Planet Hollywood's Bear's Rebuttal
by Bill Barker [email protected]

Regarding Planet Hollywood's abysmal same-store sales numbers, Rick writes that, "This is Michael Jordan on an off-day -- shooting just 25 points." I beg to differ. This is Michael Jordan playing baseball -- a doomed-from-the-start spectacle that lots of people paid to see at first, but probably only once, because the poor quality of the show didn't justify the time or the price, even if there was a famous and worshipped name attached to it.

According to one of the better books you'll ever read on sports and neurology, the reason Why Michael Couldn't Hit was that he simply tried to learn the necessary survival skills after it was too late to do so. Despite being one of the most extraordinary athletes alive, there was no way that he could have learned to hit major (or even minor) league pitching because the specific skills to successfully compete had to be learned much earlier than he attempted.

So I agree when Rick writes, "Planet Hollywood was never a slave to edibles," but I think in respect to a company that is primarily about restaurants that that's damning with faint praise. It shows why Planet Hollywood's career might not be too much longer or more successful than Jordan's baseball life. It's easy to say that all Planet Hollywood has to do now is learn how to serve a decent meal. Seven years into its business plan, management only now says it's going to turn its attention to bettering the menu. You have to laugh at that. Maybe even guffaw or convulse or, if you are a shareholder, cry.

Just as Warren Buffett has said that quality management does not one day wake up and all of a sudden say, "Today we're going to start cutting costs," so too is it untenable to now expect quality food from a restaurant that forgot about that little element at the beginning. An even greater hurdle will be to live down its past and convince patrons that it is a changed restaurant.

Rick predicts earnings per share of $1.00-$1.50 two years out, or roughly four times this year's consensus expected earnings and three times next year's. But with Planet Hollywood on the hook for $250 million in debt, paying a 12% interest rate while showing a company-wide return on equity of about 3%, and already taking charges for restaurants that today are losing money, I'd say that the visibility on improving earnings at all is currently obscured by heavy fog. All of which reminds me of another fog-surrounded scene ending another Hollywood story, featuring another Rick making predictions about the future. In that famous last scene of Casablanca, Rick Blaine's memorable prediction was something like, "If you don't get out of this stock -- you'll regret it. Maybe not today. Maybe not tomorrow. But soon, and for the rest of your life." Because unlike Rick and Elsa, my prediction is that Planet Hollywood will not always have Paris. Or Geneva. Or Aspen. Or...

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