"I'm looking for opinions here on how value investors assess retail
chains when so many seem to be destroying economic value."
Mike, porc hasn't given it a lot of study. Maybe he should. But on the face of it, what he sees with chains, fast food, etc., are real estate empires with one (low-margin) tenant -- themselves; financial pyramids built on a foundation of massive, and ever-growing, debt; many awaiting court supervised "re-organization" come the next recession, and sometines sooner. But, unlike a straight real estate deal, the tax benefits don't get passed through to the owners and there are no generous dividends.
EVA is too complicated for porx simple minded brain. Instead, he looks at every business like a laundromat. Hence, the most important (though, admittedly, not the only) question to him is how many quarters could he (theoretically) take out of the machines at the end of the day, and still leave the business healthy. With chains, he can't find many quarters, so he just moves on. Maybe they're really there, somewhere in the financial statements, or hidden in filings with regulatory bodies, etc. But, unlike Graham, if porc has to look too hard to find the quarters, he figures it's probably because they're not really there.
Yes, there are always exceptions, like Claire's Stores, but they seem to be few and far between. |
