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Over the past month, we've seen the greatest disconnect between softline EPS revisions and stock price performance in almost 10 years. The market is suggesting that EPS has bottomed for the group at large (except for J Crew, which just blew up). You know my take -- margins are still coming down by at least another 3 points for this industry over 3 years. The 'trend' is awful. But we also need to at least respect the 'trade', which (selectively) is not half bad.
  • The earnings revision model in the first exhibit has historically been super tight as it relates to synching revisions with the stocks. But in April it started to break down, and now we're starting to see an inverse relationship. There's a million ways to attempt to explain this, but I think one clear point is that there is a growing contingent looking at easy compares in 2H08 and the prospect that revisions have finally bottomed.
  • After looking at the rate of change, let's simply take a look at the next 12-month consensus EPS growth rate for the Softlines group. A year ago we were looking at consensus growth expectations of about 20% -- that since dropped like a stone. We're now looking at forward growth expectations of about 4%. The only time in over 10 years we saw numbers this low was for about a month circa Sept 2001.
  • Even more bullish is that we've got a troughy 13.4x P/E on trough growth expectations. More important is that the 2-year forward growth outlook is only 6%. Usually we see sell side estimates ramp up materially (i.e. 20% plus) after a bad year. But at least directionally, the sell side is starting to get it.