TWDC Q2 Earnings & Conference Call

[jlsHouston]

MNF was negotiated to goto ESPN in 2005 - starting in the 2006 season

ESPN was owned by ABC... ABC/CapCities was bought by Disney in 1995

Okay I thought Eisner was CEO when this happened. But I think Eisner stepped down in 05.

 

[alphac2005]

I would not agree with that, the worlds largest company (or second largest depending on how you measure it) does pretty darn well on non luxury brands margins.

Walmart is the world's largest retailer, but has extremely low margins. They amass massive profits based upon their massive volume, but they kill the profit margins on the vast majority of all products. Walmart will actually meet with a manufacturer and tell them point blank how much they will be selling the product to them for and all the other items that they (the manufacturer) will pay for. Many buckle because they see a potential massive audience for their product, but others won't buckle because they know the the big box stores are notorious for destroying margins particularly of specialty products.

Great example: A company that my company used to carry their product (and we were the largest retailer of their product outside of Target back a decade ago) decided to get in the mass market business. They gave Target a rate of $1 less per unit than we were paying and we were paying .75 less per unit than all other retailers, however, Target took a product that retailed at $12.99-$14.99 and brought them in at $9.99, which was all part of their numbers game. There was no reason to price the product below what had been the average market price as the product(s) literally were flying off the shelves. So, our retail went from basically $15 to $13 to $10 within six months per unit and our margins were killed thanks to the big box. And the big box made the products overexposed and no longer able to sustain the margins that made them fantastic for retailers all over the world. Target ended up clearing out all of these products at below wholesale cost by the time they were done with it.

Another interesting thing on the manufacturing end when dealing with a large (or massive) big box chain: You as the manufacturer not only agree to the pricing that they want to pay, but you as the manufacturer have to pay the costs of essentially stocking the product in their warehouses. If they don't move product, not only do they get to write it off, but the vast majority of contracts stipulate that they can return all unsold product if they so choose to. Target used to (not sure of present day) have the ability to claim a return as long as they were returning at least part of the packaging. So, this guy's company would get all of these returns and many of them without the product and he still had to reimburse Target for the wholesale cost, let alone the fact that he had to pay to have it shipped back to him. It's nauseating. Not long after his foray into big box retail, he sold the company. All that I can say is that they are major toy company in the United States and have exploded in growth over the past decade, but they've had to radically increase their product offerings and have decided to "deal with the devil" in big box.

 

[BigTxEars]

Walmart is the world's largest retailer, but has extremely low margins. They amass massive profits based upon their massive volume, but they kill the profit margins on the vast majority of all products. Walmart will actually meet with a manufacturer and tell them point blank how much they will be selling the product to them for and all the other items that they (the manufacturer) will pay for. Many buckle because they see a potential massive audience for their product, but others won't buckle because they know the the big box stores are notorious for destroying margins particularly of specialty products.

Great example: A company that my company used to carry their product (and we were the largest retailer of their product outside of Target back a decade ago) decided to get in the mass market business. They gave Target a rate of $1 less per unit than we were paying and we were paying .75 less per unit than all other retailers, however, Target took a product that retailed at $12.99-$14.99 and brought them in at $9.99, which was all part of their numbers game. There was no reason to price the product below what had been the average market price as the product(s) literally were flying off the shelves. So, our retail went from basically $15 to $13 to $10 within six months per unit and our margins were killed thanks to the big box. And the big box made the products overexposed and no longer able to sustain the margins that made them fantastic for retailers all over the world. Target ended up clearing out all of these products at below wholesale cost by the time they were done with it.

Another interesting thing on the manufacturing end when dealing with a large (or massive) big box chain: You as the manufacturer not only agree to the pricing that they want to pay, but you as the manufacturer have to pay the costs of essentially stocking the product in their warehouses. If they don't move product, not only do they get to write it off, but the vast majority of contracts stipulate that they can return all unsold product if they so choose to. Target used to (not sure of present day) have the ability to claim a return as long as they were returning at least part of the packaging. So, this guy's company would get all of these returns and many of them without the product and he still had to reimburse Target for the wholesale cost, let alone the fact that he had to pay to have it shipped back to him. It's nauseating. Not long after his foray into big box retail, he sold the company. All that I can say is that they are major toy company in the United States and have exploded in growth over the past decade, but they've had to radically increase their product offerings and have decided to "deal with the devil" in big box.

What would you consider extremely low profit margins at Wal-Mart? Maybe we just have differnt opinions as to what is low and what is not.

 

[flynnibus]

What would you consider extremely low profit margins at Wal-Mart? Maybe we just have differnt opinions as to what is low and what is not.

Uhh.. 3% - http://finance.yahoo.com/q/ks?s=WMT+Key+Statistics

Not sure how you can get much lower and not be considered unprofitable. Walmart is all about VOLUME

 

[BigTxEars]

Check all your numbers. Walmart has extremely low margins...they make money on volume.

AAPL is currently the largest company (most valuable) in the world by market cap and nearly any other measure. They made over $40b profit last year. Not sure what you're looking at or how much you understand about company size/margins.

WMT is less than half the size of AAPL by market value, btw.

What exactly is a extremely low margin? Give me a ballpark number.

http://en.wikipedia.org/wiki/List_of_companies_by_revenue

I was speaking about revenue, Wal-Mart outpaces Apple by a wide margin. I understand enough to know that

How you judge the size of a company can vary as you know, revenue is certainly something that most people consider when talking about size.

 

[alphac2005]

What would you consider extremely low profit margins at Wal-Mart? Maybe we just have differnt opinions as to what is low and what is not.

Sorry, that's not an opinion here, it's a fact that Walmart is one of the lowest gross profit margin companies out there. Walmart has an overall gross profit margin of around 24%, which is nearly the lowest in the industry. So, Walmart strong arms (as I noted in the other post), but think about this: Most products that you buy at a retailer are marked 1 to 8 times higher than cost. Walmart is at 24%, that's not impressive. Most of my companies in my industry, which is in retail, run at 60-85% gross margins.

So, say my company generally sells an item for $5.00 and our wholesale cost is $2.50, we've doubled our investment. If Walmart is selling an item at $5.00 and say that their margin is 24%, they are only making $1.30 per item. None of this takes into account their MASSIVE operating expenses, all of which plays into their net profit margins that are greatly reduced.

 

[njDizFan]

The gross margins are in the 20-30% range.. but their profit margins are razor thin. See
http://ycharts.com/companies/SWY/profit_margin (see some competition on the right side)

Wegmen's is the Disney of Grocery... well at least what Disney used to be

As a former corporate merchandiser for a large supermarket chain and a direct Wegman competitor, I can definately agree with that assessment. After Quarter after quarter of P&L meetings i was astonished that you would even want to get into the business. Many of the divisions(produce,food service, sometimes even main grocery) would run at losses every quarter. We would sell many items at a deep loss so you would come in to buy higher profit items(generally dairy and frozen). A penny on the dollar was the rule

 

[BigTxEars]

Sorry, that's not an opinion here, it's a fact that Walmart is one of the lowest gross profit margin companies out there. Walmart has an overall gross profit margin of around 24%, which is nearly the lowest in the industry. So, Walmart strong arms (as I noted in the other post), but think about this: Most products that you buy at a retailer are marked 1 to 8 times higher than cost. Walmart is at 24%, that's not impressive. Most of my companies in my industry, which is in retail, run at 60-85% gross margins.

So, say my company generally sells an item for $5.00 and our wholesale cost is $2.50, we've doubled our investment. If Walmart is selling an item at $5.00 and say that their margin is 24%, they are only making $1.30 per item. None of this takes into account their MASSIVE operating expenses, all of which plays into their net profit margins that are greatly reduced.

No general retailers which Wal-Mart is one of run 60-80% margins. Comparing a general retailer to a specialty retailer is not apples to apples at all. Be it sales or margin it is not a fair comparison.

Even with the food side of their business (which has a much lower margin than the general merchandise side) now accounting for upwards of 40% of total sales in WM stores the stores run higher than 24% margins. Some of the food only WM stores run in the high teens, but they are not the norm. The mainstay of the company the Supercenters run well above 24% margins though.

 

[Chef Mickey]

What exactly is a extremely low margin? Give me a ballpark number.

http://en.wikipedia.org/wiki/List_of_companies_by_revenue

I was speaking about revenue, Wal-Mart outpaces Apple by a wide margin. I understand enough to know that

How you judge the size of a company can vary as you know, revenue is certainly something that most people consider when talking about size.

Revenue isn't a measure of company size. Market Cap is...that's the value. Revenue means nothing when you have 3% margins.

 

[BigTxEars]

As a former corporate merchandiser for a large supermarket chain and a direct Wegman competitor, I can definately agree with that assessment. After Quarter after quarter of P&L meetings i was astonished that you would even want to get into the business. Many of the divisions(produce,food service, sometimes even main grocery) would run at losses every quarter. We would sell many items at a deep loss so you would come in to buy higher profit items(generally dairy and frozen). A penny on the dollar was the rule

Dry grocery (i.e. non perishables) margin in very low, I would say 10%-15% is the average margin. Dairy and frozen as you stated is pretty high, well over 35%. The fresh areas of meat, bakery and produce are also pretty high ranging from the mid 20%s to well over 40%.

Food in general is a low margin affair in retail.

 

[njDizFan]

No general retailers which Wal-Mart is one of run 60-80% margins. Comparing a general retailer to a specialty retailer is not apples to apples at all. Be it sales or margin it is not a fair comparison.

Even with the food side of their business (which has a much lower margin than the general merchandise side) now accounting for upwards of 40% of total sales in WM stores the stores run higher than 24% margins. Some of the food only WM stores run in the high teens, but they are not the norm. The mainstay of the company the Supercenters run well above 24% margins though.

Food in general is not a high margain opportunity. You have to account for spoilage and very precise ordering and above average management. That is why at Target you will see only departments that have either a low spoilage rate(frozen, cans, dry stock) or a high volume item(soda, potato chips-which you may not believe are often sold below cost). Bakery,food service,deli,produce,meat/fish have to be very highly monitored to be profitable.

 

[BigTxEars]

Revenue isn't a measure of company size. Market Cap is...that's the value. Revenue means nothing when you have 3% margins.

Revenue/sales is used all the time as a base for comparing companies. So is market share, market cap and a number of other things.

http://www.forbes.com/sites/forbesp...bal-2000-the-worlds-biggest-public-companies/

Forbes does not even agree with either you or me on the companies but they agree with both of us on the factors to determine

"Criteria for the ranking include: sales, profits, assets and market value"

But they did list mine first so there!


Who has 3% margins BTW?

 

[njDizFan]

Dry grocery (i.e. non perishables) margin in very low, I would say 10%-15% is the average margin. Dairy and frozen as you stated is pretty high, well over 35%. The fresh areas of meat, bakery and produce are also pretty high ranging from the mid 20%s to well over 40%.

Food in general is a low margin affair in retail.

You should have seen..it was disguisting the amount of shrinkage onsome of those items. we had an average of 50-55 gallon garbage cans filled bi-weekly with outdated bread, deli items, store made food and a ton of spoiled produce

Of course all sold to pig farms for a small profit

 

[BigTxEars]

Food in general is not a high margain opportunity. You have to account for spoilage and very precise ordering and above average management. That is why at Target you will see only departments that have either a low spoilage rate(frozen, cans, dry stock) or a high volume item(soda, potato chips-which you may not believe are often sold below cost). Bakery,food service,deli,produce,meat/fish have to be very highly monitored to be profitable.

Agree, either it has to move quickly or marked down. Dairy has a decent shelf life, meat not so much and produce is the worst, it starts to go bad the second it is harvested. Frozen has a shelf life of forever, it hardly ever goes out of date. Of course dry goods have a pretty good shelf life as well.

 

[alphac2005]

As a former corporate merchandiser for a large supermarket chain and a direct Wegman competitor, I can definately agree with that assessment. After Quarter after quarter of P&L meetings i was astonished that you would even want to get into the business. Many of the divisions(produce,food service, sometimes even main grocery) would run at losses every quarter. We would sell many items at a deep loss so you would come in to buy higher profit items(generally dairy and frozen). A penny on the dollar was the rule

Walmart expanding into grocery is one of the main reasons that their margins continue to slide. It sure as heck seems like a thankless retail arena to be in.

 

[BigTxEars]

You should have seen..it was disguisting the amount of shrinkage onsome of those items. we had an average of 50-55 gallon garbage cans filled bi-weekly with outdated bread, deli items, store made food and a ton of spoiled produce

Of course all sold to pig farms for a small profit

Yep off to the pigs


Drive behind a Wal-Mart, they have containers it all goes in until the truck picks it up. Not a very nice smell in August

The stores do donate lots of dry goods weekly to the local food banks across the nation, damaged packages etc. But the bad meat, produce and bakery all go to the piggies or to fertilizer

But that is good because not long ago it went to land fills and was of no use.

 

[BigTxEars]

Walmart expanding into grocery is one of the main reasons that their margins continue to slide. It sure as heck seems like a thankless retail arena to be in.

But look at the growth they have experienced because of it. They have 20% of the grocery sales nationwide now., that is huge. And the stores are designed as a one stop shop so go for dinner and pick up a DVD, a clock and some tennis balls. It has negatively impacted the margins no doubt though.

 

[Chef Mickey]

Revenue/sales is used all the time as a base for comparing companies. So is market share, market cap and a number of other things.

http://www.forbes.com/sites/forbesp...bal-2000-the-worlds-biggest-public-companies/

Forbes does not even agree with either you or me on the companies but they agree with both of us on the factors to determine

"Criteria for the ranking include: sales, profits, assets and market value"

But they did list mine first so there!


Who has 3% margins BTW?

Sorry bro, you're grasping at straws and trying to prove something I already knew. You thought Walmart had good margins when they irrefutably have some of the lowest margins in the world. They are a great company, but they are IN the low margin business.

Almost any finance guy will tell you market cap and protiablity are king when valuing companies, IE size. I know you're backpeddling and trying to prove your point, but I knew Walmart had a lot higher sales than AAPL. Doesn't mean they are a bigger company, more valuable, or more profitable. AAPL is by far the more valuable company and it isn't close.

Anyway dude, I'm not going to argue finance or really anything with you. I know you're a good guy and like to banter a lot here, but after this, I'm not really going to keep responding. I don't think we are going to learn a lot from each other on finance...

To help end it, if you want me to tell you you're right on comparing by sales figures, fine...you're absolutely right. But when talking about company size, market cap is king and that's what I was talking about as most finance guys will....Walmart is a great company but isn't close to as valuable as AAPL.

 

[BigTxEars]

Sorry bro, you're grasping at straws and trying to prove something I already knew. You thought Walmart had good margins when they irrefutably have some of the lowest margins in the world. They are a great company, but they are IN the low margin business.

Almost any finance guy will tell you market cap and protiablity are king when valuing companies. I know you're backpeddling and trying to prove your point, but I knew Walmart had a lot higher sales than AAPL. Doesn't mean they are a bigger company, more valuable, or more profitable. AAPL is by far the more valuable company and it isn't close.

Anyway dude, I'm not going to argue finance or really anything with you. I know you're a good guy and like to banter a lot here, but after this, I'm not really going to keep responding. I don't think we are going to learn a lot from each other on finance...

To help end it, if you want me to tell you you're right on comparing by sales figures, fine...you're absolutely right. But when talking about company size, market cap is king and that's what I was talking about as most finance guys will....Walmart is a great company but isn't close to as valuable as AAPL.

Just linking Forbes and what they use as factors to judge company size, I thought they were finance guys

And for the record I said largest company, not most valuable. My point was in response to the post about the margins in retail. Those margins are good enough to grow Wal-Mart from a small localized chain into what it is today, leader in sales with 10,000 stores worldwide and growing.

I am not thinking any thing about Wal-Mart margins, I know what they are

Like I said I was an Apple guy well well before it was cool to be an Apple guy. I have nothing but respect for Apple. I still rock the Tangerine clamshell iBook at times I had a the Blueberry one as well but that went belly up. The Apple IIc went down long ago. The eMac still works, the Mac Mini, the iMac (blue) works as well. The Probook and Macbook still work but only on the cord, the batteries dies long ago. I am using the Airbook now.

I could start a Apple museum in the garage.


Now I do wish I would have bought more Apple stock at $22

Enjoy your night.

 

[Darth Sidious]

Yes… That's exactly what is being said.

Wall Street wants a very large return on investment in a very short amount of time. They do not care about what the company's going to be in five years, they care about getting their profits next quarter.

I had this very conversation with a corporate CEO at the grand Floridian. He's one of those CEOs the comes and cleans up a mess After previous management has screwed everything up. He's a big believer in telling Wall Street to go pound sand… Or something similar.

Disney management has direct self interest in the stock price being as high as possible… Because stock is part of the executive compensation.

I don't agree with that, I feel that the management team should be given a flat bonus if they meet stock price goals. Basically, you get a $50,000 bonus instead of several million after cashing in stock options.

Now how did all this happen? Well, back when Roy Disney brought in Michael Eisner and forced out Ron Miller and card Walker (saving the company at the time) Eissner asked for stock options to be part of his compensation and the board signed off on it. It was 1984.

It has grown worse over time as Wall Street demands record profits every quarter and management is more than willing to make that happen because it lines of their pockets as well. Everyone gets rich excepts the animators to make the films… Or the frontline cast to check you into your hotel… or anybody who actually does any real work.

This company needs real corporate governance reform… But it will never happen. Wall Street controls most of the voting stock… So they're going to get what they want when it comes time for shareholders votes, they're going to keep the gravy train coming…

So how does this get fixed? Slowly. First, we need a new CEO that has a vision for the company. The CEO that is not content with the status quo and wants to be the best entertainment company out there. A CEO who is ruthless enough to take on Universal and spend the money to go head-to-head rather than just excepting things the way they are.... Which is losing market share in Central Florida.

Also, more balance on the Board of Directors is desperately needed. We need people who are more in touch with society then they are in touch with their servants at their mansions.

Essentially, we need corporate leadership that is willing to take this company To where it once was and should be. If the company is set up for long-term continual reinvestment, you will be a Wall Street darling because of long-term stability and room for growth in segments they once felt were "mature". If you keep investing and innovating, They will be on your gravy train only this time it will be on your terms and not theirs. That's what Apple did under Steve jobs.

We have to stop letting the tail wag the dog.

Such is my opinion.

It is important to note that Michael took stock options when the company was in the threat of takeover. Michael taking that compensation was him saying if I fix this I should get paid. He fixed it along with Frank Wells and Sid Bass.