China Economy-Hotel Chain Goes Luxury

TALES OF THE TAPE
China Economy-Hotel Chain Goes Luxury By KATE ZHAO Of DOW JONES NEWSWIRES NEW YORK — China’s largest economy-hotel chain is moving into the luxury market, betting that rising living standards in China will attract more visitors to high-end hotels. Home Inns & Hotels Management Inc. (HMIN), the operator of 583 economy hotels in China, last year launched its first H hotel in Shanghai, equivalent to Starwood Hotels & Resorts Worldwide Inc’s. (HOT) W hotel chain. While it’s seeing some initial success, analysts say Home Inns has a long way to go before it can grab a significant chunk of China’s luxury hotel market. Founded in 2002 by the co-founder of Ctrip International Ltd. (CTRP), Nanpeng Shen, Home Inns has grown into China’s biggest economy-hotel chain by market share. The company went public on Nasdaq in 2006. At the end of 2008, Home Inns launched the first trial of H hotel in Shanghai, targeting medium- to high-end business travelers and pricing rooms at CNY600-CNY900 ($85-$129), comparable to Marriott International Inc.’s (MAR) average price in China. Home Inns declined to detail its expansion plans for Dow Jones Newswires, but China’s Nanfang Daily recently quoted chief executive David Sun as saying the premium-branded hotel market has the biggest potential to grow and that the company is likely to open H hotels in other cities, including Hangzhou, the capital city of Zhejiang province. IBISWorld analyst George Van Horn said globalization has made the luxury-hotel market in China highly competitive, with both domestic and international players, including Shangri-la Asia Ltd. (0069.HK) and Hyatt Hotels Corp. (H). In China, the number of star-rated hotels targeting tourism last year totaled 14,100, of which two- and three-star hotels accounted for the largest portion. Oppenheimer analyst Paul Keung said: “Home Inns is still developing, testing and fine-tuning its four-star H hotel concept.” He added that the chain targets traditional four- to five-star hotel customers looking for greater value and three-star customers looking to trade up with minimal costs. Sun told Dow Jones Newswires that the H hotel won’t seek a star rating, the same strategy as the economy-hotel chains. But he said the average daily rates and service levels–including high-speed Internet access–will target upscale business travelers, many of whom Home Inns hopes to attract from its economy-hotel business. After a slump last year, Home Inns’ American Depositary Shares have risen from a 52-week low of just over $7 to trade near a two-year high of $37.41. Shares on Monday were changing hands around $34.25. Home Inns Chief Finance Officer May Wu said in a recent conference call that the company doesn’t break out the performance of the H hotel but that “what we could report to you is that the H hotel continued to improve a bit gradually .. This is the first hotel that’s a prototype in the slightly high-end range, and we are still tweaking the models and learning from our operational experience.” Wu said the H brand has already broken even on earnings before interest, tax, deportation and amortization. Home Inns for the third quarter reported 31 cents earnings per share on revenue of $107 million, topping Wall Street’s estimate of 24 cents per share on revenue of $95 million. Home Inns now expects revenue for 2009 to grow between 37% and 39%, increasing from the 33% to 35% guidance previously announced.

Takeaway from The NewBiznews Conference – Understanding New Business Models

Panelist: Jennifer McFadden (Business Analyst, New Business Models for News Project)

Jean-Francois Mignon & Nancy Wang (Mignon Media)

Mignon Media created a spreadsheet incorporating two new business model for hyperlocal and the sales, support, and technology framework that we believe is necessary to optimize businesses in the ecosystem. The framework is based on a sample division of  a metro market of 5 million people into many smaller markets (20k, 35k, and 60k) to reflect the towns and neighborhoods that comprise a large metropolitan market.

They also have non-for-profit organization’s business model and paid-content model, included in its new news organization model, envisioning a new, metro-wide news organization serving a market of five million people that operates on a smaller scale and performs a wide variety of tasks.

As they have presented the core idea and major numbers in the morning section, in the afternoon’s panel, Jennifer and Nancy used most of the time to answer questions. Here is an except from the Q&A section:

No matter it’s the NGO or paid-content model, or general news hyper local organization, the income statement and ad revenue would follow the metro sample organization. For paid content model, even in the best case scenario (based on Mignon Media’s clients), 2% of the website’s unique visitors become subscribers, paying $8.5 monthly subscription fee for half of average at a 50,000 circulation paper. Averagely, only 1% of unique visitors are willing to pay for subscription for general news content with $ 4.25 monthly fee, except a 30% subscriber churn outlook. For finance news organization (Mignon’s client based in Canada), the percentage is higher, but all subscription are paid by financial institutions, not by individuals.  The b2b model cannot copy to other kinds of news organizations as majorly corporation paid for the content

However, the acquisition cost for subscriptions equals at $45. In that case, for a sample metro market of 5 million people, subscription only stands as a quarter of the total revenue as advertising contributes for the rest.

One more thing to think about free content vs superscription is a mix of what those sites are charging, we have to keep in mind of the cost for paid-content loyalty, which means more cost to maintain the loyalty of subscribers, but also they paid more serious attention to the content, and even to the web commercials.

TALES OF THE TAPE: New Oriental’s Outlook Healthy,Despite Flu

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Swine flu fears kept students from enrolling in New Oriental Education & Technology Group’s (EDU) summer classes, hurting quarterly results, but long-term growth prospects are intact as the company benefits from enthusiasm for learning English in China.

New Oriental, which offers language classes for children and adults, saw record cancellations and deferments for summer classes because students and parents were concerned about H1N1, commonly called swine flu. Revenue increased 26% when analysts were expecting 31% growth.

As a result, the company’s American Depositary Shares are down 11% since its fiscal first-quarter earnings report last week. However, the swine flu effect is expected to be temporary and New Oriental’s earnings per share are expected to grow 40% this fiscal year, according to Thomson Reuters.

“The swine flu is like any other natural disaster. It may last a quarter or two, and then it goes away,” said Brandon Dobell, an analyst with William Blair & Co. He added that this was the first time the company missed expectations in two years, and that’s what hit the share price.

The company expects flu fears to continue to hurt enrollment during the current quarter.

“The adverse effects on our business from the fear of H1N1 will gradually subside as the H1N1 flu vaccine has been made available in China this month,” said Minhong Yu, New Oriental’s founder and chairman.

New Oriental ADSs closed Friday at $72.33. The ADSs are up 32% this year, compared with a 20% gain in the S&P 500.

The English-language training market in China was valued around $1.9 billion in 2004 and is expected to double in 2010, said Robert W. Baird & Co.’s analyst Amy Junker.

William Blair’s Dobell said, “Parents still want to send their kids to learn English as early as possible and kids still need to take tests to get into elementary schools, middle schools and colleges.”

New Oriental began it operations helping college students prepare for overseas language tests in 1993 and has expanded into broad English education.

The company now has 287 learning centers, expanding beyond major cities, and is the largest provider of private English education in China, based on number of programs, student enrollment and geographic scope. As far away as Anshan, a small town hundreds of miles north of Beijing, New Oriental opened an English-learning center last year where parents are willing to spend hours waiting in line to get their children into the program.

New Oriental’s success has prompted competition in the market, with Global IELTS Group and NeWorld Education Group both gaining private-equity financing. Neither company is traded in the U.S.

NeWorld specializes in Japanese training. New Oriental offers Japanese and other languages but says English is its most popular program.

For the quarter ending Aug. 31, New Oriental reported net income of $57.1 million, up 27% from a year earlier, on revenue of $149.4 million.

 

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

NetEase Shares Fall As China Restricts Online Gaming

   By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of NetEase.com Inc. (NTES), China’s largest online gaming company by market capitalization, slumped Monday as Chinese authorities have banned foreign investors from operating online games “in any form” in the country.

China’s General Administration of Press & Publication and National Copyright Administration announced Friday that no foreign-invested companies are allowed to operate online games in China either through setting up wholly owned enterprises or joint ventures and cooperatives.

The decision contradicts an earlier one made by the Ministry of Culture, which in late September allowed NetEase to relaunch the World of Warcraft, an international game, with Blizzard Entertainment, a subsidiary of a U.S. online game developer Activision Blizzard Inc. (ATVI).

But “in what appears to be a never-ending story, the relaunch has taken another interesting turn,” said Roth Capital Partners analyst Adam Krejcik. The decision aims “to prevent overseas firms from participating in or effectively controlling online game operations,” said Krejcik.

Shares of NetEase dropped 5.3% to close at $38.35, after falling as low as $36.15. Shares of other Chinese online game companies also fell, with Perfect World Co. (PWRD) down 4.2% and Changyou.com Ltd. (CYOU) falling 1.3%.

NetEase had decided to commercialize the World of Warcraft in late September without GAPP approval. With the new regulation, the administration will probably try to shut down the game again, analysts said.

“NetEase is stuck in the middle of an ugly power struggle between two government agencies in China,” said Krejcik. “Therefore, siding with one government department is risky and could result in longer term problems for NetEase.”

China’s online game players reached 49.4 million in 2008, the largest online game population in Asia. The industry generated revenue of $2.7 billion last year, representing a 76.6% increase over 2007, according to International Data Corp.

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com

ViroPharma Shares Fall As Rival Gets Marketing OK For Drug

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of ViroPharma Inc. (VPHM) dropped Monday after the U.S. Food and Drug Administration announced marketing approval of Australian biopharmaceutical company CSL Ltd.’s (CSL.AU) treatment Berinert for acute abdominal or facial attacks of hereditary angioedema.

The approval spurs competitive concerns for ViroPharma’s Cinryze, which is also approved to prevent hereditary angioedema symptoms that involve episodes of swelling in various body parts.

“There has been concern amongst investors that Berinert could be a formidable competitor to Cinryze and capture market share in the prophylactic setting,” said ThinkEquity analyst Brian Skorney.

ViroPharma shares dropped 3.6% to $9.45 in recent trading and are off 27% so far this year.

But company spokesman Robert Doody denied the possibility of increased competition or market share loss, saying the drugs are approved for different indications. Cinryze is approved to prevent HAE, while CSL’s Berinert is approved to treat the attacks themselves.

“The labeled indications are important from a commercial perspective because it limits the marketing activity of either company,” said ThinkEquity’s Skorney, adding that neither company would take the risk of marketing illegally.

Still, there has been speculation that Berinert’s approval could lead to off-label competition between the two companies.

“Once a drug is approved, it is up to physicians how to use it,” Skorney said.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of ViroPharma Inc. (VPHM) dropped Monday after the U.S. Food and Drug Administration announced marketing approval of Australian biopharmaceutical company CSL Ltd.’s (CSL.AU) treatment Berinert for acute abdominal or facial attacks of hereditary angioedema.

The approval spurs competitive concerns for ViroPharma’s Cinryze, which is also approved to prevent hereditary angioedema symptoms that involve episodes of swelling in various body parts.

“There has been concern amongst investors that Berinert could be a formidable competitor to Cinryze and capture market share in the prophylactic setting,” said ThinkEquity analyst Brian Skorney.

ViroPharma shares dropped 3.6% to $9.45 in recent trading and are off 27% so far this year.

But company spokesman Robert Doody denied the possibility of increased competition or market share loss, saying the drugs are approved for different indications. Cinryze is approved to prevent HAE, while CSL’s Berinert is approved to treat the attacks themselves.

“The labeled indications are important from a commercial perspective because it limits the marketing activity of either company,” said ThinkEquity’s Skorney, adding that neither company would take the risk of marketing illegally.

Still, there has been speculation that Berinert’s approval could lead to off-label competition between the two companies.

“Once a drug is approved, it is up to physicians how to use it,” Skorney said.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Acuity Brands Shares Rise Before 4Q Report; Stimulus To Help

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Shares of Acuity Brands Inc. (AYI) jumped more than 6% Tuesday, a day ahead of its fiscal fourth-quarter results, as analysts weighed the potential for the lighting-fixtures manufacturer to see improving market conditions driven by the U.S. stimulus plan.

Acuity and rivals have been positioning their lighting and control portfolios for energy efficiencies while cutting costs, including layoffs, in response. The U.S. stimulus package may give the sector a boost late this year, while broader pending energy legislation could provide a long-term catalyst.

Wedbush Morgan Securities analyst Craig Irwin said as the largest lighting fixtures manufacturer in the U.S., Acuity will become one of the biggest winners of the market opportunity in stimulus-plan funded projects.

“There is probably a couple of hundred of million dollars for lighting there, and Acuity can capture a share of that,” he said.

Irwin also added that in Wednesday’s conference call, there is a good possibility the company will detail how much it expects to receive from the stimulus plan.

The U.S. Department of Energy has disbursed $1.4 billion this year to 1,200 projects under the first round of energy-efficiency block grants from the stimulus plan, under which there is $66 billion available in funding for construction and energy efficiency projects.

“The disbursement was the first tranche of energy efficiency funding we expected to materialize in the end markets,” said Irwin, who added the question remains when the full effect of the stimulus plan will be felt.

Acuity shares closed up 3.4% to $32.49 after earlier soaring as high as $33.39 amid a broad market rally.

Although the benefits won’t show significantly in Acuity Brands’ fiscal fourth quarter ended Aug. 31, Irwin expects to see a stronger return in sales both in the company and in the lighting fixture sector in 2010.

Building completions remain as a major driver of lighting fixtures demands, but Irwin said he remained conservative in both the company and the sector because lighting usually lags in a recovery.

For the fourth quarter, analysts surveyed by Thomson Reuters expect per-share earnings to tumble 44% to 57 cents and revenue to drop 23% to $405 million.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

THQ Shares Rally Amid Takeover Speculation

DJ THQ Shares Rally Amid Takeover Speculation >THQI

By Kate Zhao    Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)–Shares of THQ Inc. (THQI) surged Tuesday amid speculation the game and interactive entertainment software company may be a takeover target for Time Warner Inc. (TWX) or Viacom Inc. (VIA). “We do think that both Time Warner and Viacom are interested in the gaming space,” said ThinkEquity analyst Atul Bagga, adding that in the recent earning calls, the companies’ managements have talked about an increased focus on gaming. Competition among media conglomerates has intensified, and both Time Warner and Viacom are looking for new revenue growth opportunities. Wall Street Strategies analyst Brian Sozzi pointed to THQ’s successful cost-cutting moves over the past year, which have expanded margins and made the company more attractive to potential suitors. A THQ spokeswoman declined to comment on speculation, as did both Time Warner and Viacom. THQ shares closed up 13% at $7.46 after earlier surging as high as $7.57. Sozzi has THQ’s price target at $9 but said if either Time Warner or Viacom is going to buy the company, they probably will pay $12 to $15 a share, at least a 60% premium. Analysts also think other gaming companies might be takeover targets. “While we won’t be surprised by an offer for THQ, we believe that Take-Two Interactive Software Inc. (TTWO) could be a better take-out candidate,” said ThinkEquity’s Bagga, adding that Take-Two has a number of strong franchises and a number of wholly owned Internet Protocols. Wholly owned IPs not only carry higher profitability, but also are more valuable to media companies because they could be adapted into movies, TV serials and online destinations. Take-Two shares closed up 5.1% at $11.72 on Tuesday.   -By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Deckers Shares Rise On Aug Retail Sales, Optimism For Fall

By Kate Zhao Of DOW JONES NEWSWIRES NEW YORK

(Dow Jones)–Shares of Deckers Outdoor Corp. (DECK) rose nearly 7% Tuesday, helped by stronger-than-expected August retail sales and as analysts said the footwear and apparel company is well-positioned for the fall season.

In recent trading, the stock was up 3.7% at $74.80 after earlier rising as high as $76.80. Shares are off 6.7% so far this year.

Despite the popularity of its Ugg brand, Decker is dealing with slowing growth. Second-quarter Ugg sales increased 23%, well below a 67% surge in the first quarter. But analysts commented Tuesday that boot and outdoor footwear sales always perform better in fall and winter seasons.

“There is an industrywide trend towards boots,” Piper Jaffray analyst Jeffrey Klinefelter said, while also adding investors are recognizing stronger retail sales across the country will lead to refreshment orders for vendors.

The U.S. Commerce Department said Tuesday that retail sales last month exceeded expectations and climbed 2.7%. Wall Street expected a 2% increase in overall retail sales.

“We think the company has great long-term potential,” said Klinefelter, adding that the expansion across Europe and Asia markets will also help boost Deckers’ sales globally.

Deckers now sells in the U.K. and other European and Asian countries through outside distributors. Klinefelter expects the company to continue expanding both distribution agreements and direct agreements over the next several quarters and said it also has opportunities to further develop some smaller brands domestically, such as Teva, Simple and Tsubo.

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Consumer Cos Push High-End Products In China As US Cuts Back

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–After years of peddling higher-end offerings in the U.S., consumer-product companies have begun to tout their most affordable offerings. In China, they are headed in the opposite direction.

Cosmetics giant L’Oreal SA (OR.FR) said Friday in Beijing it is officially launching its Elseve hair-care product line in high-end drugstores in China in its first attempt to squeeze into the premium hair-care market there.

Other multinationals are doing the same. Proctor & Gamble (PG), which recently said it will sell more lower priced products in the U.S., has been touting the success of a more expensive version of its Pantene brand in China.

P&G launched the new product line for its popular Pantene hair-care brand, Clinicare, in Asia at the end of 2007, and sold it at a 30% premium to the brand’s other products. Sales of Clinicare in China have doubled in one year. The product became so successful that P&G’s new chief executive, Robert McDonald, singled it out on a recent conference call.

By contrast, P&G recently launched Tide Basic, a lower priced version of its well-known detergent in the U.S.

“We’ve got Chinese consumers buying [Pantene Clinicare] and liking that form of Pantene a lot,” McDonald told investors. P&G’s profit declined 18% in the quarter, hit by the economic recession as consumers shied away from its higher price products in the U.S.

“You got more millionaires in China, buying premium products than you do in the United States,” McDonald said. “So in China we got to have higher priced products that meet the needs of those consumers looking for that kind of value.”

China’s middle class has surged in the past few years. Around 1.6 million families now earn more than CNY200,000, or $29,412, a year in urban areas. McKinsey & Co., which uses that income threshold to define a middle-class family, estimates the number is going to reach 4 million in 2015. This rising middle class has become the target of international companies seeking new revenue sources outside slower growing developed countries.

The demand for high-end products is rising fast. The premium hair-care market in China is expected to reach $166.6 million this year and grow up to $238.2 million in 2013, according to marketing research firm Eurominotor International.

Many international brands are relying on celebrities to promote their brands as representatives of a lavish lifestyle. Pantene Clinicare uses international supermodel Du Juan, whose appearance in the Milan fashion week with shimmering hair further helped boost its brand awareness and credibility. To maintain the brand’s premium image, P&G limits the distribution of the product to Watson Pharmaceuticals Inc. (WPI) drugstores, Carrefour SA (CA.FR) markets and a few other high-end retailers.

P&G competitor Unilever PLC (UL) recently reformulated its Lux shampoo and launched a new product line called Lux Super Rich. The company filmed a seven-minute video with Catherine Zeta-Jones that aired only in the Asia market.

Shiseido Co. (4911.TO) and Kao Corp. (4452.TO), two Japanese personal-care and cosmetics companies, both launched similar premium product lines last year using supermodels and actresses from the region in advertising.

P&G’s Clinicare is likely to perform well in the short term in China, as the product is in line with the latest consumer trends, according to a report by market-research firm Euromonitor International.

Clinicare is also offering a smaller pack for convenience-driven consumers looking for just one wash, Euromonitor analyst Michelle Huang said. Consumer multinationals are expected to continue to focus on the middle market in China and to push into poorer rural areas, home to a big chunk of the population. Still, Huang says only a limited number of Chinese consumers will choose to buy premium hair-care products, especially during the economic downturn.

 

-By Kate Zhao, Dow Jones Newswire; 212-416-2665; ying.zhao@dowjones.com

Family Dollar Gets Boost From Food Subsidy Program Expansion

By Kate Zhao
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–The U.S. government is expanding its food subsidy program to cover more low-income individuals and families, and Family Dollar Stores Inc. (FDO) is reaping the benefits.

One quarter of the core consumers visiting Family Dollar, the nation’s largest publicly traded dollar-store chain, participate in the federal subsidy program, and the number is on the rise, according to a recent report by Pali Research.

Four years ago, Family Dollar began adding more varieties of food to its shelves to meet increasing demand from its customers. The company also installed more refrigerators and coolers to carry milk, eggs and cheese.

About 34.4 million low-income children and individuals participate in the Supplemental Nutrition Assistance Program, or SNAP, formerly the Food Stamp Program. Participation jumped 21% in May compared with a year ago, according to the U.S. Department of Agriculture. The government spent $6.1 billion on the program in the 12 months ended in May, USDA data showed. Pali Research estimates spending will reach $15 billion this year.

The federal government is expanding its stamp program to cover more low-income Americans. Meanwhile, it’s also giving more cash to those existing receivers. “So when they walk into the store, they have more to spend,” said Stacey Widlitz, an analyst at Pali Research.

MKM Partners analyst Patrick McKeever said the food subsidy program “has been material for same store sales growth” at Family Dollar, allowing shoppers to “free up some dollars to spend on other items.”

McKeever said the company has put more stores on the program, and, as more consumers become aware that Family Dollar accepts the form of payment – now an electronic payment card similar to ATM cards – the program could become more meaningful to same-store sales growth. He said he expects to see a 1% to 3% same-store sales increase in the following months.

Analysts say Dollar Tree Inc. (DLTR), another publicly listed dollar store, isn’t expected to benefit as much from the food subsidy program as fewer of its stores accept the payment method. Dollar Tree representatives couldn’t be reached for comment.

Officials at Dollar General Corp., a large, privately owned discount chain, were not immediately available for comment.

In July, Family Dollar reported that its inventories grew by 1.3% in the fiscal third quarter, with added consumables more than offsetting lower inventories in discretionary categories. Sales of consumables, by far the largest division, rose 13% in the last three months.

“We’ve seen over the last few years there is a need for more fill-in grocery trips,” said Family Dollar spokesman Josh Braverman. “It’s not automatically a reaction to the recession. It’s more of a long-term strategy for us to grow our food business … People changed to buy what they need, not necessarily what they want.”

The company is upgrading its systems to enable more stores to accept the SNAP card. About 60% of Family Dollar’s 6,617 stores can now accept payment through SNAP, compared with about 25% a year ago. Family Dollar is expecting to complete the rollout in all stores by early 2010.

While dollar stores may be seeing a sales bump, traditional grocery chains aren’t.

For traditional grocery stores, food stamp revenue is “not enough to mitigate the negative sales pressure stemming from continued and escalating consumer duress,” said Robert Summers, an analyst at Pali Research, adding that the latest round of earnings data out of the grocers showed weak sales and margin declines across the board.

Widlitz also said the program could have a long-term impact on consumer habits.

“Why would I switch back to pay a premium for something when I can find out a really good bargain with great value?” said Widlitz. “I don’t think consumers’ habits will switch back.”

Shares of Family Dollar have risen more than 28% over the last 12 months, recently changing hands at $31.23, while the S&P 500 is down more than 23% over the last 12 months.

 

-By Kate Zhao, Dow Jones Newswires; 212-416-2665; ying.zhao@dowjones.com