Build-A-Bear pursues ’strategic options’

Some of you may remember the post, Build-A-Bear Workshop gets torn down in which I stated that you might want to look into picking up some Build-A-Bear on the short-term weakness.  If you did, you would be sitting on about a 15%-17% gain. The company announced the following today:

Build-A-Bear Workshop Inc. said on Thursday it has hired Lehman Brothers to help it evaluate its options.

Regardless of the quick rise, I believe that Build-A-Bear still holds long-term value and is still well below where it dropped earlier this month.

Build-A-Bear Workshop gets torn down

Build-A-Bear Workshop Inc., of St. Louis dropped an appalling 23% on Friday due to lower earning guidance. Originally BBW was projecting 15 and 19 cents, but has now revised that to 7 and 10 cents per share. This now brings the full-year earnings to $1.55 and $1.65 from $1.65 and $1.75.

With that being said, is that a legitimate reason to drop the shares 23.3%? I realize there are some concerns about the UK acquisition that has yet to turn a profit, high inventory levels, and the forecasted declining same store sales, but a 23% drop is somewhat extreme.

Please keep in mind that Build-A-Bear has grown to over 300 stores across the UK and Europe in just 10 short years and is an active investor in a new build / customize a car concept store called Ridemakerz. I suggest you pick this one up while its cheap. Don’t expect shares to bottom out here, but this is an opportunity to pick up a long term winner experiencing short term weakness.

Starbucks (SBUX) poised for a run?

As most of you are probably aware, Starbucks has been trading down for quite some time now. Year to date, the ambitiously growing company is down roughly 21.6%. The pain began when Starbucks reported comp sales that were just below analyst expectations. Secondly, it is believed that investors are no longer willing to pay such a premium for such high multiples as shown in the second graph below:

With that being said, I believe we might be at a point in which Starbucks might bottom out shortly. Here are a few non-technical reasons as to why:

1. Semi-exclusive release of the new Paul McCartney album, Memory Almost Full. Starbuck, Amazon, and iTunes have been given the privledge of selling the new album which was released under Starbucks’ new label Hear Music. Apparently, the album is selling quite well based upon the 161,000 albums sold in the US in its first week. Based upon an average sell price of $15.95, the new CD should bode well for the average revenue per customer visit in this quarter. This will potentially drive Starbucks to recognize some impressive comp / same store sales. Although comp / same store sales are not a valid indicator of a stock’s value, they do drive the market.

2. Food push - Starbucks continues to push for higher sales in the food category. I believe this will continue as indicated by their recent dismissal of Jones Soda to open shelf space for cold foods. As indicated by this chart below, 15% sales are now made up by food and this will most likely grow:

Stock buyback record

As stated previously, the record amount of buybacks has been one of the key contributors to current rally we are experiencing. It is simple supply and demand. As companies acquire others with cash, they dramatically reduce the number of shares on the market. As companies continue to buy back massive amounts of stock, they reduce the number of shares on the market. As mutual funds experience record inflows of cash, they have to buy more stock, reducing the number of shares on the market. The WSJ reports:

If NSM’s buyback goes through, it’ll get added to the tally of buybacks calculated by Standard & Poor’s, which said today that companies bought back an estimated $117.7 billion in shares in the first quarter, a new quarterly record and the sixth consecutive quarter of $100 billion or more in buybacks. According to Birinyi Assoc., announced buybacks through June 1 totaled $337.8 billion, a 20% increase from this time a year ago.

Buybacks picked up substantially in the fourth quarter of 2004 and continued to grow; S&P says that, in the past ten quarters, S&P 500 issues “have spent over $965 billion on stock buybacks, with 58% of the issues posting fewer shares now then they did when the buyback trend began.”

Bubble?

To all of my China readers and A share holders of Shanghai Composite companies. I urge you to take profits and sell based upon this graphic:

Although I believe that thousands of new accounts will continue to be opened each day over the next few years, the Composite is due for a correction. Do not fight the Chinese government. They fully intend to deflate this bubble based upon their back to back interest rate hikes over the last two months.

Whole Foods goes global

Whole Foods opened its first international location today in London’s affluent Kensington area. The store will be their largest worldwide offering 3 separate floors of organic goodness on the ever popular High Street that retailers covet for major foot traffic. It shall be interesting to see how Whole Foods does as it continues to experience increased competition domestically and expects to receive a decision from the FTC on its proposed Whole Oats acquisition quite soon. The UK market itself will be quite competitive as upscale grocery stores such as Marks & Spencer’s have been offering high priced organic foods for quite sometime. Whole Foods in-store bakery and full-service kitchen for prepared foods will most likely be marketed as the competitive advantage.

The stock continues to experience pressure and is experiencing another 3% drop today despite the news.

Source:
Design Week, ‘Whole Foods opens London flagship‘

Shanghai vs Dow (Round 2)

The benchmark Shanghai Composite Index gained 2.6 percent to 3,767.10 after the index plunged as much as 7.2 percent earlier in the day. The latest 5 day comparison chart of Shanghai vs Dow Jones:

Shanghai vs Dow

A comparison 5 day chart between the Shanghai Composite and Dow Jones:

Will the Dow mimic the Shanghai move? I highly doubt it due to the Dow being up 180+ points last week Wednesday as the Shanghai Composite dropped 6.8%.

Update: An impressive statistic from the WSJ:

China — the equity market, anyway — just isn’t that big. The Chinese market only accounts for 4% of the global market capitalization, and the 15% decline in the Shanghai Composite only really hurts domestic investors, because that decline refers to “A” shares, which aren’t sold to foreigners, as Bianco Research notes in a commentary. The “B” shares of those indexes, which foreigners are allowed to buy, are up just 7.9%, trailing the S&P 500 on the year. “Foreign investors have already priced in a crash of Chinese stocks,” they write. “At this point it will take a 40% to 50% decline in A-shares to close the performance and valuation gap between the classes.”

iPhone release - June 29

Based upon commercials seen last night during 60 minutes, it is now official. The Apple iPhone will be released via AT&T (formerly Cingular) on June 29. Apple has released a special page to showcase its new product ads located here. I will admit that the iPhone is quite sleek and seems to have some extremely innovative software, but I still cannot see how having a mobile phone in this day and age without 3g (HSDPA or EV-DO) capabilities is possible. The iPhone will come with Edge capabilities, but all of us Cingular customers know that Edge is only slightly faster than that of a 56k modem. Apple has included a new version of Safari that allows for simple zoom and scroll on a smaller mobile screen, but how long will it take to download pages via Edge? How long will large email attachments take to download?

Based upon the stock movements, Apple the bar for success has been set quite high. The iPhone combined with the latest Apple TV news has driven the stock up to $118. All in all, I believe the iPhone will be a major success for both Apple and AT&T, but I probably will not join the party until 3g capabilities are included. The good news is that the unique software will inspire other mobile phone makers to think differently in the UI area ultimately benefiting the consumer in the long run.

Wal-Mart up big

Wal-Mart saved some much needed and overdue news for the investors who attended their annual shareholders meeting at company headquarters. Wal-Mart will be scaling back its’ domestic expansion plans by ~25%. More importantly they will buying back up to 15% or up to more than 7% of the outstanding shares. These two bits of news sent the shares up close to 4%, its biggest increase since October of 2005.

The big box retailer still plans to grow its US square footage up to 5% in 2007, but says the reduction in capital spending will assist in boosting dividends and increasing share buybacks. This move by the company comes as they have been receiving increased pressure from shareholders for their lackluster comp sales gains.

I view this as a positive for the stock, but believe investors are better off in higher performing, but expensive stocks such as Costco. Until Wal-Mart improves its’ brand image and product mix with more affluent customers, it will continue to trade sideways.

Sources:

Bloomberg: Wal-Mart Plans to Buy Back $15 Billion in Shares