Coca-Cola  executives ignited a firestorm with their new compensation plan. According to David Winter of the Wintergreen Fund, it is "an unnecessarily large transfer of wealth from Coca-Cola's shareholders to members of the Company's management team." According to Shane Parrish, author of the excellent Farnam Street blog, "Coke is using somewhat fuzzy thinking to justify generous equity granting practices, and Mr. Winters is using some fuzzy thinking to help rally shareholders to the cause." So clearly there is some controversy. 

Berkshire Hathaway owns 9.1% of Coca-Cola's shares, and Warren Buffett, a longtime critic of overpaid management, abstained from voting Berkshire's shares on the compensation issue. That raises the question of why? 

Fortunately, the first question at Berkshire's annual meeting (from Carol Loomis of Fortune magazine) was about Coca-Cola's compensation. Below are my notes on Carol's questions, along with responses from Warren and Charlie Munger, Berkshire's Vice Chairman. 

Carol Loomis: Coca-Cola has an excessive compensation plan, but you didn't tell shareholders before the meeting. Had it been disclosed earlier, we might have voted differently. You abstained, and you must have your reasons. Why did you engage in this strange and un-Buffett-like behavior?

Warren Buffett: Some people think that strange and un-Buffett-like are not different. The proposal was made by a shareholder opposed to the option program. His calculations of dilution were wildly off, and we didn't care to get into a discussion of that.

But I did talk to Muhtar Kent [CEO of Coca-Cola], and I told him that we would abstain. I told him that I admired the company, but the compensation was excessive. Immediately after, we announced that we had abstained and explained why. I think that is the most effective way of behaving for Berkshire.

We made a very clear statement about the excessiveness of the plan, but without going to war with Coca-Cola. And, we didn't endorse inaccurate calculations, or join forces with someone that I hadn't interacted with. If you're going to war, you want to know what that alliance might be. I think the best outcome was achieved by our abstention.

Charlie Munger: I think you handled the whole situation very well.

Buffett: Charlie was the only person that I discussed the vote with beforehand. I told him about the plan, and we agreed on the course of action.

In fairness to David Winters, he took figures from the Coca-Cola proxy statement, but for those of you that would like to think it through... Coca-Cola has regularly repurchased shares issued by options, so the share count has come down a little. The plan is 500 million shares, and they expect to issue them over four years (leaving out the difference between performance shares and options). Let's assume Coca-Cola is $40 per share, and all options are issued at $40 strike, and when they are exercised, the stock is $60 per share. At that point, there has been a $10 billion transfer of value. Now, the company gets a tax deduction of $10 billion; at present rates, that would result in $3.5 billion in tax savings. Add in $20 billion for the exercise of options, and Coca-Cola will receive $23.5 billion. So at $60 per share, KO could buy back a lot of shares -- 392 million shares. So the dilution would be 108 million shares, or 2.5% dilution.

I don't like it, but it's not as bad as has been suggested.

Clearly, Buffett doesn't like the compensation plan, but it's not as bad as critics have suggested. And, in Buffett's mind, it's not worth "going to war" with management over. Admittedly, I would have liked to see Buffett take a stronger stance; but, after hearing his reasoning, I understand it.

Whispers around Nike dismantling its FuelBand hardware team caused the wearable-tech world to fear that health-monitoring wristbands, a major component of the emerging wearables market, are facing a downward spiral. Nike is not giving up on activity tracking, altogether. It's shifting its focus to software instead. 

While wearables are hot right now, there are still in their infancy. In terms of consumer adoption, there is plenty of room to gallop. Research firm BI Intelligence believes that activity trackers and fitness bands will be the devices that push wearables into the mainstream. However, these devices have so far failed to live up to analysts' expectations sales-wise, raising a red flag for the category as a whole. Not to mention, more than half of U.S. consumers who have owned a fitness tracker no longer use it, according to a white paper from Endeavor Partners.

Did Nike make the right decision to phase out the FuelBand? More importantly, what needs to be done for activity bands to be widely accepted as gadgets we can't live without?

Nike shifting away from hardware is good news for Nike and Apple...

If we take a look at the wearables landscape so far, we'll see that health and fitness trackers from the likes of Nike, Jawbone, and Fitbit occupy the largest space. The second and less prominent segment of the wearables market consists of smart watches. The third segment includes augmented-reality devices like Google Glass.

Nike claimed just 10% of the market for fitness trackers sold during the past year through third-party retailers and e-commerce outlets such as Best Buy, Wal-Mart, and Amazon. That was a distant third behind Fitbit, which dominated the market with an almost 70% share, and Jawbone, which scored a 19% share, based on NPD Group's latest figures.

Moreover, unlike wearables such as Google Glass, which function independent of any other device, these gadgets operate partially stand-alone. They achieve full functionality only when connected to a smartphone, tablet, or personal computer. To put in other words, they don't have a real reason to exist. This is partly why many early adopters stop using them after a while.

For Nike, it's likely that there's more money to be made in setting its sights on further developing its software and trying to lure hardware experts with solutions that outclass what's already offered in the market. Being an app that can run on everything could prove to be a more lucrative alternative.

A new deal with Apple , which is getting ready to enter the wearables ring, might already be in the works.

"I will say that the relationship between Nike and Apple will continue," Nike CEO Mike Parker told CNBC when asked about a partnership with Apple. "And I am personally, as we all are at Nike, very excited about what's to come."

...but not for wearables as a whole

Overall, for fitness bands to achieve what they're meant to achieve - namely, push wearables into the mainstream - the biggest challenge they face is finding a reason to exist, other than being a state-of-the-art pedometer that can easily be replaced by a smartphone. That is, if fitness bands, and wearable-tech gadgets in general, are truly ever going to reach long-term utilization, both the hardware and software ends need to get a whole lot more sophisticated and smarter. Key players will have to excel at both. 

A recent Financial Times article pointed out that smaller players have made a similar shift from fitness bracelets to just building apps for the iPhone 5s, since limited hardware capabilities within the nascent wrist-worn space posed several challenges. But isn't this a step backwards?

As Jawbone CEO Hosain Rahman explained during TechCrunch Disrupt NY a couple of days ago, when it comes to wearables, marrying explicit design with function and incorporating innovative software into an equally innovative physical experience is what adds value for the consumer. The ultimate goal should be to service a more comprehensive user experience, not just satisfy a mild curiosity in a new technology.

Final thought

Nike's decision to redeploy its efforts away from hardware toward apps could indicate and even fuel a broader trend among fitness trackers to content themselves with linking to, syncing with, or working alongside a smartphone. If that's the case, the size, scope and future profitability of wearables could be in jeopardy. 

Disney's Magic Kingdom got a bit more expensive this year. Source: Disney.

The news wasn't announced with a Disney press release. But it did turn a few heads when the company boosted theme park ticket prices back in February. The fee for admission into the Magic Kingdom crept up to $99 from $96, and other parks saw a similar bump.

That move was odd for at least two reasons. First, the House of Mouse often raises prices closer to the summer months, right before the crush of tourists hits. Second, the talk at the time was all about just how weak the outlook was for consumer spending in the year ahead. It seemed like a tricky time to be asking for more cash from your customers.

Now we know why Disney decided to increase those theme park prices anyway: Because it could. 

Magical earnings
The company announced blockbuster quarterly earnings results this week, with most of the press attention going to the Frozen-fueled spike in studio profits. That's understandable. The theater business unit leapt up three spots to become Disney's second most profitable division behind only its media business, which is the home of ESPN. 

Profit in millions. Source: Disney financial filings.

But the parks and resorts arm is still worth almost a third of Disney's total revenue, and its numbers were just as impressive. Profit leapt higher by 19% on an 8% boost in sales, the company said. However, those figures actually understate the division's earning power, courtesy of a calendar shift that cut out one week of the Easter holiday from this year's results. Account for that shift, and parks and resorts income would have been up a massive 31% last quarter.

Here's how Disney explained the improvement in its earnings announcement:

Higher operating income was due to growth at our domestic parks and resorts driven by increased guest spending at Walt Disney World Resort, higher attendance at Disneyland Resort and increased occupied room nights at both resorts. Higher guest spending was due to higher average ticket prices and food, beverage and merchandise spending. 

In other words, Disney exercised its pricing power modestly in the quarter and customers responded -- by purchasing more of what the House of Mouse was selling.

What it all means
Investors have to be happy about that result, as it means Disney's prices are nowhere near the level where they'd start to hurt customer demand at the parks. And that business is much more reliable than movies, anyway, where one flop can offset a whole year's profits.

The bottom line for shareholders is that while Disney's movie business can sometimes book great quarters like the one that just ended, theme parks are a much more consistent contributor, with a lot of growth left to kick in over the years ahead.

Source: Whole Foods.

 stock fell by a whopping 19% on Wednesday after the supermarket chain released disappointing results for the quarter ended on April 13. Increased competition from players such as Wal-Mart and Sprouts Farmers Market  represents a considerable challenge for Whole Foods. On the other hand, the company is still the quality leader in a growing niche.

Is the dip in Whole Foods a buying opportunity for investors, or is this a declining business?

Total sales during the quarter increased by 10% to $3.32 billion, while comparable-store sales grew 4.5% versus the same period in 2013. This was lower than the Wall Street estimate of $3.34 billion in revenue, and also a deceleration in growth versus prior quarters.

Profit margins were under pressure during the quarter: gross profit margin fell by 51 basis points to 35.9% of revenue, while store contribution margin decreased 41 basis points to 10.6% of sales. Earnings per share came in at $0.38, flat versus the same quarter in 2013 and significantly below the consensus estimate of $0.41 per share.

In addition, Whole Foods reduced its guidance for the third consecutive quarter. The company now expects sales growth of between 10.5% and 11% in 2014, versus a previous guidance in the range of 11% to 12%. Guidance for earnings-per-share growth was also cut from between 7% and 12% to between 3% and 6%.

Whole Foods is still performing better than most competitors in the grocery business when comparing sales and profitability. However, considering that this is the third straight quarter in which the company reported disappointing results, recent weakness seems to be more than just a small bump in the road.

Natural and organic foods has been a profitable high-growth niche in the otherwise lackluster groceries business over the last several years, and Whole Foods has benefited significantly from that trend. But success attracts competition, and both traditional retailers such as Wal-Mart and focused players like Sprouts Farmers Market are increasing their competitive pressure.

Wal-Mart has been growing its presence in the segment lately, and recently announced it would relaunch Wild Oats, a line of organic food products that is focused on providing competitively low prices in the category.

Wal-Mart estimates consumers will save nearly 25% on their grocery bill when purchasing Wild Oats products versus other organic brands, and this sounds like a smart proposition considering recent industry trends. While demand for natural and organic food has been steadily growing over the years, one of the biggest disadvantages for consumers is the higher price tag that comes with these products.

Sprouts Farmers Market is materially smaller than Whole Foods, but the company´s slogan, "Healthy Living for Less," is quite clear on the fact that Sprouts is willing to offer lower prices in order to compete for market share.

Sprouts Farmers Market reported earnings for the first quarter of 2014 on Thursday, and the company delivered a big increase of 26% in total revenue to $722.6 million. This was fueled by a 12.8% rise in same-store sales, so Sprouts Farmers Market seems to be succeeding in its attempts to outgrow bigger industry players such as Whole Foods.

Whole Foods management acknowledges that competition is increasing from multiple fronts, and the company plans to tackle the threat by cutting prices and improving the customer experience and overall differentiation.

Wal-Mart has a gross profit margin in the area of 25% of sales, while Sprouts Farmers Market announced a gross margin of 31% for the last quarter. This is considerably lower than the gross margin near 36% reported by Whole Foods in the latest earnings release.

As Whole Foods expands into lower-income areas, the company will need to continue making "price investments" to attract customers, so profit margins will likely remain under pressure in the coming quarters.

Whole Foods is arguably a victim of its own success, attracting competition. There's still a lot of growth left in the industry and the healthy-eating trend is providing a strong secular tailwind for different players.

Management estimates that Whole Foods itself can build 1,200 stores in the U.S. alone, versus a current base of 379 locations.

Whole Foods is doing the right thing by betting on long-term growth opportunities and lowering prices to protect market share and capitalize on the trend toward healthier eating habits, even if this means lower profit margins in the short term.

Whole Foods faces increased competitive pressure; however, the company continues to benefit from growing demand for organic and natural foods. Brand differentiation and a reputation for quality should provide some competitive protection for Whole Foods as the company continues closing the price gap with its competitors. This long-term growth story still looks quite healthy.

Over the last year, Ruby Tuesday has completely rejuvenated its brand, offering a new menu to complement heavy and aggressive marketing campaigns. In the last month, Ruby Tuesday has given us reason to believe that its efforts are paying off. Yet, while many now think it's a good recovery investment, should investors jump on board or stick with the likes of Buffalo Wild Wings or Darden Restaurants ?

Back on track?
Since 2011, Ruby Tuesday has lost about half its valuation. In the last month, however, shares have appreciated by 40%, led by a better-than-expected first-quarter earnings report. In that quarter, revenue fell nearly 4% to $295.8 million. However, same-store sales really excited investors, as they fell just 2% versus a near 8% drop in the three months prior. Therefore, many are convinced that Ruby Tuesday is on the right track and might have found the recipe for a full blown stock recovery.

In retrospect, a 2% decline in same-store sales during a rough first quarter (due to bad weather) is rather impressive considering what we've seen in this space. Certainly, there were restaurants that thrived, such as Buffalo Wild Wings, which saw its same-store sales increase 6.6% in the period. However, that is the exception: Darden, led by Olive Garden and weighed down by Red Lobster, saw considerably worse quarterly results.

Specifically, in January and February, Olive Garden's same-store traffic fell 4.6% and 4.9%, respectively. In the same period, Red Lobster's traffic declined 18.7% and 11.9%, respectively, in the first two months. So, in looking throughout the industry, Ruby Tuesday's performance is somewhere in the middle. But is its valuation?

Where is Ruby Tuesday valued?
Buffalo Wild Wings trades at a rather lofty 2 times sales multiple and 25 times next year's earnings, and rightfully so; the company has earned it. Buffalo Wild Wings has become a legitimate growth company in a casual-dining space that has lost momentum thanks to the rise of fast-casual chains.

Darden, clearly a troubled company, trades at just 0.7 times sales and 17.5 times next year's earnings. Granted, the company also pays a 4.4% forward annual dividend, meaning its valuation is likely inflated slightly more than it deserves. Nonetheless, the gap between Buffalo Wild Wings and Darden represents the range of casual-dining stocks, essentially implying that a company such as Ruby Tuesday, fundamentally in the middle, should also trade somewhere in this range.

Instead, Ruby Tuesday trades at just 0.4 times sales, a near 50% discount to Darden. However, Ruby Tuesday is not profitable, having an operating margin of negative 0.5%, which is in large part due to the restructuring and new marketing concepts. In 2011, Ruby Tuesday had an operating margin of 4.5%, comparable to Darden; but after a 50% increase in selling, general, and administrative costs since 2011, margins have visibly declined.

Fortunately, Ruby Tuesday's margins will likely improve as the company's new concept becomes complete; that should leave it as a company trading at a near 50% discount to Darden relative to both revenue and earnings. Therefore, one could conclude that based on this alone, Ruby Tuesday is in fact presenting value.

Final thoughts
For investors, we are assuming that Ruby Tuesday is presenting value based on both its recent earning reports and the likely scenario of declining costs associated with the conclusion of its restructuring program. The one thing that's impossible to know is whether Ruby Tuesday's efforts will pay off in the form of growing comparable-store sales or if the first quarter was a fluke.

However, in using the first quarter as a guide, there is clearly growing momentum in the company's stores, at least currently. Based on this fact, and the cheapness of its stock, Ruby Tuesday's reward might be worth the risk. Because if Ruby Tuesday does in fact see year-over-year growth with a return to profitability, it has a lot of room in front of it before falling in the range provided by Darden and Buffalo Wild Wings.

Source: Wikimedia Commons

Heading into earnings, investors holding shares of J.C. Penney are probably feeling pretty nervous. Over the past few years, the retailer has been struggling with declining sales and consecutive annual losses, each year worse than the last.

Now, with the company teetering between recovery and financial distress, it's very possible that this upcoming earnings release will give investors some insight into what the future holds for the business. Will this quarter signal a definitive turnaround, or should investors consider looking to Macy's or Kohl's for a brighter future?

Mr. Market seems cautiously optimistic on the retailer
For the quarter, analysts expect J.C. Penney's management team to report revenue of $2.71 billion. If these forecasts are correct, this will signal a modest 3% gain compared to the $2.64 billion the company reported in the same quarter a year earlier and would most likely be due to a rise in comparable-store sales as customers return to the once high-flying retailer.

From a profitability perspective, Mr. Market also hopes to see some improvements compared to what the company reported last year. If the turnaround is going as well as what analysts perceive, J.C. Penney will report a loss of $1.25 per share for the quarter. Admittedly, this is far from ideal, as investors would much rather see a net gain. But even a loss of this magnitude, which would equate to an aggregate loss of $381 million, would be better than the $1.58 per share loss seen during the same quarter last year.

A nice earnings release could be a sign of a definitive turnaround
The past five years have not been particularly kind to investors owning a piece of J.C. Penney. Between 2009 and 2013, the company's revenue fell a jaw-dropping 32% from $17.6 billion to $11.9 billion. After a management shakeup, Ron Johnson, the CEO a that time, instituted a series of plans to turn the company from a stagnating business to a thriving enterprise.

Unfortunately, these plans, which included cutting off the company's coupon program and switching up its store format, resulted in a significant customer exodus. This, in turn, caused the company's fall in revenue and turned its net gain of $251 million in 2009 into a net loss of $1.4 billion by the end of its 2013 fiscal year.

Source: J.C. Penney

It was during this time that the board of directors threw Johnson out of the company and reinstated Mike Ullman as the top executive. Under Ullman's leadership, J.C. Penney continued posting losses but began, last October, seeing comparable-store sales rise. Due to Ullman's decision to begin providing coupons and his more interesting choice to continue growing the company's store-within-a-store concept championed by Johnson, the business earned $0.11 in the fourth quarter of its 2013 fiscal year, far better than the $0.82 loss analysts expected.

Are there better long-term picks than J.C. Penney?
If management can turn the company around and begin posting annual net gains and improving revenue metrics, J.C. Penney could end up being an attractive play for the Foolish investor. However, as a turnaround, the business does provide a lot of downside risk, especially when placed next to rivals like Macy's and Kohl's.

Over the past five years, Kohl's has done alright for itself. Between 2009 and 2013, the company saw its sales rise 11% from $17.2 billion to $19 billion. This sales increase was partially due to a 4% aggregate rise in comparable-store sales but was mostly due to a 9% increase in store count from 1,058 in 2009 to 1,158 by year-end 2013.

J.C. Penney revenue (annual) data by YCharts

Even though this is significantly better than J.C. Penney's performance, the company's profitability did suffer as a result. During this five-year period, Kohl's reported a 9% decline in net income from $973 million to $889 million, as higher costs stifled its ability to create value.

Over the past five years, the best performer has been, without a doubt, Macy's. During this time frame, the retailer saw sales climb 19% from $23.5 billion to $27.9 billion. Despite being negatively affected by a 1% drop in store count, Macy's benefited greatly from a 23% rise in comparable-store sales.

In addition to higher sales, Macy's reported a phenomenal growth rate in net income over this period. Between 2009 and 2013, the business saw net income soar 352% from $329 million to $1.5 billion. This was due, in part, to the company's rising sales. But it can also be chalked up to lower costs, primarily in the business' interest expense, which fell from 2.4% of sales to 1.4%, and its selling, general, and administrative expenses, which dropped from 34.3% of sales to 30.2%.

Foolish takeaway
Going into earnings, Mr. Market has higher hopes for J.C. Penney, but its expectations are also cautious given the company's recent performance. If management can meet or surpass sales and earnings estimates, it could be a sign that the company is well on its way back up to the former glory it once had. But any shortfall could harm the already fragile trust of the retailer's shareholders.

For investors who don't believe in the company's ability to achieve a full-fledged turnaround, both Kohl's and Macy's might make for more appealing opportunities. Both have sported revenue growth over the past few years, and Macy's in particular has seen some tremendous bottom-line expansion. This could make either enterprise a more stable and successful long-term prospect than J.C. Penney but would have the downside of smaller returns if their struggling peer does end up making a comeback.