In Focus

Repeat Profitability

Note: This article focuses on Step 5 of the Chicks' Dozen. For articles focusing on other Steps, see the links listed at the bottom of the page.

How many times do you pick up the telephone each day? How many times do you turn on the lights? How many trips do you make to the gas station every month? How many bottles of Coke do you drink each week? How many cans of soup do you use for your Sloppy Joe recipe? (By the way, your kids told me they were getting tired of it.)

This is what we call Repeat Profitability, and is today's subject. When we are through, I'm going to quiz you. So listen up.

For a company to meet the Chicks' Dozen criteria it should qualify as a Repeater. (I just made that up... Repeater... Let's go with it. It's catchy don'tcha think? Repeater.) Why would we want to invest in a company that is a Repeater over one that is not?

First of all, what are some examples of Repeaters and Non-Repeaters. Repeaters (now the word is starting to sound funny to me) are companies that have products that the consumer purchases often. They are companies whose product we either use habitually or have become addicted to, even if not by choice. For instance, I have to have one Diet Coke a day... at noon. Every single solitary day, at noon, I have a Diet Coke. (I would make a great case study for an obsessive compulsive report, but so far I've kept my hand washing fixation under control. It's just the Diet Coke thing that is my hang up.) Coca-Cola must love me. Day in day out, they can count on me coming back. Cha-ching.

Another example of a Repeater would be a pharmaceutical company. Just think of the millions of people who need to take some form of medication each day. I look at my Dad's medicine cabinet and I think he single-handedly keeps Pfizer in business. How about all of the other drug companies? Chick Cheryl told us the other day about Buying What You Know. Look in your medicine cabinet and you'll see Shering Plough and Johnson & Johnson.

How about a bank? Tell me they don't see you often! Have you ever looked at the interest being racked up on your mortgage? Have you ever checked to see how different it is if you pay it using the bi-weekly plan? Financial institutions make daily interest off you that compounds by the hour. Unless you have $100,000 lying around to pay for your house in cash, they own us.

What about the telephone company? My typical day has me calling Chick Jana every other hour. True Story. (It's all business, and I'm sticking to that story when Uncle Sam calls.) But it gets expensive because I use my cell phone half the time! I have to have the cell phone, and cannot live without this technology. (Another example of an addiction not by choice.) There are a lot of repeaters associated with telephones -- Nokia, AT & T, Sprint, MCI, Broadcom, and the list goes on.

Of the companies that the Chicks own in our portfolio, General Electric seems to stand out as a Non-Repeater. How often to you buy a can opener? Not often. You are correct in that its appliance department is definitely a Non-Repeater. (Unless you are like Chick Susie and you have to buy two dishwashers every year. Don't ask her.) But, after further studying G.E., we found out that only 6% of their revenues came from their appliances. Aha.the rest of their business is full of Repeaters: an insurance department, a financial loan department, a plastics division, and of course... the light bulbs. Have I mentioned yet that they bring good things to life? My two year old cannot sleep without her nightlight. Sleep is a good thing in my life.

So why invest in a Repeater?

Because the company has a greater opportunity to make a profit from it's customer, over and over. For example, if you are an automobile manufacturer, you only have the chance to make a buck off a Chick once every three or four years at most. (Did you ever wonder why they came up with that Lease Plan idea? More opportunity to make some moolah in the interest department.) John Deere isn't going to profit from his customers as often as America Online is theirs. I know I will only buy a tractor once every ten years, where I'm spending money at AOL every month. Did I just say I'm going to buy a tractor?

A Repeater gives a company more of an opportunity to increase their Cash on the Balance Sheet, and their Sales on the Income Statement. These will in turn increase their Gross Margins and their Net Margins. Oh dear, we haven't gotten that far yet... Gross Margins and Net Margins. Those are coming on Monday. Spend the weekend digesting the first five Chicks' Dozen criteria. Print them out and take them to bed with you. These are the most important steps of the Chicks Dozen. Well, this week they are anyway.

I almost forgot to give you the quiz. Go figure, it's noon and I have other things on my mind.

     Which are these? Repeater or Non-Repeater industries?

          ___ Airlines

          ___ Clothing

          ___ Home Builders

          ___ Internet Companies

          ___ Automobiles (free space)

          ___ Cosmetics

          ___ Hockey Teams

          ___ Utilities

          ___ Airplane manufacturers

Articles focusing on the 12 Steps of the Chicks' Dozen:

Step 1: Buy What You Know

Step 2: Keep It Simple, Sister (K.I.S.S.)

Step 3: Industry

Step 4: Leader In It's Field

Step 5: Repeat Profitability

Step 6: Gross Margins, GM: Service Related Industries

Step 7: Net Margins

Step 8: Cash To Long-Term Debt

Step 9: Flow Ratio

Step 10: Increasing Growth

Step 11: Strong Management & Operating History

Step 12: Buy On Sale