By DAVID MOON, Moon Capital Management
Last week, Krispy Kreme blamed its $24.4 million first quarter loss (compared
to a $13.1 million gain last year) on the low-carb diet craze. The next
day, Lone Star Steak House announced poor results because of some calendar
Does anyone else see the irony?
Over the course of my life, I've lost approximately 1,200 pounds. I
have never seen a diet that recommended eating doughnuts. Buried in the
Krispy Kreme press release was a $41.8 million charge related to sale of a bunch
of stores the company bought only a year ago.
Dr. Atkins never told Krispy Kreme to buy those stores.
If there is an industry that compares to restaurants in its press release
creativity, it is the general retail industry.
Retailers complain about their results when the weather is too hot. Or
cold. They blame snowstorms and tornadoes. If Thanksgiving is too
early in the year, they complain about a lack of early Christmas shopping
enthusiasm. If Thanksgiving falls a week late, the Christmas shopping
season is too short.
Just once, I'd love to see an honest press release following a poor
'During the third quarter, our same store sales declined 1.2 percent.
We're not sure why this happened, but we think we bet too heavily on bell-bottom
blue jeans and the market shifted to straight leg jeans. Now we have all
these fat legged blue jeans that nobody wants and we have to figure out a way to
get rid of them. We're going to slash prices on the bell-bottoms and try
to make some room for our spring merchandise. It will probably take us six
months or so to recover.'
Now that would be a truthful report. Instead, we get things like:
'Our quarter was negatively impacted by a rain storm one Tuesday afternoon in
Kilgore, Texas. This, combined with the threat of terrorist activities
around our largest store in Joplin, Missouri, pushed our same store sales down
slightly, 1.2 percent. However, in stores open between 12 and 29 months in
rural locations next to dry cleaners, sales of purple WWJD bracelets increased
17 percent. This trend is encouraging for next quarter.'
To retailers, the weather is like a motorcycle kickstand: a prop when results
Retailers spend a lot of money on ads in this paper to get shoppers bustling
into their stores. Next quarter, they need their customers to
re-bustle. Every three months, clothing retailers have to be smart.
They have to buy well, advertise effectively and price appropriately ' over and
over again four times a year.
I would much rather own a business that requires being smart only
occasionally, depending the rest of the time on business execution.
Pharmaceutical companies have to come up with new drugs, but not once a
quarter. Wal-Mart probably only made three or four major decisions in the
history of the company; the rest was execution.
Peter Lynch once recommended that investors only buy stocks of companies any
idiot could run, because eventually one will. Retailers hardly fit that
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).