08/01/2022
About once a year or so, if I’m lucky, I’ll stumble across a stock (or group of stocks) that are just too easy. In 2013, it was Apple. Chipotle in 2017. Oil and gas in 2021. And now, in 2022, movie theaters (no, not that one…sorry Apes).
This one isn’t complicated. Much like my view on the Chipotle food poisoning scandal, memory of the pandemic will inevitably fade, and foot traffic will return to historic levels. In the meantime, some of these theater chains have terrific balance sheets. Not exactly great businesses for the long-term, but worth a look IMO. Be sure to follow me on Public if you wish to track my personal trades.
Oh, and one more thing. Now that we’ve unofficially entered the totally-not-a-recession recession, we can thankfully stop talking about it.
Onward and (hopefully) upward.
Mike
Business Bites
Analysis, Reviews, and Weird Business News
The End of Movie Theaters…NOT
Stocks
The mainstream narrative floating around in the business press is that the theater business was in decline even before the pandemic. But if you actually look at the data, you’ll find that is mostly a crock of shit.
Box office figures show that 1.23B movie tickets were sold by U.S. theaters in 2019—roughly flat from 1995.
On a revenue basis, cinemas were actually enjoying their best years before the pandemic hit. In 2019, U.S.-based theater chain Cinemark reported record sales and cash flow.
Analysis: The success of movies like Top Gun: Maverick demonstrates that blockbusters are back. If the box office recovers to pre-pandemic levels, that would mean that some cinema stocks are dirt cheap.
Some smaller theater chains own a shitload of valuable real estate that provides large downside protection.
The Weird Rise and Fall of Abercrombie & Fitch
Documentary
For those who came of age at the height of apparel chain Abercrombie & Fitch’s popularity, the recent Netflix documentary is a throwback.
Double Entendre: the title phrase white hot refers to A&F’s runaway success. Between 1998 and 2008, A&F’s stock returned over 600%. Longtime CEO Mike Jeffries, regarded as a retail genius, stood among the highest-paid executives in the country.
But white hot could also be a play on A&F’s very Aryan idea of physical beauty. If the softcore porn… ermm, advertising on the stores’ walls didn’t make that clear, A&F’s shockingly racist hiring practices certainly did. In the mid-2000s, the chain was embroiled in a class-action lawsuit from former employees over blatant race discrimination (one applicant was told to his face that there were already too many Filipinos at a particular location).
Some moments in the film veer into the downright bizarre. Among other insanities, a 40-page manual for the corporate jet’s flight attendants/male models specifically directed them to answer “no problem” to any request made by Jeffries, and not “sure” or “yes sir.” Weirdooo.
Ultimately, A&F shared the inevitable fate of all brands targeted at fickle teens. The company faded into irrelevance during the 2010s, likely helped along by Jeffries’s ill-advised commentary that A&F was for the “cool” kids.
Looking back, that was the death knell. As any teen could tell you, if a brand needs to explain why it’s cool, then it isn’t.
Mogul Moves
Tracking Big Investors and Business Leaders
Senvest Management, a value investing firm that made $700M on the GameStop craze, recently disclosed that it owns 5.7% of Kornit Digital KRNT 0.00%↑ —a stock that appeared on our fallen tech screenings last week.
Zuck is unleashing full lizard-person mode on his employees after a stinkola quarter from META 0.00%↑
Billionaire former fintech exex Jaqueline Reses is buying the independent Lead Bank in Kansas City. Small community banks are disappearing, partly as a result of inability to keep up with technology.
The family office of billionaire Zara founder Amancio Ortega acquired a stake in Enagas SA, a Spanish hydrogen energy producer. Recently, Ortega has been diversifying into renewable energy and real estate.
Memes and Sarcasm
That explains why my package got delayed.
“Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.”
-Mission Statement, Bernard L. Madoff Investment Securities LLC, 2008
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