[October 29, 2019]
* Breakfast Relaunch Modeling *
Download the spreadsheet here to play around. The reason why I add this page which increases the friction and might affect “conversion” is that I’d like to know where the audience comes from.
On September 9th, 2019, Wendy’s announced plans to launch breakfast across the U.S. System in 2020. The daypart expansion includes recruitment of approximately 20,000 new U.S. employees.
The stock reacted poorly due to concerns including initial investment, incremental labor-related costs in a tight market, additional marketing spends for Wendy’s at company level during the ramp up period and poor track records the Company had in previous breakfast attempts.
The initial model tries to understand the economics of this initiative and to quantify the value added to the business if any.
On-going twitter thread below:
[October 19, 2019]
Download the work-in-progress model in excel here to play around 🙂
It’s been a while since I put together initial analysis and deck skeleton on Pinterest. However, I have some difficulties to convert my thesis (particularly business development and competition) into numeric assumptions and found it’s not easy to validate those assumptions. So I just built an initial model and decided to wait and see.
More detective works required to build up conviction and to determine margin of safety.
Click the tweet below to see the whole thread of tracking Astral Chain.
Natural Food (1837.HK)
[August 30, 2019]
Interim Results Announcement @ Conrad
I was simply attracted by the brand name and guided by my preliminary China theme – consumption upgrade. Before attending the meeting, I thought Natural Food was doing something like what General Mill does…
I didn’t find anything that got me excited about the company during the meeting. While the strategic investment from Pepsi is interesting but it still takes time for both parties to generate synergy, if any. Apparently, the company is navigating through the O2O space and experimenting with omni-channel.
Natural Food cited some promising numbers in their online channels and boasted it is one of key reasons in addition to natural food concept why Pepsi was interested in investing them. However, without further disclosing on customer behavior or unit economics in online channels, it’s difficult to evaluate the performance.
- Revenue Contribution & Growth
The growth of revenue contribution from online channel looks okay. It has around 20% of total revenue coming from online channels and growing at 24% year over year (primarily from e-commerce platforms).
- Profitability across Channels
The company said the gross margin of offline channel and online channel were in mid seventies and in mid sixties, respectively. Without offline overheads, online channel has higher contribution margin (not sure what kind of margin it is). With online channel growing at a faster rate, the trend of blended gross margin is downward while the operating margin should go up in the long term, a rosy assumption. What I expect to see is rising customer acquisition cost if the company could not figure out this D2C (direct-to-customer) business. Online presence / traffic can be easily competed away. If the company does not manage online customer base well, that asset will turn sour quickly and it will see “similar” “differentiated products in differentiate packaging” spring up like mushroom.
Will the subscription model work on certain type of products?
The primary risk to the thesis that Natural Food captures the opportunity of O2O, consumption upgrade, and health awareness, is execution. The company still has time but I don’t think the window is wide. I’m not sure whether founders/management team are aware of this.
Cosmo Lady (2298.HK)
[August 29, 2019]
Interim Results Announcement @ Mandarin Oriental
I was attracted by the ugly stock price chart and had a feeling that the company might be struggling like other traditional retail players.
As expected, the company is struggling and delivered terrible financial results in the first half of 2019 with operating profit declined by around 80% year over year.
- Top line declined mid single digit without any noticeable performance among product lines or sales channels. The e-commerce channel grew only by 6.9%.
- I expect there won’t be turnaround of sales trend in the short term.
The company spent most of the time discussing reasons for weak operating performance and turnaround initiatives it had taken.
- Appointed a new CEO of the Group in mid August
- Hired a new sales head
- About to recruit a brand management head and a retail operation head
- Engaged Boston Consulting Group on a long-term basis
- YN: the reason for engaging external consultant is that the management team is not capable to formulate strategy and/or implementation to turnaround for the last two years
- The scope of engagement is quite broad
- Engaged Shanghai olBP SCM to reform product merchandising management
- At least the company understands that IT/SCM infrastructure is the backbone of data-based decision making and operation. This also shows that the company under invested in this area leading to disadvantage.
It seems the company is left behind the race but trying to catch up. So the question is how much time it takes for the company to show the turnaround result if implementation goes well? Maybe it will decline further before things get better. Considering the timeline, I think the “initial results” should reflect in the second half of 2020 no matter it gets better or worse. If the progress is beyond the expectation, probably the company will aggressively attend roadshow between earnings season.
It’s turning around but not a story yet. Existing investors face execution risk and onlookers face the risk of being trapped because the stock might be cheap optically on certain metrics at some point in the future.