Michael Hill Downsizes USA Operation

I had an uneasy feeling about Michael Hill International [MHI.NZ] moving into the United States in 2008. Not because of the move to the USA but the price paid for the distressed assets that they bought to get a foothold there.

From my piece at the end of 2008:

"I'm worried because this type of expansion activity veers slightly away from the tried and tested way that the company entered Australia then Canada.

The company set up a handful of stores when they entered their two overseas markets just to test the water".

It has been announced this morning that MHI are closing 8 of the 17 stores they bought from Whitehall Jewelers Holdings to consolidate and grow from this position:

"After a full review of the business, including results achieved to date as well as operational and real estate issues, the company has made the decision to consolidate to a smaller platform of 9 stores, all of which are within the greater Chicago area. These stores will immediately be refurbished to bring all of them up to the company's latest global concept. This group of stores will then give the company the best possible platform and opportunity to position the brand in the US. The remaining 8 stores will be closed at the end of June 2010 with exit terms having been negotiated with the various landlords." Michael Hill Business Review 8/6/10

To be sure MHI bought the stores at a time when retailing in the US was a dead dog and it hasn't improved much since then but the company made a mistake getting into the US so soon and even Michael Hill himself said in a June 2009 interview that he had tripped up in his quest to expand.

A mistake made but good to see the company making a decision to quit and Hill fronting up.

I still feel uneasy about the US and Canadian businesses in the short to medium term but like MHI management remain very optimistic that the model that has made them such a success in Australasia will work in the land of bling and endless shopping malls.

I would have started to business off in Texas though, my favourite State and the home of serious jewelry buyers.


Disclosure I own Michael Hill International shares in the Share Investor Portfolio.


Michael Hill International @ Share Investor

Michael Hill International: 2010 half year profit commentary
Michael Hill Makeover kicks off
Michael Hill International: 2009 full year profit commentary
Toughen Up: What I have learned from the hard times
Stock of the Week: Michael Hill International
Michael Hill TV3 60 Minutes Interview
Long VS Short: Michael Hill International
Marketwatch: Michael Hill International
Michael Hill's profit shines
Michael Hill takes on the windy city
Why did you buy that stock? [Michael Hill International]
MHI has defined growth strategy
MHI profit sparkles

Discuss MHI @ Share Investor Forum

Download MHI Company Reports


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2010

Kathmandu's 2011 Results Under Pressure from Jan Cameron

I have given Kathmandu Holdings Ltd [KMD.NZ] alot of criticism since its IPO and float back in November 2009 and its result 2010 interim result out in March doesn't really change much for me.

Its results for this period are largely academic because they cannot be accurately compared to last years figures with were calculated using pro-forma figures. Pro-forma accounting is calculated by removing "irregular" business transactions and smoothing out the balance sheet to make things look better to investors - a great way to hide bad news. Pro-forma is generally accepted as misleading.

The increases in revenue and profit for the 2010 half year look spectacular at first glance but the comparison to last year means little as I have outlined above and the headline figures of the NZX release omit significant IPO costs - $21.3 million, $6.3 million more than budgeted. The profit result then is a $13.3 million dollar loss not an $8 million profit.

Of particular interest to shareholders should be the figure tucked away in the 2010 Interim Report of the net tangible asset backing per share. It is 12c.

A better comparison on how well Kathmandu is going will be able to be made this time next year when we can accurately compare like for like figures (we still have to add the IPO costs to get a good comparison) and then perhaps I will stop my criticism if it is a good result.

Of further concern to Kathmandu shareholders will be the possible re-entry of the former owner of the Company, Jan Cameron, back into the same retail sector sometime in 2011.

She is currently in talks with Macpac, an outdoor equipment and clothing retailer, to establish some kind of competition against the former brand that she built up and as I have said before she is one smart cookie whose business acumen in retailing should never be underestimated by her competitors.

Kathmandu as a strong in your face brand have the outdoor sector mostly to themselves in New Zealand and Cameron's expertise and contacts in retail will be a formidable challenge to Kathmandu if she decides to make a move back into this area of retailing.

Kathmandu shares have traded as high as NZ$2.56 earlier in 2010 but finished trading last Friday at $1.90.

Kathmandu @ Share Investor

Kathmandu IPO: Prospectus Analysis
Kathmandu IPO: Jan Cameron lands a blow to IPO
Kathmandu IPO: What is it worth?
Kathmandu IPO: Retail Interest High
Kathmandu IPO: A tough mountain to climb
Kathmandu No.1 but IPO should get the Bullet
Download the detailed Kathmandu Value Cruncher Report - Requires free registration at Share Investor Forum to download
Download Kathmandu IPO Prospectus
KMD Investor Presentation to Macquarie

Discuss Kathmandu @ Share Investor Forum

Download KMD Company Reports


From Fishpond.co.nz



Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz




c Share Investor 2010

Moodys Corp: Warren Buffett Defends the Indefensible

I am a big fan of Warren Buffett and his investing prowess - I run a blog called Everything Warren Buffett - and long-term approach to the stockmarket that he has built up over generations but recent comments and actions from the man have left me wondering whether my admiration for him has been rather blinded by his image as a folksy, no nonsense kind of guy who wont put up with, and dispense, to put it bluntly, bullshit.

Much of that has changed for me over his comments on the Moody's ratings fiasco.

With that in mind I just have to join the chorus of commentators who have roundly criticized Warren Buffett over his recent testimony to the Financial Crisis Inquiry Commission (FCIC) over the defense of rating Agency Moodys Corp [MCO.NYSE], a company in which the once great man is the largest shareholder in.

While Moodys isn't completely to blame for the 2008 financial meltdown (the lenders, borrowers politicians - principally Bill Clinton's administration - mortgage back securities businesses and a whole host of other characters in this drama share the ignominy) and what has happened subsequently, it did rate subprime mortgages as good loans and a prize moron could figure out even before the September meltdown these loans were always in danger of defaulting, it was just a matter of when not if.

Warren Buffett's defense of Moody's part, is ,well, indefensible. Buffett, known for his principled stance on matters of business, investing and commentary on such things has ruined his reputation by not coming out and roundly criticizing Moodys, which he would have been expected to do given his past history on such matters of business ethics and the like. Moodys business practices have effectively endorsed short term risky derivatives and short term gain over a long-term outlook for business, something that Mr Buffett has been yelling from the rooftops for the last 60 years.

In Buffett's testimony to the FCIC he gave a lame excuse for Moody's part in the 2008 crash:

On Wednesday, though, Mr. Buffett testified that he did not know all that much about the credit rating market, even though the holding company he controls, Berkshire Hathaway, is the largest shareholder in Moody’s Investors Service, one of the three companies that dominate the business.
“I’ve never been to Moody’s,” he said at a hearing of the Financial Crisis Inquiry Commission, which is investigating the causes of the global crisis that led to the government bailout of big banks. “I don’t even know where they’re located. I just know that their business model is extraordinary.” New York Times
Feigning ignorance of a company that Buffett has such a large stake in just doesn't stack up. We know he doesn't have "intimate" knowledge of every minutia of the way businesses he has shareholdings in do business, he has a vast portfolio and little time to spread around, but he is however aware of the basic way all his businesses run. His solid reputation as an investor has been built on knowing the businesses he invests in. it is part of his investment mantra that comes out of his mouth to any investor or business interviewer who will listen or ask questions of him.
The past would have seen Buffett own up and take responsibility for mistakes that he has made and he has owned up to plenty. The inconsistency of his approach over the Moody's fiasco has dented a reputation that he has built up over a very long time .
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently". Warren Buffett
Personally, I will find it difficult now to take what Warren Buffet says seriously. He has time to redeem himself but he is 80 years old this year and probably doesn't have another 20 years.
Related

Watch Buffett's full testimony


Recent Share Investor Reading

• BP Disaster provides opportunity for investors
• Restaurant Brands: KFC Sales Figures Explained - Part Two
• Allied Farmers: Prosecutions should be on the cards
• Ecoya 2010 Full Year Profit: More of the same to c...
• Patience Will Pay off
• Fisher & Paykel Appliances 2010 Full Year Profit Analysis

Discuss this topic @ Share Investor Forum



Related Amazon Reading


The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy new: $14.95 / Used from: $9.73
Usually ships in 24 hours


Security Analysis: The Classic 1934 Edition by GRAHAM
Buy new: $37.80 / Used from: $29.48
Usually ships in 24 hours






c Share Investor 2010

BP Disaster provides opportunity for investors

British Petroleum PLC [BP.LSE] is a company in a fair amount of trouble at the moment. Apart from the fact that its oil well in the Gulf of Mexico is leaking the black stuff into the ocean and causing an environmental disaster of monumental proportions and it could get alot worse, the financial implications for the business could be just as catastrophic for the company and shareholders.

There are billions to be spent on clean-ups and further billions on compensation and legal cases for years to come and markets just hate uncertainty.

So far almost 40% of capitalisation has been lost from the value of BP over the last 4 weeks.

All this bad news of course presents a great opportunity to buy this otherwise top asset for much less than it is worth.

As I pointed out it will cost the company (and insurers) many billions to put this right and so it should but it shouldn't be forgotten by prospective investors that this company made US$6 billion of profit on nearly $9 billion in revenue in the last quarter alone so it can afford to take quite a big hit without it affecting the company badly in the long-term.



The value in BP now lies for smaller investors in not only the cheaper shares but also the distinct possibility that the company is now under threat of a takeover offer because it will be seen by possible suitors as a relative bargain.

While many possible risks remain for investors in BP, the market reaction seems a little like overkill to me and its shares are cheap. The longer the disaster in the Gulf continues on for the further BP shares could fall and present an even bigger opportunity. Just how further the shares will fall is anyone's guess but it seems clear that they will.

Fortune favours the brave.

Recent Share Investor Reading

• Restaurant Brands: KFC Sales Figures Explained - Part 2
  
• Allied Farmers: Prosecutions should be on the cards
• Ecoya 2010 Full Year Profit: More of the same to come
• Patience Will Pay off
• Fisher & Paykel Appliances 2010 Full Year Profit Analysis

Discuss BP PLC @ Share Investor Forum


From Amazon


The History of the British Petroleum Company (History of British Petroleum) (Volume 2) by J. H. Bamberg
Buy new: $55.00 / Used from: $53.40
Usually ships in 24 hours


Don't Go Near The Water: British Petroleum and Alaska Worker's Compensation Division Practices Exposed by Mervyn Eggleston
Buy new: $11.66 / Used from: $14.52
Usually ships in 24 hours






c Share Investor 2010