentage of negative impact relative to your original expectations?

——————————————————————————–
Rick Puckett, Snyder’s-Lance Inc. – EVP, CFO, & Chief Administrative Officer [5] ——————————————————————————–
Yes. We were actually shut down for about eight days, I think, Brett, so it was pretty significant impact. We have — it impacted the branded and the contract manufacturing business, more the contract than the branded business. And it’s — I don’t have the percentage off the top of my head, but it’s $8 million or so, $6 million to $8 million of impact.

That is really all, dear readers. Do not look for a bargain here in this here dung-heap. There’s probably more bad news to come. Errr, I mean, errr, challenges with a large customer.

Carl and Rick, please do us all a favor and join your local Rotary Club. Get some public speaking on, would ya? Please also spare us from the notion that converting your shitty products to “non-GMO” changes the demand landscape. Puhhlease. Lastly, on an administrative note: number your fucking slides correctly. Advise the stooges in your investor relations department to do so, stat. When dealing in matters financial, the investment community is automatically suspicious of inaccuracies regarding seemingly trivial matters. The devil is in the details, so to speak.

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HOMOGENEITY, CO-DEPENDENCE, AND ENNUI — $EXPE $PCLN $TRIP

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Roughly 400 days ago, your dear correspondent JG was trapped in a faux “resort” on the Big Island. It was conference time and boy were the participants mesmerized by the fire-throwing “natives” that blew the conch shell at sunset. Not too different from the bagpipers that carry out the same task at The Inn at Spanish Bay, come to think of it. Unsurprisingly, nary a proper dining establishment was to be found on premise, despite “five-star” accomodations.

There are few hotels that that offer a truly differentiated experience. Business travellers really don’t need anything but a clean commode and some speedy internet during these jaunts, increasingly opting for ALOFT (Starwood), Hyatt Centric, Moxy (Marriot), Canopy (Hilton). Pretty much all the same product. The leisure set, sip on $14 Coronas in every corner of the world, thumping on the butt of a stubby bottle of Heinz Catsup. The high end bars are Diageo vendors. The food Sysco central. Homogeneity pervades. Homogeneity pervades. Is there really that much of a difference between the Lotte Seoul and the St. Regis in Aspen? Aside from the TOTO toilet that splashes your bum in Asiatic lands? I think not.

Anyhoo, thanks to The Grande Ol’ Internet, we’ve been blessed with the ability to sort through said homegeneity with a few clicks, opting for whatever suits our fancy. The burning question is — why the fuck would anyone use this shit to book?

Having pondered this question for hours on end, I suddenly realized it was much more simple that I had imagined. These bogus sites are a centralized location to look at pictures!

Who the hell wants to leap from site to site comparing the lifeless stock images from big chain hotels. The websites are just about as bland as the contienntal breakfast under Jeeves’s steel dome.

That said, the world of Online Travel Agencies [PCLN, EXPE, HRS, TRIP] is a vertiable rat’s nest. Trying to wrap your head around the dynamics at play is akin to threading a serpentine belt in your brain.

Back in the stone ages, hotels published rates 12-15 months in advance. Pricing was fixed. Overestimating or underestimating demand was the implicit risk. In effect, prices in the hotel world have always been “fixed” to some degree. The rationale: simplification of revenue management and distribution channels.

With the advent of The Grande Ol’ Internet, a veritable transmorgifier for forecasting demand and discounting in real-time, pricing became a bit more dynamic, with suppliers and OTAs haggling behind the scenes.

But, front-facing pricing is still theoretically standardized with hotels unable to undercut OTAs (by mandate). A concept known as “rate-parity” — some blowhards still call it olde fashioned price-fixing.

Quoting industry pundit/apologist @rockcheetah:

This is where uninformed accusations of “price fixing” fall apart. Hotels independently set prices based on market conditions, not under the collusion-inspired duress wrought by competitive hotels and/or intermediaries, as imagined by delusional conspiracy theorists. Rate parity is used to effectively manage the frequent price variations across multiple business models and distribution channels for a perishable product.

Public discourse has been hovering around the issue of “rate parity” for years, both in Europe and the US. And of course the rules are different in the US and Europe, so bear with me.

Since 2012, many European authorities—including the UK, Germany, Austria, Belgium, Denmark, Switzerland, France, Sweden, Italy, Ireland, the Czech Republic, and Hungary—have launched investigations concerning parity provisions in contracts between OTAs and hotels. OTAs, such as Expedia, enable customers to search for and reserve hotel rooms, flights, and other travel-relat- ed services through their online platforms. A common model for their agreements with hotels gives the hotel responsibility for setting and listing room prices on OTA platforms, and the OTAs collect commissions upon booking. The parity provisions at issue require that hotel room prices offered through the OTA are the same (or better) than prices offered through the hotel’s other sales chan- nels, including competing OTAs and the hotel’s own website. Typically, this parity requirement also covers other conditions, such as cancellation terms or inclusion of breakfast in the room price. Expedia, Booking.com, and HRS, three of the largest OTAs for hotels in Europe, have all come under scrutiny for requiring such provisions.

European regulators have been concerned that these parity provisions have an adverse impact on competition among OTAs. Because each of the major OTAs requires parity, in practice, the provisions guarantee that the price of a particular hotel room is the same across all online platforms. Knowing that room rates will remain in line with their competitors, regulators believe that OTAs have little (if any) incentive to compete against one another on commission rates charged to hotels. That is, OTAs could raise commission rates to hotels without losing business to one another because the room rate would remain unchanged (at the expense of the hotel’s margins). Alternatively, if the hotel did increase room rates, this increase would apply to their competitors as well. According to national competition authorities, this arrangement eliminates price competition between OTAs and “risks leading to higher commission rates, which in turn risks leading to higher hotel room prices.”

European regulators also have expressed concern that pricing parity reinforces the position of incumbents at the expense of new entrants because pricing parity impedes their ability to increase share by discounting commissions or room rates. As a result, these provisions arguably preserve the concentrated structure of the OTA market, and impede entry from innovative new players. OTA pricing parity thus is at odds with the European Union’s desire to facilitate growth and innovation in e-commerce.

The hucksters at Expedia and Priceline control an inordinate portion of the market. By some counts, Expedia runs about 75% of the market in the US and Priceline is in the mid 60% range in Europe. Together they’re at about 95% in the US. Line extention is their game. Meanwhile, commision levels are 15-30% and the hotels don’t seem to give a fuck. Especially if the extra bps paid out bolster search rankings. Why? Pretty much because they are a bunch of lazy buggers who haven’t prioritized investing in digital assets. Inertia is a bitch when you’re sitting at the buffet. And with little incentive (can’t undercut on price) why the hell would they bother? The power dynamics at play in terms of search are also of import. With one flip of an algo, your stupid little hotel can be relegated to the far reaches of search results. Might as well play ball with the OTAs.

Of course the Europeans are all over the monolith that is Priceline.

In April 2015, Booking.com (PCLN) announced its support of recent decisions by the National Competition Authorities in France, Italy and Sweden to accept amendments to Booking.com's parity commitments with respect to hotels located in those countries. A bit hokey as hotels still had to offer the same rates and booking conditions on Booking.com as they do through their own direct website. The only real change was that competeing OTAs could have different prices, theoretically promoting competition. Note: HRS and Expedia are small fries in Europe.

What a crock of shit. Did those concessions do jackshit for consumer (lower prices), new entrants, or even hoteliers?

The bottom line is that these fuckers are (sort of) in the drivers seat. And guess what? Hotel owners on the whole do not give shit about dismantling parity. Partly because its a lazy-man’s distribution channel and partly because competing on price with distribution partners simply puts them in the line of fire in terms of search rank. Hoteliers need OTAs. Just as OTAs need hotels. According to one prominent Palo Alto hotelier, “All hotels rely on Expedia. Period.”

On one other hand, industry data (PhocusWright) suggests that hotel bookings from OTAs are flat between 2011 and 2014. See chart below. No one wants to go to stale hotel websites. But guess what? They still do! Reservations coming directly are growing, per this industry mouthpiece while OTAs are flat. Could that really be so?

One the other hand, quoting some boss-huckster:

“We are entering a new era of online distribution and digital marketing in which just having a website, a few paid search campaigns and occasional email marketing initiatives no longer allows hoteliers to achieve any level of real success and only deepens their dependence on the OTAs, with or without rate parity provisions.”

Furthermore, a hawker of digital media services, chiming in:

“The continuing OTA consolidation created, de facto, a market duopoly, thus further eroding hoteliers’ negotiating and marketing power. With many hoteliers underfunding their direct online channel presence, the OTAs continue to win the “first and last touch” travel consumer engagement battle. Contrary to what some industry “experts” claim, the looming threat of removal of rate parity coming from Europe provides serious competitive advantage to the well-funded, digitally-savvy OTAs, who control the conversation with the online travel consumers. Many hoteliers, who have plainly ignored or underfunded the direct online channel for years and have not acquired digital technology, marketing skills, and know-how, are already “feeling the pain” from these new highly negative developments, whose real impact the industry will feel in 2016 and beyond.”

Who to believe?

Meanwhile on the regulatory front — Zee Germans are coming! Zee Germans are coming!

A December 23, 2015 ruling from the Federal Competition Authorities ordered the platform Booking.com to halt its strategy and remove all rate parity clauses from its contracts before January 31, 2016. The company still has the right to appeal to the Higher Regional Court of Düsseldorf, just like its competitor HRS unsuccessfully did a year ago after a similar decision from the Bundeskartellamt.

Don’t worry, HRS got nowhere with that.

Guess what else? The European Commision is coming too. They will be handing down a pan-european decision on the matter (no date), and I’d venture to guess it’s gonna be a big fuck you to “price-fixing”. But friends, at this juncture, I could give two shits about “price-fixing”, “resale price maintenance”, or “rate parity”. This here inane industry has invaded my dreamscape and I do not appreciate that one bit.

What does this all mean for EXPE, PCLN and its ilk?

Are we’re looking at a race to the bottom in terms of pricing? Will margins get squeezed at OTAs? Will volumes drop on OTAs if regulation comes down in the US/Europe? Will regulation ever come down in the US? Is the hotel industry in for a massive repricing? Or are hotels so dependent on this teat, that it will take at least a decade to make a dent in the prowess of these click farms-cum-merchandisers?

Frankly, independents may not even have the budget or inclination to bother with a digital strategy.

In the US, where EXPE is dominant — this spectre of rate-parity abolition is not as imminent as in Europe. But, you have to wonder if its coming down the pipe.

In a post-parity world, I suspect the situation will be choppy at best.

All in all, PCLN has some headline risk in the near term, Expedia is a shitty rollup that just bought a four billion dollar melting ice-cube in HomeAway, and I don’t really give a fuck about either. There is no spicing it up. Fuck that little mini-Tabasco bottle. Know’msayin?

JG

ps: TRIP is also sashaying its way into the fray, undercutting commissions by 50% per some sources . . . yawn

pps: take a gander at core bookings growth. organic.

ppps: market soaking up the supply

pppps: final thought – middling opportunity either way at pixel time

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FILTHY WASTRELS AT SEA $RCL

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A metric ton of lobsters per week. 1600 “cheesecake lollipops” per diem. 600 lbs of french fries per evening. 6000 lbs of broccoli for a cross-atlantic sojourn. No less than 30,000 bottles of beer and 25,000 of plain old water on board. All you can swill for a paltry sum of 65 US Dollars per day.

I sincerely thank David Owen for giving us access to one window into these vessels. When I first read this scribble, I was fascinated. Who doesn’t love a story on the intricate operations of these elephantine flotillas? The scale is simply mind-boggling. Coke dispensers that wirelessly comuunicate with Atlanta. A two-lane employee highway, dubbed the 1-95. Infrared sensors that monitor the body heat radiated by the people currently eating, which then inform the community how much space is in each of the dining venues. And don’t forget “VOOM – the fastest interenet at sea”. By golly, its Silicon Valley afloat!

Fascination continued. For who isn’t curious how these dung-generators optimize? “Selling tickets for a cruise ship is an ongoing math problem,” via some wonk at McKinsey. In a recent development, Royal Carribean (RCL), leading “leisure” purveyor is not late-discounting in North America and Canada and recently extended the policy to Ireland and Britain. You can’t wait until the last minute and find a hot deal anymore. You commit and you will not be undercut. Pricing, ever the puzzle.

Musings continued. How much of the business is repeat? What is the average length of a jaunt? What is the avereage cost of a jaunt? How many bloody ships in the “fleet”? What are their assets? Do they own the boats? Or effectively bank-owned with borrowed capital? How much of revenues come from ticket sales versus onbard? (87% v 33% in the most recent Q, 73% v 27% at end of 2014 fiscal year) What is the average weight of an adult traveller? Any correlation with obesity? Is that just an impression picked up by watching some Pixar flick full of tubby cartoons sitting on deck chairs? The list goes on, dear readers. But I am not here to continue with this line of questioning at this time. For my interest in this here industry has been overshadowed by my abject disgust for these floating rape centers. If you have a small child, do note that the sexual abuse rates are nearly double what they are on land. And don’t worry, since you’re generally treading international waters, no one will be charged for said crimes. Your chances of norovirus are slimmer (not really). Roughly 172,810 passengers and crew members met VSP’s case definition for acute gastroenteritis, accounting for 0.18% of passengers and 0.15% of crew members (outbreak and nonoutbreak illnesses combined) out of ~ 73.5 million passengers sailing the seas between 2008 and 2014. Per the CDC, among cruise ship outbreaks with clinical specimens tested, 92% were caused by norovirus, with enterotoxigenic E. coli the second most common etiologic agent. All aboard motherfuckers!

I can go on and on. Black sludge. Gray sludge. Crew on crew abuse. 77 hour work weeks for staff that needs to be alert in case of emergencies. Food and utensils hidden in the galleys during health inspections. Disregard for culinary standards. Blah blah blah, no surprises here. However, I for one find their shenanigans highly offensive to the ocean, a magnificent natural wonder of mind-blowing dimension. Thus, I firmly support the demolition of every last one of these disgusting beasts.

For that I will have to picket in front of 20,000,000 willing and able “cruisers” who participate in such tomfoolery regularly. And increasingly my one-man-protest will have to go on tour. Hong Kong, Shanghai, Tianjin, Qingdao. China will represent 9% of total 2016 capacity versus 6% in 2015 for stupid Royal Caribbean. Eventually the tour will reach Latin America as well. But thanks to a 22% devaluation in the Real and uncooperative regional economic climate, the firm has nimbly shut down the lauded Pullmantur boat. After “an extensive dry-dock” —— as though it needs a rest, the piece of shit will be redelopyed in Spain under the moniker Empress of the Seas. A $400 million writedown in tow, no pun intended.

All in all, the dialectic of “progress” is keeping these fuckers alive, with the geograpic shift in revenues (see chart below). In 2005 the split was 79% domestic and 21% international. Now its closer to 50% 50%.

But, what of the financial health of these “ecologists” (more on the lobster-poop-cycle later) at RCL. What of it, what of it. Oil is cutting them some slack, no doubt. Fuel costs as a % of revenue sit at around 11.7% and troughed at 9.6% in 2010. I am sure that these fools will be locking in some choice rates for years to come. Absloute fleet size is up ~25% in 10 years to 43 vessels. The number of passengers carried has gone from ~3,480,000 to 5,149,952 at the end of FY2014. The “APDs” or avaialble passenger cruise days up from 21,733,724 to 34,773,915 during the same period. But what niggles at me, is that the rate of passenger the fact that the # of passengers carried as a % of APDs has gone from 0.160 in 2005 to 0.148. Now this could be both irrelevant and/or statistically insignificant. However, it seems to me that capacity is outpacing occupancy. Must verify.

On a side note, I can’t help but log a retort to the CEO’s declaration:

“The millennials are an enormous market for us,” Royal Caribbean Cruises chairman and CEO Richard Fain said during an earnings call last month.

What the fuck is he talking about. No, really. No motherfucking millenial I know is dying to bask in the sun on a cruise ship. Are you fucking kidding me? I don’t give a shit about your “Weezer” cruises and what not. Millenials are simply not philosophically aligned with cruising. They do not want to “experience” life in a hermetically sealed environment. And if they don’t reproduce at the same rates as their elders, they will never be tempted by this garbagio.

That is all motherfuckers. I will leave you now with a wonderful quote from Mr. Owen: “The food was mostly stuff that not even a boarding school could get away with now: a sad-looking salad with a single cherry tomato in the center, a fish fillet as rigid as tree bark. Even so, eating and drinking were the main activities onboard.”

So offensive. In so many ways. I proudly display my bias. And have no intention of removing it EVER. For the damage done by these fuckers is unacceptable. Period.

JG

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$COH – DEAR MARGARET THATCHER . . . YOU LIMEY WANKER

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Dear Maggie,

Thank you so very much for leaving Britain with a raging class war. From Brick Lane to #SW19 to Brixton to Notting Hill. The hoi-polloi would like to bestow 1000 gaping vaginas upon your grave in honor of your great success.

Meanwhile, across the pond, the shareholders of Coach would also like to partake in the ebullient celebration of your legacy. 1000 additional vaginas will festoon the site, on behalf of CUSIP # 189754104. Pageantry of magnificent order!

Margo, you might be nonplussed at this very moment. Why pray tell, would Gerald Tsai’s foot soldiers feel beholden to you? It may take a little bit of thought. But you were always a bluestocking, weren’t you, ol’ scallawag.

Alas, I am not here to cavil about your policies, your institutional attacks on the working class, nor your general cuntery. For that is a widely known narrative. I am here to tell you that thanks to your insidious shenanigans, we might here have a turnaround opportunity in Coach. Let me explain.

You see, while you were tea-bagging Ronald Reagan, his dumb-ass forgot how to think, and decided to mimic your dumb-ass. Long story short, a working class job was no longer a safe haven, a source of pride. Rather it was something to escape. The aspirational instict of mankind may be intrinsic to his nature, but you sure egged it on smarty-pants.

Net net, we here consider Burberry and Coach as playing analagous roles on the Island and Stateside, respectively. A bit of class warfare through the lens of leathergoods, if you will.

Over time “chavs” across the land appropriated the tartan costume of pugs and waifs alike, much to the chagrin of upper management of said pond-side purveyor. All the while, a similar situation developed at the design house known as Coach. The ever-so-gauche CCCCCC logo, quintessentially kitschy no less, has been the unequivocal status symbol for “trailer trash” and the “250K middle class” alike. Cacophpny, if you’re Coach management.

On the one hand, peak outlet sales, reached XX% (outsized). On the other hand, penis-addled money managers can’t lean on the old uxorial hypothesis that “wifey likes it” — because wifey doesn’t want to be confused with lower rungs of the economic ladder! A quandary no doubt.

Quoting rabble from the fashion blogs: “JILL TURNER DELIN JULY 3, 2014 AT 5:47 AM – Now that Coach bags are held by 50% of all Wal Mart shoppers they have lost their appeal and place as a “status” item. Why would I pay big bucks for a brand that can be found in most mobile parks?”

What we have here ol’ chum, is garden variety “brand dilution” – a inexorably vile concept, at its core.

Coach’s management, a sagacious bunch, knows full well that the psychological house of cards is crumbling, explicitly culling logo-riddled product. Or as they say in industry parlance, “we’re designing into the trend of no-logo”. With 30% of outlet sales coming from logo as of 1Q16, sloughing this line off is going to be a glacial task. However, looking at the big picture logo represents less than 5% of total North American retail sales [~28 million in most recent quarter]. I do wonder if they’d be willing to scratch the gaudy logo altogether to forgo 5% of sales in North America and revive the brand in earnest. Probably not. According to management it “will decline slowly” and its “an integral part of the business” — all in the same breath. Confusion.

Come to think of it, confusion is a theme, as I ponder this name. “We are the original house of American leather,” claims management. Yet product is churned out in China and labor inflation in that market has forced manangement to find alternatives. With gross margins under pressure, rest assured that reclaiming the brand’s heritage does not mean bringing production back to the US of A.

Meanwhile, Englishman Stuart Vevers, the new creative director, is a paradox himself. Coach has a democratic ideal, he claims. His inspiration/customer is a “a magpie girl who goes on road trips, picking up Western things, but also might steal from her granny’s closet on the Upper East Side.” He continues, “I like shearling because to me it’s quite honest, it’s a raw material with very simple construction, and something about that to me feels like a Coach approach to luxury, even an American approach to luxury — not too precious,” he said. Roughly $2000 for any shearling coat. Not too precious. Democratic, too!

Vevers (ex-Mulberry of UK) knows the ephermeral tricks “shearling, glitter, metallic” — differentiation, innovation. Not averse to Snoopy and Gary Baseman gimmickery, he also knows Europe, after stints at Mulberry and Loewe. Given that 90% of Coach’s business has historically come from Japan and North America, Europe is clearly a greenfield opportunity. A new flagship store in Paris and a clean slate, where the scourge of logo hasn’t stained the collective psyche, awaits. Burberry’s Haymarket Check ticks that box across the pond.

As I perused an airport “door” recently, what jumped out at me was the fact that a 95% of the men’s product wasn’t heinous per se. Most of it was muted and elegant. The aesthetic has been neutralized to some degree. And one can see that they are favoring embossing the horse and cart over tacky logos and gauche trimmings. In fact, a sucker to my own biases against “Hermes for Housekeepers” — I thought to myself, if these were XYZ brand, I might be interested in a simple backpack. I think that Coach will be hard-pressed to overcome its image in the US in the near term. Quoting a one-percenter stay-at-home mom, “Coach is for grandmas. But I did buy something for my nanny there for Christmas.” It fancy enough to give away, but not for oneself! In Europe and Asia, it doesn’t have to overcome brand-association as an incumbent issue. That said, the company has got the tourniquet on domestically, shuttering almost 100 doors in the past 9 quarters. The only thing that will change perception domestically, is time. Hearts and thoughts they fade away . . . as do brand associations.

From a 2011 Article: You might find a chic, understated python clutch; or you might find a pink-and-purple purse with sequins, faux graffiti, and a plastic tag full of floating glitter, which looks as if it were designed by an eleven-year-old girl with a penchant for unicorns. “Frankly, I go into one of the stores now and I don’t see one bag that I like,” Miles Cahn (original Coach founder) said.

They heard you Miles.

All in all, what moves the dial for Coach? I certainly don’t think its the runway collections, or Snoopy or Gary Baseman. Nor being the official luxury accesory purveyor for the New York Yankees. Revamping the design aesthetic is setting the tone for the brand to be “cool again” in the upper echelons of the fashion world. And the psychology naturally trickles down at some point. Aspirations abound. Factory stores lead growth once again. The cycle repeats.

I think the previous creative director, Reed Krakoff said it best:

“It’s not that I have the best answer, but I have the right answer,” Krakoff explained on a bitterly cold morning in February. He was sitting at a long white lacquer conference table in the Coach building, on Thirty-fourth Street, near the West Side Highway. The team that devises Coach’s prints was showing Krakoff a selection of fabrics to consider for spring bags. One of the prints was based on a cheery Bonnie Cashin design from the archives: thick stripes of orange, fuchsia, brown, and light blue. Another was a gruesome mixture of pink, salmon, magenta, and coral, rendered in matte satin with “C” logos all over it. Krakoff looked at a long line of boards tacked with swatches and made quick decisions about which would work for the brand. “I bang it out,” he said. “I know what came before, I know what’s coming next, I know how it will work in the context of the store and the ads. It’s like a code.”

Indeed. It is like a code. Today the code requires a less garish stance. In my opinion, management knows. Cutting domestic doors. Filling gaps in assortment. Tripling investment in sub-$100 product (popular among holiday-gifters). Moving the concept to virgin territories. Penetrating pinnacle specialty retailers abroad and at home. The fact of the matter is, these people have it down to a science at some level. The hard-resetting of the design-vision is certainly necessary, but nothing new. They did it in the 90s and they are doing it again now. Rinse, repeat.

Do note that Goldman Ball Sachs has adorned the design house with a clairvoyant SELL.

Personally, I want it cheaper. I always do.

Toodle Pip Bitch,

JG

Bags. Muted.

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