Consumers Preview 10-14-2009

8/14/2019 Consumers Preview 10-14-2009

1/42

Bentley Investment Group | 2009-2010

BENTLEY INVESTMENT GROUP

Bentley Investment Group | Fall 2009

Consumers Preview PresentationOctober 14, 2009


2/42


Bentley Investment Group | Fall 2009

ECONOMICINDICATORS


3/42


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


4/42


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)


5/42


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/


6/42


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/


7/42Bentley Investment Group | 2009-2010

Retail Sales Ex-Autos


8/42


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/


9/42


10/42


University of Michigan ConsumerConfidence


11/42


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."


12/42


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.


13/42



14/42

Bentley Investment Group | 2009-2010Bentley Investment Group | Fall 2009

THE CONSUMER

SECTORDIVIDED


15/42


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.


16/42


ENTERTAINMENT/ MEDIAINDUSTRY OVERVIEW


17/42


Why Invest in this Industry?

Undervalued due to low revenues fromadvertising

Directly correlated to consumer spending Pro-cyclical


18/42


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


19/42


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


20/42


Advertising Revenues

Have declined in recent quarters Is expected to increase with economy

strengthening Automobile industry


21/42


RESTAURANT INDUSTRY OVERVIEW


22/42


Industry By Segment


23/42


Key Ratios And Statistics

Real gross domestic product Disposable personal income of consumers

Commodity prices Unemployment rate Interest rates


24/42


Upside

Low barrier to entry/high return

Franchising Commodity prices likely to ease Labor costs to move slowly


25/42


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


26/42


APPARELINDUSTRY OVERVIEW


27/42


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


28/42


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


29/42


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?


30/42


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.)


31/42


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.


32/42


CONSUMER NON-DURABLEINDUSTRY OVERVIEW


33/42


Consumer Non-durables

2 Segments: Household products (soaps, detergents, cleaning

products)

Personal products (shampoo, toothpaste, health andbeauty aides)


34/42


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


35/42


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


36/42


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


37/42


RETAILINDUSTRY OVERVIEW


38/42


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)


39/42


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


40/42


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


41/42


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


42/42

Questions?

Invest in Your Future

Documents

Consumers Preview 10-14-2009