Sprawl Mart?
If all the square footage of Wal-Mart's stores were a city, how big would it be? Wal-Mart's global retail presence totals some 900 million square feet, which is about 32 square miles. Laid side by side, all of its stores would fit snugly inside the city limits of Rogers, Arkansas' 33 square miles. For perspective, if your body represented the area of the U.S. (3.5 million square miles), Rogers might represent a freckle on the freckle on your forearm.
If you have not seen it yet, here's a cool animated map making the rounds in the vendor community showing Wal-Mart's store growth since inception.
CCA Industries Is Not All Smiles After Wal-Mart Loss
In January CCA Industries, maker of Plus White teeth-whitening products, disclosed that Wal-Mart intends to carry only leading brands in oral care, and thus will no longer carry its toothpaste and teeth whitening kit. In 2008, CCA sold $6 million of these products to Wal-Mart, which accounted for roughly 10% of CCA's total revenue.
Shares of CCA are down about 20% to $3.15 since the announcement, resulting in a valuation of the company of around $21 million, which is intriguing considering that CCA had about $18 million in cash and securities and no debt as of August 2008, and will still have around $50 million in annual sales. Source: Company reports
General Mills Seeing Return on Pillsbury Acquisition
When General Mills acquired Pillsbury from Diageo PLC in 2001, Pillsbury's sales were declining and the company was losing money. Recently, key Pillsbury brands such as Bisquick (which was introduced during the Great Depression), Grands Sweet Rolls, and Jeno's and Totino's Pizza have proven quite resilient in the weak economic environment and have provided GIS with nice double-digit sales growth. Indeed, GIS has been exceeding Wall Street earnings estimates, and is one of the few companies that has experienced upward earnings revisions over the last few months. We were encouraged to learn on its December conference call with analysts that management is continuing to invest in the brands, with marketing spend up 21% in 2Q09, on top of a 10% increase in the quarter a year ago. Source: Company reports
Scotts Miracle Grow[ing CEO Perks]
Disclosure of CEO James Hagedorn's airplane usage was highlighted by Footnoted.org. Scotts is the U.S. market leader in the manufacture and marketing of lawn and garden care products. About $500 million of its $2.9 billion in sales are through Wal-Mart, according to most recent SEC filings. Buried deep within its recently filed proxy statement were these juicy tidbits. Hagedorn's salary was nudged from $600,000 to $1,000,000 per year plus a $1,000 per month car allowance and the company paid the tab for a $4,703 physical examination (turns your head and cough). But the most fascinating disclosures were on plane usage. In three separate footnotes, we found that shareholder's paid nearly $500,000 for Mr. Hagedorn's plane-related expenses plus tax gross up payments of $287,000 to cover the taxes due on these reimbursements. Source: Footnoted.org
Priced to Perfection
Peroditcapitalist.com provided an excellent summary of the risk of overpaying for investments. Online retailer Amazon.com is the example and their analysis is similar to our view of why Wal-Mart shareholders suffered so much between 2000 and 2007, with the stock beginning and ending the period around $50 per share, despite WMT's 14% per year earnings growth. Even if Amazon grows earnings by 15% every year over the next 5 years, shareholders are likely to breakeven, at best. How can this be? Amazon had a good Holiday season, is strong financially ($3.3 billion in cash, net of debt), and has a leading market position. The company earned $1.49 during 2008, but traded recently at $62 per share, which means that investors are paying $42 for every $1 of its earnings, or a P/E ratio of 42. It's irrefutable that earnings growth slows as companies become larger. It's also known that the average multiple for stocks is 15x. By 2013, AMZN's per share earnings would be around $3.00. At 20x $3.00, the stock would be $60 in 5 years, about where it is today.
Unilever's "Shock Collar" For Dieters?
Careful before you hit the couch with that next bowl of Ben and Jerry's ice cream! Unilever Ventures (funded by Unilever PLC) has invested in MiLife, an online diet system that incorporates the use of biometric wristbands, the Internet, and personalized adaptive coaching to help us lose weight. MiLife claims to be the "missing link" in today's commercial diets, and works like this: The dieter wears a wireless wristband that continously measures physical activity and gathers weight recordings, which is then transmitted to MiLife.com and analyzed. In return, the MiLife system reports back to the dieter via email and encourages physical activity, meal plans etc. MiLife CEO Ciaran McCourt (former CEO of eDiets), claims that 84% of dieters using the system lost weight in the first three months. Unilever's investment will enable continued growth in the UK and an introduction of the system in the US. www.milife.com. Source: Unilever Ventures.
Or Just Go To Mexico To Lose Weight
Currently in clinical trials in the US, the Ultrashape machine and clinics claim to shrink flab on one's body just like liposuction, but with no cutting, pain or downtime. The procedure is available in 57 countries including Canada and Mexico, and has been performed on over 100,000 patients successfully, according to the company's website, www.ultrashape.com.
Source: Company website.
Clorox Green Works Going Strong
Despite criticism from Greenhome.com, Clorox Green Works natural household products continue to experience robust growth, with sales more than doubling since launched a year ago. Greenhome.com's beef with the products appears to be that Clorox partnered with, and paid, the Sierra Club to promote the products. Look for even more disclosure from Clorox this year regarding product ingredients as the eco-friendly household products category continues to grow rapidly and attract more competition. Source: Greenhome.com and Clorox website.
How Valuable is Having 150 Million Friends At Your Fingertips?
Call it engagement advertising, Mark Zuckerberg, the 24 year old founder of Facebook, may have finally found a viable business model for the social networking site, which now boasts over 150 million members. Due to ad click-through rates much lower than the internet average of about 80%, Facebook will begin allowing multinational companies to use its membership as real-time focus groups using its instant polling tool. Facebook is marketing the tool to companies worldwide and has signed up CareerBuilder, while AT&T is trialing the system. We expect to see the CPG community evaluating the service as well. Source: Telegraph UK
Category Analysis: A Dog's Life
The pet food market is being further segmented. Some 25% of the affluent have set up a trust for their pets according to Private Wealth Magazine. The affluent also spend an average of $257,000 per year on their pets (Prince & Associates). Global sales of pet food alone are some $45 billion, and the category's growth continues to be resilient with heavyweights such as Mars, Nestle, Colgate-Palmolive and Procter & Gamble all profiting. The most pampered pets are lavished with life coaching, deep muscle massages, and yoga. For these pets, Ol' Roy is definitely not on the menu.
Extras
Quote of the Day - "A shot to the crotch is always a big winner..."
Says Patricia Brennan in the Wall Street Journal referencing the popular Doritos ad shown in this year's Super Bowl. The ad was created by amateurs.
"Unlike our sophomoric competitor, we didn't just discover refreshment yesterday, knock off a logo and slap it on a billboard" says Susan Stribling, Coca-Cola spokeswoman in response to Pepsi-Cola's new "Refresh Everything" slogan (In Advertising, New York Times).
Have a thought or comment?
Scott Alaniz, CFA
Joe Chumbler, CFA
Fayetteville (479) 251-8400
Rogers (479) 366-4474
Information in this report has been obtained from sources that we believe to be reliable. Boston Mountain Money Management does not guarantee its accuracy or completeness and assumes no responsibility for actions taken with respect to information contained herein. The authors held a position in Wal-Mart Stores, Inc. at the time of this newsletter.
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