Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT

Takeaway: We're net sellers of Retail.

We'll leave all the Black Friday chest-thumping and cherry-picking to Wall Street and the mainstream media. The outlook for the Retail sector isn't pretty.

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - Retail cartoon 12.01.2014

 

Below is an excerpt from a detailed research note written by Hedgeye Retail analyst Brian McGough sent to institutional subscribers earlier this morning:

 

"... We’re happy to get into the debate about how crowded the parking lot was at the mall this weekend, but it’s nowhere near as relevant as the current profitability growth trajectory for Retail, and the consensus expectations for the group as we head into 2016.

 

The good news is that 4Q [consensus] sales estimates look only slightly high. The bad news is that margins expectations are still 50-100bps high for the group. The worse news is that the Street’s numbers are banking on a recovery in growth and margin starting in 1Q16. In other words, it’s chalking up this ‘thing’ retailers are feeling now as exactly what management teams want us all to believe – while they cross their fingers, hope and pray that the economy is not really slowing.

 

The group might be viewed as damaged goods in this market, but keep in mind that it’s only down 4.3% for the YTD vs a 1.5% gain for the market – not a big difference. It’s trading at 18-19x earnings, and has short interest that is disproportionately low for an economy that is #LateCycle. We’re net sellers of Retail."

 

To be clear, McGough and his team currently have twelve short ideas and six longs.

 

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - BF

 

If you were watching Thursday and Friday's morning business news, you probably noticed the non-stop coverage of Black Friday sales. For the record, McGough puts this comparatively modest post-Thanksgiving shopping into perspective:

 

"... I think most of us would agree that basing one’s view on a small handful of stores is a pretty useless exercise given that there are about 1,100 regional malls and 7,100 shopping centers in the US, which combined account for $5.3 trillion annually, $2.5 trillion in discretionary spending -- nearly $300 billion of that falls in the month of December alone." 

 

Forget About Black Friday... The Outlook For Retail Isn't Good | $XRT  - XRT

 

Forget about Wall Street's Black Friday storytelling. It's almost immaterial in the grand scheme of things.

 

Moreover, watch out over the next few quarters. The U.S. economy IS slowing. As this evolves, a clear, yet underappreciated, trend is developing among Retail stocks...

 

And it's Down, Down, Down. 

 

 

Editor's Note: To access McGough's Retail sector research email sales@hedgeye.com


Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more