Short squeeze on GMCR's earnings

As I am writing, the shares price of Green Mountain Coffee (GMCR) soared by over 22%  to $65.81 following its earnings release yesterday.

The once enamored star had been brutally attacked, not the least, by a high profile bashing of the renowned hedge fund manager, David Einhorn in October, sending the shares plummet from over $100 to as low as $37.

Yesterday, the company's announcement of a 102% rise in sales and a stunning 526% increase in operating income seemed to have garnered some confidence. The call did sooth the nerves of investors who were worried about the growth potential of the Keurig system and K-cup pack sales.

The Keurig system and K-cup did not seem the least bit losing momentum. "Our brewer sales in the first quarter of fiscal year 2012 were above our expectations, with approximately 4.2 million brewers sold by the combination of GMCR and our licensed partners. That total is more than half of the 6.5 million brewers sold in all of our fiscal year 2011," said Blanford, the CEO of GMCR. Taking away the effect of the acquisition of Van Houtte that contributed 13% increase in K-Cup pack sales, the company managed to raise the price point of K-cup by as much as 21% (talk about pricing power) and brought in a whopping 81% rise in sales volume.

The inventory was cited by critics as an issue. According to the management, it was a deliberate effort to meet the increase in demand. In the quarter ended December 31, 2011, inventories were $606.7 million compared to $269.1 million at December 25, 2010. However, more than half of the increase was due to a 266% increase in raw materials, most notably from an increase in green coffee volume and a 44% average green coffee cost increase. Combined with the growth in sales, a $162.4 million increase in finished goods inventory was hardly a sign of slowing sales.

With a current market in the mode to chase "growth", GMCR, with "growth" written all over its head, is back to the game. This is not all without caveats though. The management guided a 60-65% growth in net sales for the fiscal year of 2012. Given a 102% growth in the first quarter, investors who was looking for super growth above the company's past 3 years (75% compound annual growth rate) could very well be disappointed.

Disclosure: I do not have any position of GMCR in our personal account.

Macao Casinos Delivered Again in June

From Reuters

Macau, the world's largest gambling market, posted an annual 52.4 percent rise in gaming revenue in June to 20.8 billion patacas ($2.6 billion), the Macau government said on Friday, signalling a ravenous gambling appetite from Chinese tourists.

Casino stocks that stand to benefit from a regional presence rallied on Friday : Las Vegas Sands(LVS) up 4.22% today, MGM Resorts (MGM) up 4.16%, Wynn Resorts (WYNN) up 4.26%, Melco Crown Entertainment (MPEL) up 6.03%.

For related articles， please check out the following section:
http://cocacolabuffet.blogspot.com/search/label/Gaming


Disclosure: The blog author does not own any of the above positions in her personal account as of July 3, 2011

Restaurants feel the cost pinch

Cost pinch is hard to ignore. Whether we are at an isle of supermarket, a clothing store, a gas pump, or sitting down at a restaurant table, trying to enjoy a meal after a day of hard work, signs of inflation are everywhere. Some of us may have noticed a few percent price hikes have been sneaking into restaurant menus here and there.

As discussed in my previous post, rising commodity prices not only have weighed heavily on  retailers, but also many other sectors such as restaurants and food manufacturers. Many low-mid end restaurants may find difficulty in throwing a few percentage into the menu without deterring customers. Meanwhile, rising price tags at the gas pump have kept some households eating at home.

Shares of Cracker Barrel Old Country Store (CBRL)have been on a downward trend since May on the company’s weaker-than-expected third-quarter profit, as an only meager improvement in sales could not offset higher commodity costs.

“We are disappointed in our results for the third quarter, as both restaurant and retail sales were below our forecast,” Cracker Barrel CEO Michael Woodhouse said in a statement. “Since many of our customers continue to feel the negative impact of economic conditions, we need to continue to focus our efforts on providing the great food, service, atmosphere and shopping experience that differentiates our brand.”
CRBL is not alone. Shares of fushion-concept restaurant chain, PF Chang (PFCB) shedded more than 10% on its earnings report in which the management warned about higher costs eating into its profits.
McDonald's(MCD) and Starbucks(SBUX) also said in March that rising commodity costs were eating into their bottom lines.

I expect more of these announcement to come in summer. Lower end restaurants and those that have less-than-spectacular brand names and sales will get hit the hardest. Off the top of my head, Dine Equity (DIN) that runs Applebees and IHOP will see its bottomline eroded due to IHOP's relatively low income customer demographic despite relatively strong results from Applebees. Brinker's (EAT) that runs Chilli's and Maggiono's should see itself being dragged down by Chilli's who may not be able to turnaround its brand strong enough to have loyal customers who do not mind paying a few more bucks.

For related posts on cost pinch, please see the following:
Retailers feeling the cost pinch
A shorts list of retailers
Retailers the next leg to fall


Disclosure: The author does not have any of the above mentioned positions as of June 9, 2011