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

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].

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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…. 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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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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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.

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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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No brainer. That is all.

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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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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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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

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At one juncture, circa 2011, my hatred for this cabal of grifters and indirect-purveyors carpal tunnel syndrome had peaked. Not least, because I had overheard a young lass request that one of her chums tend to her “garden” while she was “away”. What an inane sprig of society, I thought. What an ungodly request. It was the “illusion of choice” in full effect. Stretched to the point of transferring responsibility to another unsuspecting netizen. To paraphrase one Dr. Ian Bogost of The Georgia Institute of Technology, these nefariously arranged pixels are a means of “offering players incentive to instrumentalize their friendships, obsess over arbitrary, timed events, buy their way out of challenge and effort, and incrementally blight their online lives through worry and dread.”

Admittedly, I was (and am) snooty with regards to the lunacy of such endeavors, despite the fact that Pincus managed to engage the hoi-polloi for a brief moment in time, en masse. What a thug.

A full five years later, I find myself trawling the deep seas for a bargain. Let us ponder the following: 0 debt, one billion in cash, and a free and clear 670,000 sq foot design-district property in a majestic city. Given that, the rest of the business is selling at somewhere between seven hudnred million and one billion dollars. The coterie of Board Members now includes not one but two big-swinging-dicks from Kleiner Perkins, as of 2013. Are you bear-shitters trying to tell ol’ JG that this here heap of dung isn’t worthy of unicorn status? Let us discuss over some Armangac and Amphora in a dimly lit parlour.

But let us first pause, and take a moment to thank the Good Lord for the departure of the dimwitted CFO David Lee (no Barclays). CFO departures can indeed be red flags. But in this here situation, we celebrate. This bufoon not only speaks in the most revolting tone, but also promotes himself to the point of telling young David Lee (Barclays) that he has a “great name” on the 3q15 call. A clever little dervish, isn’t he? I will say that Lee’s tone was a bit more subdued than usual on the 3q15 call, but the boilerplate-bullshit remianed vintage. Pincus may be be a crafty bugger, but a half-wit not. I am sure he smelled Lee’s feces from miles away. In any case, good riddance Mr. Lee.

Pincus on the other hand came to the table with candor. One got the sense that he is a steward in a difficult situation. In fact, he was actually thinking as he responsded to questions, which came from randos online as well as the street’s finest. How novel. I was pleasantly surprised that management ditched the proverbial dog and pony show of regurgitating the release in mellifluous intonations for a relatively democratic Q and A session. Thank you Lord, once again.

In listening to Pincus’s comments, I was reminded of King Digital’s presentation delivered by its ever so articulate CFO — she “speaks so well”. KING’s success has been in part a function of steely quality control. Quoting myself here from the hallowed halls of Exodus with regards to KING:

“these fckers seem different than znga, in that they don’t throw shit out and see what sticks. testbed is intricate. first they have a tournament, then given to a studio (~60 people) to develop into a sag(?), then tested in different markets under different titles with different languages, then hard launch. trades at 7x earnings, comps trade at 15x, flush with cash. i scorn the addiction model in general, but liking this slut.”

Pincus and Co. claim to be catching on, hence the delays in the two widely anticipated releases (Dawn of Titans and CSR2). Pincus explicitly states the importance of “getting it right at launch”. Will he deliver? We shall see.

I’ve had nothing but derision for this disease factory since the days of yore. Today, what I see is an operation that has battened down the hatches. It has culled titles and staff, relocated operations to mother india, made a timely prime real estate purchase (not market to market), stated it will buy back up to $200 million worth of stock, and might very well have a higher cash position at the end of 2015 as compared to 2014. Bleeding may have ceased.

Note to self: remove your bias. Stay tuned for part deux.

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