🤷🏿♀️ 🤷🏽♀️ 🤷🏻♀️ 🤷♀️ Retailers Have No Idea What Will Happen This Holiday Season
| | | A few weeks back, we covered “guidance” down in our Jargon Decoder section -- the quarterly sneak preview each company gives of its anticipated future sales and earnings. But as we head into what’s typically the most lucrative quarter of the year for major retail chains, Fool Timothy Green reports that these companies’ collective Magic 8-Ball seems to be sticking with “REPLY HAZY, TRY AGAIN LATER.” For a while, the pandemic didn’t seem to make too much of a dent in stores like Best Buy, Target, and Walmart, as they seized the opportunity to beef up their online sales to stuck-at-home shoppers. But now the COVID-19 pandemic’s getting worse, and no one knows whether the disease’s surge will bring fresh lockdowns, more mad scrambles for toilet paper, or anything in between. On the plus side: Vaccines! They’re real, and they’re, well, maybe not spectacular, but they certainly seem to work. A third vaccine candidate has since joined the two we discussed last week with data showing it’s reasonably safe and effective. On the minus side: Man, where do we start? Unemployment’s rising again. Long lines at food banks are starting to make headlines. (We mentioned Feeding America, right?) The prospect of mass evictions looms. Colder weather may hurt restaurants and other businesses that were able to get by offering outdoor accommodations. And while the incoming administration of President-elect Joe Biden seems eager to provide some kind of stimulus, that’s still at least couple of months away. The House passed some kind of relief bill -- though reasonable folks can certainly debate its merits or lack thereof -- last summer. The Senate, well, they confirmed a bunch of judges and went on vacation with nothing done on the COVID-19 stimulus front. No wonder retailers are keeping mum. Previous predictions of a robust shopping season might prove true -- or evaporate. Until they find out which scenario prevails, these companies, and their investors, may be wise to sit tight and be ready for just about anything. For more on retailers’ uncertain next few months, keep refreshing that other tab to see whether your must-have gift’s back in stock while you read the rest. | |
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| | JARGON DECODER The Valuation Situation They don’t call it “Wall Street” for nothing; the big banks there build bigger barriers of baffling terminology to keep regular Fools like you intimidated, underconfident, and ready to fork over your cash to a broker. Each week, Jargon Decoder translates one of those worrisome words or phrases into plain English, helping you get a leg up on the Wall Street Wise. This week’s term: valuation. Warren Buffett said it best: “Price is what you pay. Value is what you get.” Every share of stock comes with a price tag attached -- how much the market’s willing to fork over to get it. But a share’s valuation instead measures what that little slice of the underlying company is actually worth. Human beings, as you may have noticed, can get irrational. We’re not always great at figuring out what something’s worth, either (decades of The Price Is Right reruns notwithstanding). In the long term, the market tends to make rational decisions about a company’s real worth. In the short term, it can and frequently does go full-on bananapants. Think of it this way: You want to buy a used car, and you’re looking at two choices. One costs $25,000, the other $35,000. The first car’s a better deal, right? But wait: What if the first car’s a beat-up Eastern European clunker with one wheel missing, and the dealer insists that its value as a “collectible” justifies its sticker price? And what if the second car’s a tricked-out Mercedes with reasonable mileage? The first car may be cheaper, but the second car will probably give you a whole lot more for your money. The same goes for stocks. When you’re deciding whether it’s smart to pay $5 a share for Yoyodyne Industries or $200 a share for Gryzzl, you need to look at the company’s valuation. You can measure this in several different ways; they usually involve sizing up a company’s projected future net income or cash flow to figure out whether the price you’ll pay right now looks smaller than what the company expects to bring in several years down the road. The price-to-earnings ratio, or P/E -- dividing a company’s share price by its current or future earnings per share -- provides one of the most common ways to value a stock. Valuation works best when you compare one company to others like it, or to its own past valuations. If your company’s growing faster than the competition, yet trades at a lower valuation than they are -- or if it’s trading at a lower valuation than it did five years ago, but doing far better now than it did then -- it might be worth a closer look.
| | TAKE YOUR BURRITO AND GET OUT Has the Pandemic Changed Chipotle's Business Model Forever? Chipotle’s (NYSE: CMG) newest location doesn’t want you around. As Fool Jon Quast reports, it doesn’t have a cashier to ring you up, or a front line to shuffle through as you watch your burrito come together. It doesn’t even have seating. It’s basically a kitchen with a pickup window attached. You place your order digitally, come get your food (or have it delivered to you), and get gone. When COVID-19 hit, Chipotle got about as lucky as any restaurant could, under the circumstances. It already had infrastructure in place to take orders digitally for pickup or delivery, even with its dining areas shut down. But even when the lockdowns eased and most Chipotle restaurants could once again offer some kind of seating, nearly half its sales kept coming from digital orders. Customers got used to requesting their burrito of choice in advance, and they didn’t want to go back. In the past, Chipotle made profits by pushing for high sales volume. The more people who come in the door, and the more burritos going out, the fatter Chipotle’s bottom line. But this new model changes that game. Chipotle can build smaller, more efficient stores in more locations than it previously imagined, and these mini-Chipotles’ lower costs can help them turn a profit even with smaller sales volumes. It’s not quite “taco trucks on every corner,” but we’ll take it. We’ve wrapped up even more tasty details to go when you read the rest.
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A PIECE OF THE LIGHTS, CAMERA, ACTION Cinemark's Deal With Universal Is Better for Cinemark Than Universal Movie theaters: Remember them? Kind of like really large living rooms, except with way bigger screens, louder speakers, stickier floors, and vastly more expensive popcorn? The COVID-19 pandemic may have effectively turned them into, well, that one notorious scene from Outbreak, but theaters may not be down for the count. As Fool James Brumley reports, a new deal between Comcast (NASDAQ: CMCSA) subsidiary Universal Pictures and theater chain Cinemark Holdings (NYSE: CNK) suggests that even in this bold new on-demand streaming future of ours, movie studios still think they need theaters as well. Cinemark’s agreement gives it three weeks of exclusive screenings for new Universal films -- Fast 9, we’re beyond ready for your big-screen family-intensive vehicular mayhem -- plus an option to extend that run an extra two weeks if the movie’s a hit. After that, Universal gets to offer the film for premium home release (and keep all the money it makes there, rather than splitting the take 50-50 with theaters). Sounds pretty sweet for Universal -- but a closer look suggests that Cinemark’s actually getting the better part of the deal. See, unless it’s a record-shattering megablockbuster, nearly every movie makes the bulk of its cash during -- you guessed it -- the first three weeks of its theatrical run. After that, its box office take usually gets hit with exponentially diminishing returns. In essence, Universal’s letting Cinemark carve the turkey -- although I’m sure the studio hopes that none of its films earn that designation -- and letting the theater chain choose the choicest cuts from the bird for itself. That, in turn, suggests that movie studios aren’t ready to toss theater chains on the dustbin of history quite yet. For more on what this might mean for theater chain stocks -- and some really interesting charts, honest! -- put on your 3D glasses and read the rest. | |
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