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OIL INSIGHT | McMonigle: Saudi Arabia's Strategy? Ignore The Noise, Follow The Data

Takeaway: Saudi Arabia is winning as headline risk of emergency meetings overshadows market realities.

Editor's Note: Below is a research note on the oil industry and ongoing OPEC developments from Potomac Research Group Senior Energy analyst Joseph McMonigle.

 

OIL INSIGHT | McMonigle: Saudi Arabia's Strategy? Ignore The Noise, Follow The Data - oil image 2

 

Headline risks of an emergency OPEC meeting or consultations between OPEC and Non-OPEC producers have eclipsed market realities and resulted in recent volatility in oil prices.

 

Our message to investors? Ignore the noise and follow the data because that is exactly what Saudi Arabia is doing.

 

First, other OPEC members, namely Nigeria, Venezuela and Algeria, have been pushing for an emergency OPEC meeting to address low oil prices. The Gulf producers (Saudi, UAE, Kuwait) are opposed to such a meeting and would like to head off any special meetings before the regular OPEC meeting scheduled for June. We think the chance of an emergency meeting is slim. If there is a meeting, it will be just to talk. There is zero chance of a change in production.

 

Second, Russia has been pushing for a separate OPEC/non-OPEC meeting to discuss oil prices for some time. There is nothing new here. Saudi Arabia has been pretty consistent in their view: if there is a cut, everyone should participate. By everyone, they mean OPEC and non-OPEC. There may be a meeting – and we give it slightly better odds than an OPEC emergency meeting – but we think it is highly unlikely that an OPEC/Non-OPEC coordinated production cut results.

 

From Saudi Arabia’s viewpoint, their market share policy is winning. US production is slowing and forecast to drop by 700k to 1M bpd by year end. Except for Russia, other non-OPEC production is also affected. You could hear the cheers in Riyadh after ExxonMobil quarterly results were released: a 25% cap-ex cut, a hold on share buybacks and now facing a possible S&P credit rating downgrade. This is the type of data the Saudi’s are following.

 

Therefore, it's still too soon - all a production cut would do at this point is to throw a lifeline to US shale and other non-OPEC producers to increase production.

*  *  *

To read the full version of the client note, including our look ahead forecast for Saudi policy for 2016 and the outlook for the June and December OPEC meetings, please click here.

 

Click below to watch recent interview with McMonigle .

OIL INSIGHT | McMonigle: Saudi Arabia's Strategy? Ignore The Noise, Follow The Data - mcmonigle


ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16

Takeaway: In continued risk aversion, investors are piling into tax-free municipal bonds.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

In the 5-day period ending January 27th, investors returned to making contributions to equity ETFs with a +$2.0 billion net subscription and international equity funds also saw some interest with a +$1.3 billion inflow. However, the exodus from domestic equity funds continued with a -$6.2 billion outflow last week, negating total net inflows to the total equity category. Additionally, taxable bond funds continued to give up AUM, losing -$1.8 billion to withdrawals. The category has been taking it on the chin recently and has had only 23 weeks of positive inflows in the last 52 weeks. However, investor interest continues in tax-free bonds with investors making a positive contribution of +$856 million. Weekly average contributions in tax-free bonds are up over +200% in 2016, with a mean weekly contribution of +$1.1 billion thus far in the New Year versus the 2015 weekly average of +$314 million. Money funds saw a +$14 billion inflow during the week as investors also shored up cash.


ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI1

 

In the most recent 5-day period ending January 27th, total equity mutual funds put up net outflows of -$4.9 billion, trailing the year-to-date weekly average outflow of -$3.2 billion and the 2015 average outflow of -$1.5 billion. The outflow was composed of international stock fund contributions of +$1.3 billion and domestic stock fund withdrawals of -$6.2 billion. International equity funds have had positive flows in 41 of the last 52 weeks while domestic equity funds have had only 6 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$917 million, trailing the year-to-date weekly average outflow of -$834 million and the 2015 average outflow of -$463 million. The outflow was composed of tax-free or municipal bond funds contributions of +$856 million and taxable bond funds withdrawals of -$1.8 billion.

 

Equity ETFs had net subscriptions of +$2.0 billion, outpacing the year-to-date weekly average outflow of -$4.8 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$5.3 billion, outpacing the year-to-date weekly average inflow of +$2.7 billion and the 2015 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI2

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI3

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI4

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI5

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI12

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI13

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI14

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI15

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI7

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI8



Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the defensive utilities XLU and long treasuries TLT ETFs experienced the largest percentage inflows last week of +3% or +$180 million to the XLU and +3% or +$226 million to the TLT.

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI9



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI17

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$7.3 billion spread for the week (-$2.9 billion of total equity outflow net of the +$4.4 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$437 million (more positive money flow to equities) with a 52-week high of +$20.5 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI10

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | Tax-Free Municipal Flows Up Over +200% to Start '16 - ICI11 



Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA







[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds

Takeaway: Taxable bond funds are on the verge of setting new cyclical lows as fear spreads in corporate credit.

Editor's Note: This is a complimentary research note which was originally published January 28, 2016 by our Financials team. If you would like more info on how you can access our institutional research please email sales@hedgeye.com.

* * *

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

The ICI taxable bond category is a broad bucket which includes both government and corporate fixed income however what is undeniable is the continued and dramatic slough off in taxable bond fund flows in concert with the decline in demand for U.S. high yield credit. The 4-week moving average of ICI taxable bonds is threatening to set new cycle lows as non-investment grade bond performance threatens to take out 2008 price levels. 

 

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - JNK   Taxable bond flows

 

Net fund flows to bonds continued in the 5 days ending January 20th according to ICI with a -$6.6 billion outflow from equity mutual funds and ETFs and a +$1.4 billion inflow to net bond products making for a -$8.0 billion spread between equities and fixed income (negative numbers imply inflow into bonds). Interest in bonds this week was relegated solely to municipals with a +$1.0 billion subscription into the tax-free category and a +$3.2 billion inflow into fixed income ETFs (in continuation of a vehicle shift from mutual funds into passive ETFs in bonds). Taxable bonds lost another -$2.9 billion this week as investors avoided credit. Within equities, outflow continued in domestic mutual funds with another -$4.9 billion redemption this week, bringing the cumulative losses in the current streak of outflows to -$188.6 billion. With volatility remaining elevated, we expect these defensive trends to continue.

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI19

 

In the most recent 5-day period ending January 20th, total equity mutual funds put up net outflows of -$3.8 billion, trailing the year-to-date weekly average outflow of -$2.6 billion and the 2015 average outflow of -$1.5 billion. The net redemption was composed of international stock fund contributions of +$1.1 billion offset by domestic stock fund withdrawals of -$4.9 billion. International equity funds have had positive flows in 41 of the last 52 weeks while domestic equity funds have had only 7 weeks of positive flows over the past year.

 

Fixed income mutual funds put up net outflows of -$1.9 billion, trailing the year-to-date weekly average outflow of -$807 million and the 2015 average outflow of -$463 million. The outflow was composed of tax-free or municipal bond funds contributions of +$1.0 billion and taxable bond funds withdrawals of -$2.9 billion.

 

Equity ETFs had net redemptions of -$2.8 billion, outpacing the year-to-date weekly average outflow of -$7.0 billion but trailing the 2015 average inflow of +$2.8 billion. Fixed income ETFs had net inflows of +$3.3 billion, outpacing the year-to-date weekly average inflow of +$1.9 billion and the 2015 average inflow of +$1.0 billion.

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI1 normal 1 2

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.



Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2015 and the weekly year-to-date average for 2016:

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI2

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI3

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI4

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI5

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI6



Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI12

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI13

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI15

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI16



Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2015, and the weekly year-to-date average for 2016. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI7

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI8

 


Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, investors seeking safety poured +$817 million or 11% into the long treasury TLT ETF.

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI9 3



Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI17

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI18



Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a negative -$8.0 billion spread for the week (-$6.6 billion of total equity outflow net of the +$1.4 billion inflow to fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$549 million (more positive money flow to equities) with a 52-week high of +$20.5 billion (more positive money flow to equities) and a 52-week low of -$19.0 billion (negative numbers imply more positive money flow to bonds for the week.)

  

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI10

 


Exposures:
The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

[UNLOCKED] Fund Flow Survey | Bear Market in Taxable Bonds - ICI11 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

Initial Claims | The Labor Market is Getting Challenged

Takeaway: January Challenger job cuts rose +42% Y/Y. While job cuts continue in energy, they've also emerged in retail.

Initial Claims | The Labor Market is Getting Challenged - Claims1

 

 

Challenger Job Cut announcements moved up notably in January, as the below chart from our Macro Team shows. Energy jobs cut popped to 20,103 which is in-line with the fastest rates of job loss in Energy we've seen since the beginning of Energy's decline. While the energy sector's woes have been ongoing for some time, the newer development is the deterioration of non-energy labor conditions. Announced job cuts ex-energy were 55,011 in January, which brings the total announced cuts to 75,114, which is the highest level by far in the post crisis period, notwithstanding the one-off military related labor adjustment in July 2015. To put this in perspective, that brings total announced layoffs to +42% Y/Y in January with no underlying distortions present in the data. Outside of Energy, Retail was the second biggest loser with job cuts rising 15.5k Y/Y.

 

This emergent trend of worsening labor conditions is also manifest in the initial jobless claims data. Seasonally adjusted claims continued their upward trend last week, rising by 8k from the revised 277k to 285k, and the year-over-year rate of change in rolling NSA claims has essentially converged to zero, deteriorating from -3.2% in the previous week to just -0.8% in the latest week.

 

Initial Claims | The Labor Market is Getting Challenged - challenger

 

 

The Data

Prior to revision, initial jobless claims rose 7k to 285k from 278k WoW, as the prior week's number was revised down by -1k to 277k.

 

The headline (unrevised) number shows claims were higher by 8k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 2k WoW to 284.75k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -0.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -3.2%

 

Initial Claims | The Labor Market is Getting Challenged - Claims2

 

Initial Claims | The Labor Market is Getting Challenged - Claims3

 

Initial Claims | The Labor Market is Getting Challenged - Claims4

 

Initial Claims | The Labor Market is Getting Challenged - Claims5

 

Initial Claims | The Labor Market is Getting Challenged - Claims6

 

Initial Claims | The Labor Market is Getting Challenged - Claims7

 

Initial Claims | The Labor Market is Getting Challenged - Claims8

 

Initial Claims | The Labor Market is Getting Challenged - Claims9

 

Initial Claims | The Labor Market is Getting Challenged - Claims10

 

Initial Claims | The Labor Market is Getting Challenged - Claims11

 

Initial Claims | The Labor Market is Getting Challenged - Claims19

 

Yield Spreads

The 2-10 spread was flat WoW at 116 bps. 1Q16TD, the 2-10 spread is averaging 118 bps, which is lower by -18 bps relative to 4Q15.

 

Initial Claims | The Labor Market is Getting Challenged - Claims15

 

Initial Claims | The Labor Market is Getting Challenged - Claims16

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Perfect Storm

Client Talking Points

USD

The immediate term risk range for the USD is 96.99-98.99 (bullish). We keep getting asked…If this is the beginning of the end for the dollar?…Is the Fed going to devalue? It could happen but we would warn you what happened was much more of a perfect storm of a day trade in USD rather than a new trend signalling that the currency war is over. To break intermediate trend support you would have to break down below and sustain a level below 94 and that doesn’t look like its anywhere in the area code of working. 

NO #OPEC CUT

Recent rumors of emergency meetings and agreements with countries outside of OPEC on a production cut are just that.. Rumors. With the USD getting tagged for nearly 3% and a ten-year yield re-pricing #growthslowing at 1.87% this morning, central planning storytelling is the only game in town. Don’t mistake a short-covering rally for the new bull case. WTI is leading CRB divergences this morning, trading down -1.5%

S&P 500

We reitaertate there is a difference between a trade and a trend, we have been bearish on the S&P 500 since July of last year. Intra-day yesterday we got an oversold signal right around 1874, that doesn’t mean there’s  a new bull market for the S&P it just means it was a good signal. The immediate term risk range for the S&P 500 is 1855-1949 (bearish).

 

*Catch the replay The Macro Show with Hedgeye CEO Keith McCullough  - CLICK HERE

Asset Allocation

CASH 61% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 25% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
XLU

After a busy week of domestic data, you probably don’t need us to tell you that growth continues to slow. Despite the short-covering squeeze in energy stocks, Utilities (XLU) closed out January as the only sector in positive territory (+5%), other than Consumer Staples which eeked out a +0.5% gain. It was an awful start to the year for the S&P 500 (-5%). Don’t expect +10% of relative outperformance every month, but if you stuck with us on this trade, you’re in much better shape than most.

GIS

GIS remains one of our top Long ideas in the consumer staples space. As we have continued to say it boasts style factors that are ideal in turbulent times; high market cap, low beta and liquidity.

 

Recently, General Mills has been attacked by Chobani commercials, claiming that Yoplait yogurt contains the same ingredients used in pesticide. GIS filed a false advertising lawsuit against Chobani demanding that they stop showing that commercial because it could be detrimental to sales. GIS just got word that a federal judge has barred Chobani from continuing the ad campaign. This is a win for GIS, but it is unclear right now if there was any damage done to the brand. At this time we do not believe it had any serious impact on the company. We will keep you informed of any material information regarding this lawsuit as it moves forward.  

TLT

Long-Term Treasuries (TLT) continues to preserve capital against the slow-moving trainwreck in Junk Bonds (JNK). Week-over-week, 10-year bond yields crashed 13 basis points to 1.92%. That helped lift the best play on U.S. growth slowing (TLT) by 0.85% on the week as credit spreads continued to widen (JNK gained +0.76% on the week, underperforming TLT marginally on a relative basis).

Three for the Road

TWEET OF THE DAY

The #NetNeutrality Ruling: Implication For $NFLX $VZ $CHTR https://app.hedgeye.com/insights/48924-the-net-neutrality-ruling-potential-implications-for-netflix-verizon?type=video… @KeithMcCullough @PotomacResearch

@Hedgeye

QUOTE OF THE DAY

The very substance of the ambitious is merely the shadow of a dream.

William Shakespeare

STAT OF THE DAY

A survey given to 477 undergraduate and graduate students at three Bay Area campuses, found that just 6% of them knew how long they would be repaying their student loan debt and only 8% knew the interest rate on their loan.


KSS | …And This Is Only Stage 1 of 3

Takeaway: This is the 1st Stage of KSS EPS permanently being held below $4.00. Stage 2 goes to $3.25. Stage 3 = $2.50 and dividend cut.

All along we’ve been saying that KSS would never earn $4.00 again. While today’s rather dramatic guide-down will make this premise seem a reality for some doubters, what we find most interesting is that this is only midway through Stage 1 of what we think is a Three Stage process to KSS cutting its dividend. Here’s our thinking…

 

Stage 1: Weak sales results as a result of the fact that KSS sells less and less of what consumers want to buy. Sounds overly simple – but it’s reality. That flows through to the gross margin line as online sales cannibalize brick and mortar, and come at a gross margin 1000bps below the company average. True SG&A growth becomes apparent as credit income stops going up as newly emphasized non-credit/loyalty shoppers become a bigger mix of the pie due to launch of Yes2You rewards program.

 

Stage 2: Here’s where credit income (currently about 25% of EBIT) erodes WITHOUT a rollover in the broader credit cycle. The company’s much-touted (but ultimately fatally flawed) Yes2You rewards plan cannibalizes credit income as shoppers can move to a loyalty program that offers similar rewards to the branded credit card but gives the consumers the opportunity to get 2x the points. Once at KSS and once on a National Credit card. That takes SG&A growth, which has been artificially suppressed as credit sales grew from from 50% to 60%+ of total sales over a 5 year time period, from a run rate of 1% to 3%-4%. For a company that comps 1% in a good quarter, this is incredibly meaningful.

 

Stage 3: This is the doomsday scenario, and within the realm of possibility as the credit cycle rolls. On top of the self-inflicted pain we see in Stage 2, we see consumer spending dry up (sales weaken – down 5-10%), gross profit margins are down 2-3 points due to excess inventory, SG&A grows in the high single digits due to credit income (which is booked as an offset to SG&A) eroding, and EPS falls to $2.00-$2.50. Look at any data stream on the credit cycle and you will see that delinquencies and charge-offs are at pre-recession levels. Translate that to KSS, and it means that the credit portfolio is currently at its most profitable rate. Because the company shares in the risk/reward with its partner COF, any weakening in the consumer credit cycle exacerbates the problems brought on by Yes2You cannibalization and puts 25% of EBIT and half of the current FCF at risk. The result, cash flow dries up and by our math, cuts its dividend within 12-months.

 

Other Notables on The Release

The comp in this quarter missed, and believe it or not, the comps from here get much more difficult. This pre-announced $0.30 (7%) earnings miss for a fiscal year is monstrous. The last time a company with the cap and sales base that KSS owned (pre-blowup) missed at this magnitude in a fiscal year was back in 2012 at JCP under RonJon. Prior to that, we have to go all the way back to 2003 when TGT and KSS printed a miss of 11% and 8%, respectively.  

 

This is now the 5th straight quarter of positive SSS comps for a company that hasn’t put a string like this together since 3Q10 – 3Q11. By our math, given that e-commerce sales grew at 30%, brick and mortar comps were down 4% in the quarter. Gross margins were down to the magnitude of 100bps+ assuming SG&A growth of 3-4%.


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