Delving into our focus on retail/restaurants this week, we spoke with analyst Brad Stephens about his area of coverage: teen retail. When we asked Mr. Stephens what was attractive in this space, right out of the gate, Mr. Stephens told us “Not much.” Though there a few companies Mr. Stephens recommends (available in the full interview) below are two he recommends you stay away from:

• bebe (BEBE)- “It’s at $9.60 today, it’s got $4 a share in cash, and it generates cash. So theoretically you would think this is the time to be buying it; unfortunately they have a very large exposure to the housing impacted states, especially California and Nevada, and that customer is starting to trade down a little bit. They are starting to move to the fast fashion retailers like H&M and Forever 21,and on down the line. So they are trading down. Until they recarve out the niche, results continue to be under pressure. And also I think when you look at the fashion out there, you’re seeing a trend away from patterns and they are very strong in patterns. So it seems like everything happens to be moving against them right now.”
• Hot Topic (HOTT)- “It’s a very cheap stock theoretically, it trades about 3.5 times EBITDA. They have a niche with punk rock, very music oriented, but the problem here is that over the last two second halves of the year, they’ve improved their merchandise margin about 600 basis points, all through better inventory management, yet they haven’t had a positive quarter of traffic trends in their stores. So the number of people going to their stores has gone down for 17 straight quarters. If they continue to do that, ultimately you deleverage your fixed costs and the situation can get very ugly. So while the stock is cheap, we would prefer to be other places right now.”

For the complete interview with Mr. Stephens, including an overview of this space, and his view on where attractive valuations lie, click here.

One of our special focuses this week is on gaming and online games. As a part of this special focus, TWST spoke to analyst Tian Hou- who talked to us a little bit about the online games part of this space- and specifically in her region of coverage: China. She gave us a few ideas about what company’s to look at in this space:

• Perfect World (PWRD)- “The name I like the most is Perfect World because this company has become the biggest game exporter of all the Chinese game developers. They develop what we call 3D games, and normally they can come out with a game in six months with a $0.5 million R&D cost. It is the best R&D team in the world. 3D games take other game developers two or three years and $3 million to $5 million to develop worldwide, so you can see how fast this company is and how good they are. They have been exporting games to many countries. One game they export to 14 countries, another game they export to seven countries — you add them all together, it’s 37 countries. Nineteen of them have already had a commercial launch. There are 18 more to come, and next year if all those games can be fully operational, we’re looking at a huge licensing revenue for this company that has been underestimated by the Street.”
• Netease (NTES)- “The other company I like is NetEase. They run games with the time-based model and they have figured out how to grow a time-based model game recently. It grew rapidly in 1Q08. In addition, they also have some smaller games added to the portfolio, so we expect the existing games along with the newer games to make contributions to growth going forward. “
• Shanda Interactive Entertainment (SNDA)- “The other company we like is Shanda. It is not strong in in-house R&D, but it is very strong in operating a game. We do think that eventually this company may
  become an operator rather than a game developer, as the China game market becomes more segmented or specialized”

For the complete interview with Ms. Hou, including a complete overview of this space, its growth potential in the immediate future, and more stock picks, click here.

Today- July 28, 2008- marks the 30th Anniversary of the landmark teen comedy, Animal House- starring John Belushi. This was the first film venture for the company National Lampoon (NLN). The film grossed more $140 million- a record at the time.

Read TWST’s exclusive interview with the current CEO of National Lampoon, Daniel Laikin.In it, Laikin talks about the company’s history, licensing strategy, online businesses and plans for the future.

Yesterday, Starbucks (SBUX) announced that it would be closing 600 stores and cutting 7% of its workforce, as a result of the decline in consumer confidence that have lowered its stock price more than 50% in the last two years.

Analyst David Palmer of UBS predicted this negative trend at Starbucks back in his January interview with TWST, and went into detail with us about what’s gone wrong with the coffee giant. Click here to read the exclusive interview.

Also take a look at TWST’s interview with now CEO of Starbucks back before the current slowing trend. Click here read the exclusive interview with CEO Howard Schultz.

It was reported this morning that the pending merger between Anheuser-Busch Co. (BUD) and InBev NV (INB) might fall through. Anheuser-Busch is gravitating towards rejecting the offer in favor of attempting to lower costs and sell off divisions.

For an overview of the Beverages space, including an analysis of Anheuser-Busch in the long term, read TWST’s interview with Analyst Matthew Reilly of Morningstar, Inc. 

For more an idea of what exactly Anheuser-Busch is turning down, take a look at TWST’s exclusive interview with John Brock, former CEO of InBev.

On our restaurants panel in January, analysts talked about how 2007 was a tough year for casual dining. The day before our panel the company, according to our analysts, Darden Restaurants (DRI) “really got slammed”. However, 2 of the 3 analysts on the panel said that this was a good quality company, and that they were sticking to it for the long term.

Hopefully you followed their advice, as today Bloomberg reports:

Darden Restaurants Inc. (DRI:US) advanced the most since May 27, gaining 4.3 percent to $32.95. The owner of the Olive Garden and Red Lobster chains reported fourth-quarter earnings before some items of 78 cents a share, more than analysts’ 75-cent estimate. The company also boosted its dividend 11 percent.

To take a look at our restaurant panel, and see what else these analyst picked and predicted for 2008, click here.

Speaking to analyst Connie Maneaty this week, the outlook for the Personal Care and Household products space is pretty grim. Luckily, Ms. Maneaty has some advice for investors on which companies to look at during this rough time:

Ms. Maneaty: We particularly like..Energizer (ENR)…Energizer is undergoing a transforming event with Playtex, and investors worry about the first couple of quarters in an integration where it’s not quite clear what’s going to come out of it. But Energizer’s price has fallen 22% year to date, and you have to think that whatever it is, it’s very much priced in at this point. If you look past the March quarter and start to see some of the accretion that should come from the Playtex deal, the stock looks really attractive.

For the complete interview with Ms. Maneaty, including an complete review of the current investment climate and outlook forwhere it’s headed, click here.
 

Moving back into our focus on Apparel Retailers this week, we spoke to Linda Tsai- an analyst who covers the teen and children’s apparel space. She had one top pick out of all apparel retailers in this tough time: Aeropostale (ARO).

Ms. Tsai: I like Aeropostale a lot. We talked a little about that because theyhave been improving their fashions over the past few years. A larger percentage of their merchandise mix used to be dedicated to what they call “core,” which are their basic categories like a plain tank or a plain pair of jeans. Over time they’ve increased the percentage of their “fashion” category. Fashion, despite carrying a slightly higher price point, allows them to drive demand because of a higher level of differentiation. For example, let’s say one year a shopper goes there and sees a pink tank top, but the next season it’s the pink tank top with a ruffle. You see the same style at its competitors but it’s priced a lot less. You will spend the extra dollar to get the ruffle because that’s something that you want. That’s one thing they have gotten really strong at in terms of understanding fashion trends and interpreting them, so that price-wise it remains accessible to its core customer, but still commands a slightly higher price point. That’s one of the reasons why I think they are positioned to take share.

For the full interview with Ms. Tsai, including a complete overview of the teen and children apparel space, and an outlook for 2008, click here.

With holiday sales for 2007 being the lowest in some times, consumer stocks seem to be feeling the effects of the current economic slowdown. However, analyst Samantha Panella feels it isn’t all gloom and doom: Urban Outfitters’ (URBN) Anthropologie division, which targets women in their 30s and 40s, did quite well during the second half of 2007.

Anthropologie’s same-store sales over the holidays were up 16% during November/December. In addition, Ms. Panella told us that she feels there’s still strong momentum behind Urban Outfitters’: they are a high quality company, with a strong square footage growth story- she predicts a 15% growth in 2008, the highest in the group she covers. Additionally, Ms. Panella feels Urban Outfitters’ has operating margin expansion opportunities.

For the full interview with Ms. Panella, including a complete overview of the Woman’s apparel retailers space and tips on what stocks to avoid in 2008, click here.

Moving back to our focus this week on Restaurants, analyst Jeff Bernstein spoke to us a little bit about the crunch in casual dining restaurants. Unlike quick service restaurants, casual dining restaurants aren’t franchises, and handle all operating costs themselves. Mr. Bernstein details how those costs have changed in the last year:

TWST: You mentioned the cost side of the equation. How bad is it?

Mr. Bernstein: We’ve seen double-digit increases in a number of core commodities. The biggest increases have come from grain, wheat and cheese prices, which obviously impact a lot of our sandwich makers from the bread side and pizza players from the cheese side. Across the board, we’ve seen increases on center of the plate commodities such as beef and chicken. It doesn’t seem to be abating as quickly as we would like, so the companies are forced to be more aggressive in terms of menu pricing to help to offset some of those cost pressures.

For the full interview with Mr. Bernstein, including a complete overview of the current market climate in the restaurant sector, and stock picks, click here.