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Tastylunch (99.64)

Business Deathwatch 2008 part 1

Recs

7

April 04, 2008 – Comments (28) | RELATED TICKERS: ACMR , CC , TA

While Wall street has been dancing to the tune of delirium  that everything is a -ok in the USA (weeeee UBS ONLY wrote down 19 billion! Let's rally!), the fundamental fact remians the economy is continung to weaken dramatically has been lost among the noise.

That I do not think is going to continue much longer as more and more businesses go bellyup from a lethal combo of a weak economy and now tightened lending standards.

Wihin the last three months several semi-prominent names have declared bankruptcy (or been forced into going private or emergency consolidations) including the Sharper Image, Dominion Homes and of course Bear Stearns. Quietly however now three airlines have gone bellyup within the last week!

 Aloha AIrlines, ATA and now as of today low fare startup Skybus announced this

 from www.skybus.com

Skybus Airlines will cease all operations effective Saturday, April 5. Skybus struggled to overcome the combination of rising jet fuel costs and a slowing economic environment. These two issues proved to be insurmountable for a new carrier.

We deeply regret the impact this decision will have on our employees and their families, customers, vendors, suppliers, airport officials and others in the cities in which we have operated. Our financial condition is such that our Board of Directors felt it had no choice but to cease operations.

Passengers holding reservations for Skybus flights scheduled to depart on or after Saturday, April 5, 2008 should contact their credit card companies to arrange to apply for a refund. More information for customers and others will be made available on the Skybus web site (www.skybus.com) as it becomes available.

All flights for Friday, April 4 will be completed. Passengers holding reservations on flights for Friday, April 4 should check in for their flight at a Skybus kiosk at the airport instead of the Skybus website.

 

I fully expect this to continue and accelerate in a massive trend of bankruptcy/consolidation this year. The question to me is who is most vulnerable? My first instincts point me to( besides the bailed out homebuilders who can thank congress for their egregious rescue) small regional banks, retailers (perhaps Circuit City or AC Moore), restaurants, perhaps a major airline like Delta or other poorly capitalized companies say like TA.

This seems like an excellent  investing (or shorting in some cases) opportunity to me if one can properly identify proper acquistion targets (or failures) . I'll be looking into more in the coming months

I'm curious to know what companies  and industries you think are especially weak if you care to comment

with that I leave you with the wisdom of Slyster Stallone,

Remember in the future all restaurants are Taco Bell (or Pizza Hut if you're european) 

 full disclosure: I had previously shorted AC Moore and Delta.

28 Comments – Post Your Own

#1) On April 04, 2008 at 10:41 PM, madcowmonkey (< 20) wrote:

Look at me I am writing on a Friday night. I am in Detroit for the weekend at in-laws, so here we go with a long night of consuming beer to invoke happy thoughts.

CC would be a big target and I just threw them in the water cooler stock as a underperform. Airline companies should be done already. The gov keeps bailing them out though. I think a couple of them could go by the wayside and that would help the others get better pricing for tickets since they would be getting more customers.

Restaurants have been going down for the last 4-5 years. If the plan isn't working don't start up more sites. Personally I don't see how restaurants think they are going to be prosperous. It is a tough sector/business to be successful in.  

Regional banks should be interesting. When they go it will be overnight like some blockbuster video places. One day they will be open the next they will be cleared out from the night before.

The companies that I think will benefit or profit though will be LUV, RVSB, BBY.

I don't have any outperforms for restaurants for you.

Airlines going under is very ugly in the media. These guys never slip through the night. It is loud and drawn out for the most part. I think it is from the practice with strikes. Southwest is probably the only one that deserves to be profitable. Look at the debt, at least the last time I looked. This will help in the long term also, they have been trying to put the other business' out for some time now and may finally succeed, Too bad it will be caused by the oil prices and economy

BBY is just getting more and more solid by the day.

The companies that have the least amount of debt will be the cream and the ones with the most amount of debt will be the hazbeens. There isn't much growth in the near future for the airlines, banks, and restaurants. Just like the homebuilders, they have been built up too much.

We can only live this fat and happy for so long. 

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#2) On April 04, 2008 at 11:09 PM, Tastylunch (99.64) wrote:

hey thanks as always for the input madcow. It's not fun being home sick on a friday nite, but it makes for a good blogging/stock opportunity anyway.

definitely agree about BBY, few retailers are run better than they are.I figure they are a candidate to acquire someone on this environment so I don't wish to buy into them now just yet in case they try to take on someone big (like CC).

The thing about CC is I'm not sure if they have enough debt to go the way of CompUSA but they are definitely are horribly run. Their ill advised store remodeling plan was implemented during xmas last year of all times! Still a quick ratio of  0.40 is pretty dang bad.

Borders Books (BGP) of course is another candidate  their business model is in trouble as well, but they may have buyout prospects/

http://seekingalpha.com/article/69953-four-potential-buyers-for-borders?source=yahoo

as far as restaurants go CKR (Hardees, CArl's Jr) looks pretty weak to me. CKR has a Longterm debt to equity ratio of 2.54 !   I think they may be in real trouble as I don't think there are private equity groups that wish to buy them out if they stumble any further.

I''ll admit I'm amazed by how little airplay the major media is given to three airlines going under in a week. I don't think I've ever seen three go in such rapid succession. Normally they all are bout this (e.g. "next at 11, THE SKY IS FALLING FOR ALOHA AIRLINES")

well have fun with the inlaws. I don't envy you having to visit D-town. Can't say I care too much for Detroit as of late, last few times I was there the economic despair was palpalable. At least the Tigers should be good this year. :-) 

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#3) On April 04, 2008 at 11:33 PM, madcowmonkey (< 20) wrote:

They are 0 wins 4 losses. I almost went to the game today, but it was nasty out.

I don't think these airlines were big enough carriers to make the big headlines. I read some articles about the event, but that was it. Borders is in need of a new product to sell. I am sure they can turn the facility into a play gym as well. 2 stories tall with books, calendars, dvd's, cd's, and some snacks/drinks. Who created the montrosity of an idea to have that big of a store selling stuff that isn't in the highest demand and new technologies doing away with some of the items they sell.  Loser and boring.

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#4) On April 04, 2008 at 11:57 PM, Tastylunch (99.64) wrote:

Full disclosure: I'm an Indians fan :-)

In all seriousness 0 and 4 means nothing in baseball, leyland is a good skipper and as long as their starting pitching does well they'll be in the playoff hunt. Verlander is a hell of a pitcher, Dontrelle Willis could be huge if he's ok physically. I know us Cleveland fans are worried about the Tigers .

I haven't been to Comerica yet but I loved old Tiger Stadium. . I remember being right next to the Tigers bullpen and watching the bullpen catcher mac on some some fine ladies in the stands. Great place to watch a ballgame.

I feel bad for Borders, I met the founders once I was kid. They were super nice (former U of Michigan profs If I remember correctly ). Still you're right their business model is toast, if Borders is bad, Waldenbooks (which they own) seems worse as they only sell book/magazines. You don't see many newsstands around anymore for a reason. I'm an avid reader myself but I have to say most of what I read now is digital ;-(

I have a feeling BGP may not get bought....

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#5) On April 05, 2008 at 12:27 AM, madcowmonkey (< 20) wrote:

Used book stores. You meat the most interesting people there and you pay so much less. Plus you save a couple trees while you are at it. Maybe not, but it help to recycle even if the publishers have already printed out the million+ copies. Well I get to wake up to 2 kids tomorrow, so I bid you a farewell. I mentioned PX (praxair) the other day. You will not find a better recession proofed company. Go check for sure.

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#6) On April 05, 2008 at 8:45 AM, madcowmonkey (< 20) wrote:

meet? 

I am so smart.

SMRT! I mean smart. 

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#7) On April 05, 2008 at 8:49 AM, madcowmonkey (< 20) wrote:

Chris Rock and Obama.

 

Again, not his best work. His one line that I laugh at is that Barack is better than bush because anything is better than bush. Okay if you say so, but can't we do better. I think we can. 

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#8) On April 06, 2008 at 5:01 AM, camistocks (80.01) wrote:

Quoting from your article:

The ATA bankruptcy generated little surprise. It was the second carrier to declare bankruptcy in just the past two weeks. Aloha Airlines filed for Chapter 11 bankruptcy protection last month, a little more than two years after emerging from bankruptcy.

“We are seeing some of the very marginal carriers shut down ... and will probably see more,” said Ray Neidl, an analyst at Calyon Securities in New York.

On skybus:

April 5 (Bloomberg) -- Skybus Airlines Inc., a U.S. low- fare carrier that started operations less than a year ago, stopped service today, the third airline to shut down this week as fuel costs soared and the economy slowed.

The closely held, Columbus, Ohio-based airline began offering service May 22 with some tickets as low as $10 for a four-hour flight. It will seek bankruptcy protection next week.

$10 dollars for a four hour flight?! C'mon this company deserved to go bankrupt. 

Only those who can adapt to high fuel prices will survive. This is called capitalism. Expect more bankruptcies.

I think these are the typical signs of a market bottom. Personally I am bullish and think we have seen the lows in the general market. 

Nice clip with Chris Rock and Barack Obama, madcow... :-)  

Pizza Hut? Only Americans can enjoy this kind of food. If I want a pizza I go to an italian restaurant, capisce? ;-) 

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#9) On April 06, 2008 at 3:42 PM, Tastylunch (99.64) wrote:

Hey camistocks, thanks for the input.

really enjoyed your UBS posting, didn't comment because I couldn't think of anything of value to add to the conversation.  

I don't we disagree about the airlines being poorly run and deservedly going under. If times were better however I think they could have operated indefinitely despite being so. 

As far as Skybus goes, the ten dollar tickets were promotional items to sell more high priced (but still cheap) tickets. Their main business model centered on advertising and selling amenities. Their entire planes were decked with ads interior (on bulkheads, the back of seats etc) and exterior. While blankets, pillows, food movies, magazines all cost fairly high fees to the passengers.They also were heavily focused on cost cutting, they had no phone support whatsoever and minimal ticker counter personnel. That being said their business model  and particular their execution was pretty lacking so it's no surprise there either.

where we do disagree is that the market has bottomed. Perhaps I have a different perspective than most as a small business owner. Anecdotally I've never seen so many of my peers here in Columbus struggle and go under so quickly in the last month. A bad economy is usually enough to put the weakest players at any rate, but credit is supremely tough to get right now for small business which is unusual. I think we've got a ways to go before we hit bottom as I think we are just now starting to see bankruptcies really start to hit.

certainly as  you said the market technicals are positive right now. I think this a bear market rally however and that it will ultimately fail again once the 1Q earnings come out for a lot of companies. The economy is worsening and I expect it to continue to do so for at the very very least 3-4 more months. Consumer confidence I think we'll drop significantly as the subprime fallout continues into the summer and more people start accepting that their property values actually declined (a psychologically devastating thing for most consumers.). Based off my experience and my father's we are anticipating a severe recession as we make our inventory purchases this year. 

I can't say I have an idea when the next bull or recovery will start (does anybody really?) but it still seems too early to me. I don't know about you but I'd rather be a little late than be too early.:-) 

I certainly could be wrong, you've certainly earned a much better ranking than I have. I would much rather you be right on this than I.

Isn't that Pizza Hut ad placement too funny? I can't believe Yum! actually believed that would help their sales in Europe. talk about not understanding your market. :-) 

I like the american taco bell version better myself, but I couldn't a youtube clip of it. 

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#10) On April 06, 2008 at 4:32 PM, abitare (99.61) wrote:

Good post. Many airlines, book stores, restaurants, commercial property firms, reits and retailers are going to go bankrupt, unless there is a some sort of major bail out or restructuring that is government sponsored.

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#11) On April 07, 2008 at 7:06 AM, TMFDeej (< 20) wrote:

Nice post Tastylunch.  With oil at well over $100 again (it wasn't tough to see that coming despite all of the "commodities bubble is popping" hype) and slowing consumer spending my bet is on airlines.  They aren't even great investments in good times, but now look out. 

Automakers are another decent bet, the problem is that GM and Ford have fallen so much already.  Perhaps it's time for Toyota or Honda to share some of the pain.  Toyota has been one of the best run companies that I have seen over the past decade, but man oh man did them make a mistake by just building a huge new plant to build the Tundra and Sequioa in the U.S.  With high gas prices, tightening credit, and excess capacity TM could be in for a rough spot.  I personally wouldn't short them in real life though. 

I am short the Consumer Discretionary ETF in CAPS (XLY).  I think that it and the companies that are in it are in for some pain.

Deej

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#12) On April 07, 2008 at 7:07 AM, TMFDeej (< 20) wrote:

By the way, I'm personally doing my part to keep Borders in business :).

Deej

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#13) On April 07, 2008 at 9:14 AM, camistocks (80.01) wrote:

Hey tasty, thanks for reading my blog!

Interesting stuff about skybus. Ads everywhere... While this might have annoyed people many years ago, today we are used of ads everywhere. Still their concept didn't work...

We do have those supercheap airlines too in Europe. 10 euros or 20 euros. But you can reach any part of Europe in maximum 2 hours. One of the most aggressive airlines is Ryanair. 10 Euros or 10 pounds per flight, depending on your country of origin. And their stock is not doing too bad either over the long term. I have no idea how they do this.



The stock market doesn't really reflect the real life economy. It's forward looking. While the economy may get worse and people lose their jobs and small businesses go bankrupt.... the stock market can rise nevertheless! Good luck with your business anyway!

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#14) On April 07, 2008 at 11:35 PM, Tastylunch (99.64) wrote:

Hey Camistocks

Hye thanks for the good wishes, we'll probably need it this year. So far sales have slightly exceeded last year's but they are far short of our targets.

Yeah Skybus actually explicitly tried to copy Ryanair's business model (or at least that's what they claimed they were doing at launch), they just did it really poorly. If they had proper management, were reliable and had better routes they may have suceeded. But they didn't, so they are toast. :-)

I agree with your last statement for the most part. I agree the stock market doesn't reflect the economy at tany give moment and of course it's completely perception driven. But I do think that the economy does affect the market (it's hard for companies to increase their earnings in a weak economy) .Tthe stock market is generally forward looking about 6 months into the future form everything I've ever read. But when I look 6-9 months I don't see the economy having turned the corner so that's why i'm still bearish. 2009 I don't know yet, but I strongly think this next xmas (2008) is going to be a very weak one for retailers which usually is not a good thing for the market. :-)

But again I'm a low rated player and not a professional economist by any means so what do I know? 

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#15) On April 07, 2008 at 11:43 PM, Tastylunch (99.64) wrote:

Deej

That's a super excellent point about Toyota. I'm very surprised they built that plant considering the waning demand  for trucks doemestically. Maybe they just want to throw the knockout blow vs GM and/or Ford? Stull you're right they are too well run to risk a short.

Interesting factoid is Honda now employees more Ohioans than Gm and Ford combined. The last bastion of strick "buy 'merican" is basically dead. 

I hope Borders stick around too, I'd hate for Barnes and Noble to be unopposed in the brick and mortar world. 

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#16) On April 09, 2008 at 2:53 PM, madcowmonkey (< 20) wrote:

Did somebody say airlines?

Oasis Hong Kong Airlines 

 

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#17) On April 09, 2008 at 8:54 PM, Tastylunch (99.64) wrote:

ho man there goes another one.

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#18) On April 11, 2008 at 2:59 PM, madcowmonkey (< 20) wrote:

http://www.bloomberg.com/apps/news?pid=20601103&sid=aNeOnlSyUK0s&refer=news

and another one. how many does that make in the last 1-2 weeks?

I also replied to your vlnc pitch again. 

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#19) On April 11, 2008 at 4:21 PM, madcowmonkey (< 20) wrote:

This is why I like LUV in the past

http://biz.yahoo.com/ap/080411/southwest_airlines_fuel.html?.v=1 

You think a declining growth industry can handle this much increase in costs. I doubt most of them will finish the year at this rate, but my bet is on SWA being there in the end. They have been trying to put the other businesses out for a couple of decades, now they might get what they wanted.

Take a look at the volume when it was at this price last time. With a 14+ outlook.

"Southwest (LUV, Fortune 500) has hedged 70% of its 2008 fuel needs at the equivalent of $51 per barrel for crude oil - less than half the current price of oil." cnn money

This company will profit from others going out of business. 

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#20) On April 11, 2008 at 5:25 PM, madcowmonkey (< 20) wrote:

you going?

Rick's Cabaret Philadelphia to Throw a Three-Day Grand Opening Party April 24, 25 and 26 

 

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#21) On April 11, 2008 at 7:06 PM, Tastylunch (99.64) wrote:

haha no sir I will not be going. Not a fan of Philly and if the ladies on Rick's website are indicative of the quality what can be expected at the party I'm not really a fan of them either. :-) I like my ladies to be not in that biz

thanks so much for the link. This part made roflol

As part of the opening day festivities investment industry professionals and investors in the company’s stock, which trades on the NASDAQ General Market under the symbol RICK, are invited to attend a special “Due Diligence Party” at the club from 6 pm – 8 pm on Thursday April 24th.

Why do I have the feeling that anything but  Due Diligence on financials will take place at this party?

I agree with you on LUV, no airline is better run . The fact that they can run without unions gives thema  huge advanatge over the other majors. I have a feeling a major is not going to last the year. Perhaps Northwest or Delta? 

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#22) On April 13, 2008 at 3:26 PM, binv271828 (< 20) wrote:

Hey tasty,

What type of business is your business? You have mentioned it a few times in this blog and other posts. Just interested in your point of view. Please disregard if that is asking for too specfic information :)

Take care,
binv271828

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#23) On April 14, 2008 at 12:33 AM, Tastylunch (99.64) wrote:

Hey Binv271828

I actually run/help run two businesses, my family has a single location retail store and a multi property commercial real estate company. I'm second in command in both currently. Both are pretty small time but we've been around now for several generations now so we like to think we have a decent idea of what we are doing :-)

I wish I could be more specific as to our nature of business with you, but one thing i've unfortunately learned from personal experience is that crooks love to rob retailers. My store has been hit a couple times in the last decade or so alone, but my home before we moved out of city limits got tagged 3-4 times when I was a kid in eighties. Lately I've had people try to follow me home from work , so I'm a little paranoid about revealing too much info about myself or my businesses on the internets. It's probably a irrational fear but you get a chef's knife held to your throat or a 38 jambed into your ribs (like my grandfather did), it tends to leave a strong impression .Sorry. :-)

Hopefully that answers your question to some satisfaction at least. :-) 

take care

tastylunch 

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#24) On April 14, 2008 at 9:51 AM, binv271828 (< 20) wrote:

Hey tasty,

Thanks for the reply. I was asking because I really like reading your blogs and your posts on other blogs. You seem to have a unique viewpoint, and I was wondering how your business may have colored that viewpoint. It makes sense that someone who has a retail store and a real estate company would have a different take on the economy and the market than someone who works on Wall St or financial related.

I am glad you didn't say anything more specific, and I definitely was not asking for anything more specific. Caps is great, and I do like the community here, but it also pays to be a little guarded on the internet. :)

take care man,
binv

"Just because you're paranoid doesn't mean they aren't after you." ...  :)

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#25) On April 15, 2008 at 1:34 AM, Tastylunch (99.64) wrote:

Np Binv271828, always happy to help. Many fools have helped me so I like to return the favor when/if  I can . :-)

Hope CAPS treats you well and I'm sure I'll see you around. 

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#26) On April 17, 2008 at 10:09 AM, madcowmonkey (< 20) wrote:

Is it me or did I miss the underlying question of the blog? Did you think CC was going to get bought or claim bk? If it was bought, well done, although I don't think the deal is going to go thru. The first time I read the blog I got the idea you were claiming bk, but after I read through it again, I get the idea you were thinking bought. I wish I could predict who was going to get bought with a 54% premium. I could quit worrying about the other garbage. I heard you had a buick hit your building. I hope everybody is alright and now serious injuries. Best of Luck to you Tasty.

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#27) On April 17, 2008 at 10:39 AM, JonBarleycorn (66.70) wrote:

Nice exchange.

You might also want to consider gaming stocks like Trump (TRMP). They will be hit both by a decline in consumer discretionary spending and high gas prices. 

JB 

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#28) On April 17, 2008 at 12:52 PM, madcowmonkey (< 20) wrote:

Jon- Yeah no kidding, but I think it is the gas prices hitting the discretionary spending which in turn hits TRMP. I also feel HOT is going to get hurt as well, but they seem like they will weather the storm (no chance in going BK) another that might not do well soon is MTN. I am not sure how they have pulled it out so far, but we will see what happens. I know these are not gaming stocks, but similar situations in my mind.

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