The Daily Dose: Not Just Exploding Cows

 | Feb 19, 2014 | 12:00 PM EST  | Comments
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Stock quotes in this article:

cmg

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mcd

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lulu

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gps

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jcp

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sbux

It is the season for yours truly -- retail earnings season! I am operating at a high level right now, tons of things on the plate. This is a run through on a couple of things my team and I have been discussing.

 Chipotle Killing It

All the chatter on social media and on random Google searches Tuesday was on Chipotle's (CMG) new, 22-minute glorified commercial released on Hulu February 17. It had exploding cows. It flipped the bird at most U.S. cattle ranchers and their pretty cows set for slaughter. It painted Chipotle's high-caloric menu made from responsibly-raised products in a favorable light. And guess what?  All of this marketing cost a cool $250,000.

There will be three more of these epic commercials to air shortly. Obviously, they will garner a ton of attention from angry ranchers and fast-food competitors. I am here to tell you, however, that Chipotle the brand is hot not only because of its marketing budget.

Here are three secrets to tell all of your friends over a salad bowl.

 Chipotle is thoughtful in store expansion: the Chipotle management team recently ramped up its planned new restaurant openings to 195 to 200 in 2014 from 185 in 2013. That is still well below the 100s that a typical fast food joint such as McDonald's (MCD) opens in a year. Chipotle, while seeking to protect its unique corporate culture with a more measured new-opening plan, is also trying to create a social media firestorm at its new openings. If you keyword-search Chipotle on Twitter, you can't help but to feel the local excitement when a Chipotle opens, and you see via pictures lines literally out the door.

  • Chipotle has boots on the ground. The company is connecting with local businesses and schools via unique promotions to drive traffic. That is a winning approach.  It isn't like McDonald's, which basically ignores its local environment in its marketing. Nor is it like Starbucks, which only hangs pics on its remodeled stores of local scenery.
  • Bigger is not always better: Chipotle has a belief that the customer's dictating to them what they want is a good approach. A simple menu is a better menu. Hard to argue with that as Chipotle has the fastest line times in the quick service restaurant industry. On the other end of the spectrum is McDonald's, which jams HQ's new choices down the throats of consumers...and slows its lines and hurts customer service in the process.

Exploding cows, fun to watch, but that is not the only thing Chipotle has going for it.

 So has Gap's Athleta

 Here is one example of how Gap's (GPS) athletic wear brand Athleta is taking the fight to Lululemon (LULU). It's offering cool, new (and free) workout sessions in its stores daily! Lululemon is still doing periodic yoga classes.

 Source: Belus Capital Advisors

 But Not J.C. Penney!

 Three things to look for on the February 26 earnings report after the bell.

  •  Gross margin: the actual figure will be gross, yes. But, what you want to see is by how much it improved from the third quarter since management says it has been improving. Be aware though: J.C. Penney (JCP) has to be more promotional every day of the week to emotionally reconnect with customers.
  • Liquidity: J.C. Penney execs will try to dazzle your brain by noting it has oodles of "total liquidity." However, look at the operating cash flow figure to see how much was raised in the most important quarter of the year, the holidays. Be aware: J.C. Penney will likely to raise more penalizing cash in 2014.
  • Intangible goodies: don't be caught off guard, you should know that J.C. Penney will have to announce more store closures than the recent 33 to stay alive. Look to see if management shouts that out. Also, who is the permanent CEO, and what are the quarter-to-date sales given the company have been super cute in trying to raise prices.

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