Retail: Asking the Wrong Questions

It doesn’t come as a surprise that the biggest question we’ve been asked over the past few days relate to the magnitude and sustainability of retail sales growth.  


Was it a good holiday? Relative to expectations, it probably was. But what we do not know (because retail CFOs have not said so…) is how much discounting needed to be done in order to drive the sales. We’ll find that out by mid-late Jan after everyone has all their double-secret one-on-ones with retail CFO/CEOs at the ICR conference.


We can talk about weather, deferred wardrobe building, a marginal pick-up in men’s, tax stimulus, change in unemployment, or even portfolio dressing and tax-loss selling.  But the reality is that an attempt to quantify the mixture of these factors – along with rapid changes in global macro cross currents -- over such a short duration misses the bigger point.


That is – by far – when the consumption gap between spending and COGS starts to squeeze the supply chain, and therefore margins. We’ve been all over this for the past few months, but consider the milestones.

  1. Black Friday holiday sales. DONE
  2. POS sales receipts from third party vendors: NPD, Credit card companies, etc…  DONE.
  3. (Note that the earlier milestones have everything to do with top line, and nada as it relates to margins.
  4. December Sales calls: Thurs Jan 3. This will be the first glimpse at how December shaped up.
  5. ICR Conference: Jan 11th – 13th. This is the mother of all conferences where buy-side and sell-side alike can pummel over a hundred management teams for incremental info.
  6. Jan 31: Retail calendar ends.
  7. Late Feb – reporting season with first glimpse of downwards revisions.
  8. March-May: finally selling goods made with higher-priced cotton.

Check out our SIGMA below. If you don’t understand it, please ask us. This is a VERY important one as EVERY metric on that chart (Sales/Inventory Spread, GM%, SG&A Leverage, Capex) is heading in the wrong direction.

The punchline is that we’ve just seen a definitive turn down into the quadrant whereby retailers need to be VERY smart about planning inventory and sales campaigns, or simply hold their breath and pray that the consumer shows up.


There’s going to be plenty of pin action in the first half of 2011.


Retail: Asking the Wrong Questions - Industry SIGMA Q3 2010 12 10



Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more