Consumers Preview 10-14-2009
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Transcript of Consumers Preview 10-14-2009
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Bentley Investment Group | 2009-2010
BENTLEY INVESTMENT GROUP
Bentley Investment Group | Fall 2009
Consumers Preview PresentationOctober 14, 2009
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Bentley Investment Group | 2009-2010
Bentley Investment Group | Fall 2009
ECONOMICINDICATORS
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Bentley Investment Group | 2009-2010
G ross Domestic P roduct = C + I + G + NXLooking at how large the C is in
GDP.
Consumer spending is a vital
component of any economy, inthe U.S. it currently represents71% of GDP
GDP is a gauge of the health of a
countrys economy GDP ismeasured as a comparison tothe previous quarter
GDP information can be found here:http://www.bea.gov/national/index.htm#gdp
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Bentley Investment Group | 2009-2010
GDPPersonal spending on cars, clothes, food and other items accounts for 71% of gross domestic product,according to the latest Bureau of Economic Analysis data. That's slightly above the level one year agoand well above the long- term average around 65%. USA Today (October 11, 2009)
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Bentley Investment Group | 2009-2010
Consumer Price Index (CPI)
Rising or Falling?Which industries?Elasticity of the Goods?
The CPI is one of the most important indicators in termsof moving the markets andsetting monetary policy forthe Fed.
CPI information can be found here:http://www.bls.gov/CPI/
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Bentley Investment Group | 2009-2010
Retail Sales Report
Overall Retail SalesEx-AutosIndustry Specific Sales
The ex-autos sales growthexceeded economist estimatesof a 0.2 percent increase.
Excluding a 10.4 percent drop inauto sales, retail sales actuallyrose 0.5 percent in September
Retail information can be found here:http://www.census.gov/retail/
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Retail Sales Ex-Autos
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Bentley Investment Group | 2009-2010
Unemployment & Jobs Data
15.1 million Americanscurrently out of work
Monthly Release and weekly
jobless claims: Most recent release,
10/2/09: 9.8% Highest rate since June of
1983 Leads to consumer
uncertainty and resultingtight wallets
Unemployment information can be found here:http ://www.bls.gov/cps/
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Bentley Investment Group | 2009-2010
University of Michigan ConsumerConfidence
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Bentley Investment Group | 2009-2010
Conference Board ConsumerConfidence Index
Slight dip in the index as of the latest September release, after an uptick inAugust.
While not as pessimistic as earlierthis year, consumers remain quiteapprehensive about the short-termoutlook and their incomes. With the
holiday season quickly approaching,this is not very encouraging news."
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Bentley Investment Group | 2009-2010
Consumer Credit
Latest Federal Reserve credit release:October 7 th
Credit outstanding fell for the 7 th straight monthby $12 billion- larger fall than expectations.
Households are in paying down debt mode,theyre not in the mode of taking on new debt.
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Bentley Investment Group | 2009-2010
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Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009
THE CONSUMER
SECTORDIVIDED
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Bentley Investment Group | 2009-2010
Discretionary and Staples
Consumer Discretionary includesautomotive, housing, entertainment and retail - this sector
is highly cyclical and relies highly on consumer leisurespending.
Consumer Staples include food, beverages,tobacco, prescription drugs and household products thissector is not as exposed to economic cycles and thus isconsidered more immune to recessions.
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Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009
ENTERTAINMENT/ MEDIAINDUSTRY OVERVIEW
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Bentley Investment Group | 2009-2010
Why Invest in this Industry?
Undervalued due to low revenues fromadvertising
Directly correlated to consumer spending Pro-cyclical
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Bentley Investment Group | 2009-2010
Finding a Quality Company
Well diversified within industry Opportunities for cross promotion Reduction of risk due to diversification Take advantage of economies of scale
Greater purchasing power Quality Products
Consumers will buy/watch what is appealing Copyrights to big-name characters
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Bentley Investment Group | 2009-2010
Key Industry Statistics
GDP Consumer disposable income
Consumer Confidence Is industry expanding
Firms arent limited to growth by taking market share from other companies
International markets
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Bentley Investment Group | 2009-2010
Advertising Revenues
Have declined in recent quarters Is expected to increase with economy
strengthening Automobile industry
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Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009
RESTAURANT INDUSTRY OVERVIEW
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Bentley Investment Group | 2009-2010
Industry By Segment
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Bentley Investment Group | 2009-2010
Key Ratios And Statistics
Real gross domestic product Disposable personal income of consumers
Commodity prices Unemployment rate Interest rates
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Bentley Investment Group | 2009-2010
Upside
Low barrier to entry/high return
Franchising Commodity prices likely to ease Labor costs to move slowly
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Bentley Investment Group | 2009-2010
Downside
Across industry gross margins decreasingdue to low sales figures
Consumers expected to save more, spendless
Travel to be weak in 2009 despite cheaperfuel.
Intense competition and high fixed costs
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Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009
APPARELINDUSTRY OVERVIEW
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Bentley Investment Group | 2009-2010
Industry Basics
Large, mature and highly fragmented Within national brands, 10 largest
companies account for 16% of wholesaleapparel sales
Low barriers to entry: simple technologies,ease of expansion, low fixed assets per emp.
Major apparel companies: Nike, V.F. Corp,Polo Ralph Lauren, Hanesbrands
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Bentley Investment Group | 2009-2010
State of the Industry Industry is heavily affected by state of the economy ,
availability of credit and the consumers willingness tobuy :
Credit crunch has damagedapparel firms abilityto borrow: troubles at CIT
Consumer woes: unemployment, credit constriction,loss of wealth
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Bentley Investment Group | 2009-2010
A New Normal for Apparel?
A long recovery forconsumers:unemployment,deleveraging, and renewedfocus on savings
Less credit to fundextravagant purchases
Frivolity to frugality: a newconsumer mindset?
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Bentley Investment Group | 2009-2010
Challenges for the Apparel Industry
Restore pricing integrity Align supply and demand:
inventory adjustment and
cash generation Cope with the new
normal: providing valuefor consumers andembracing trends (greeninitiatives, e.g.)
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Bentley Investment Group | 2009-2010
Analyzing an Apparel Company
Macro factors: rate of unemployment,trends in discretionary income
Sector-specific factors: rate of spending onapparel vs. other discretionary items,dominant fashion trends
Assess individual companies based onfinancial position, competitive stance, brandrecognition, target demographics, etc.
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Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009
CONSUMER NON-DURABLEINDUSTRY OVERVIEW
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Bentley Investment Group | 2009-2010
Consumer Non-durables
2 Segments: Household products (soaps, detergents, cleaning
products)
Personal products (shampoo, toothpaste, health andbeauty aides)
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Bentley Investment Group | 2009-2010
How Nondurables Operates New Products = key driver of companys future sales
growth Look for companies integrating new products, and investing in new
R&D What drives demand?
Price: products are necessities; a decrease in disposable incomeputs downward pressure on product prices
Demographics: more people = more bodies to bathe = more housesto clean
Household Income: Demand is directly linked to household incometrends increase in income moves consumers up from bargainproducts to premium ones
Innovation: companies creating excitement about their products
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Bentley Investment Group | 2009-2010
Key Ratios Disposable Income : inflation
adjusted income less taxes April 2009 was at 2.8% down
from 4.7% growth in 2008
Personal ConsumptionExpenditure : compared withdisposable income
April 2009, decline of 2.9%compared to a decline of .06% in
2008
Consumer Price Index: tracksretail price inflation (deflation)for products sold to end-useconsumers
April 2009, CPI projected to decline
1.7% Foreign Currency Exchange
Rates: US household andpersonal care productsindustries outsource growing
portions of their sales
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Bentley Investment Group | 2009-2010
Analyzing the Industry Assess the Business
Market leadership and brand strength, do people recognize theirproducts?
Who are their competitors, how do they match up? Income Statement
Sales, Gross Profit Margin, Operating Margin, Net Income, EPS Balance Sheet
Debt Leverage Performance Ratios
ROA, ROE Price-to-Earnings Ratio
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Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009
RETAILINDUSTRY OVERVIEW
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Bentley Investment Group | 2009-2010
How to Value Retail: Macro
GDP Consumer Confidence Index and Consumer
Sentiment Retail Sales, released monthly
Chainstoreage.com has historical sales figures Unemployment Consumer Price Index (Inflation)
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Bentley Investment Group | 2009-2010
How to Value Retail: Industry
Compare apples to apples; Abercrombie andFitch and Wal-Mart are both retailers but they are not in the same business
Compare sales revenue Relatively similar products Demographic targets
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Bentley Investment Group | 2009-2010
How to Value Retail: Key Metrics
Same store sales Sales per square foot
Inventory turnover Profit margins (again remember to compare
against similar companies)
Compare room for growth; domestically orinternationally
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Bentley Investment Group | 2009-2010
Retail Going Forward
Week Ahead Retail sales released this morning
Good sign if sales continue to decrease by less than
estimates (or if they are positive) CPI & Jobless Claims announced on Thursday
Low inflation and less people filing forunemployment insurance is good for consumers
Consumer Sentiment released on Friday If people are more optimistic about the future they
will be more willing to spend
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Questions?
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