COGS up 540 bps and SG&A down 610 basis points – You can only cut SG&A so much to make up for lower gross margins!. Despite incremental promotional expenses and a new manufacturing facility in TN, the company expects to get additional leverage on SG&A in 2009.
I still contend that by Q4 the signs of stress will be much more evident that they are today.
Did I mention they don’t generate enough operating cash flow to cover their capital needs and the stock trades at 17x EV/EBITDA!
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Weekly jobless claims spiked this morning up to 448,000, taking the 4 week moving average up for the 2nd week in a row to 393,000. In order to understand macro, I always look back before I take a shot at looking forward. In a historical context to prior US recessions and consumer spending depressions (1), this run rate of unemployment claims is alarming.
Peaks in jobless claims in 1990 and 2001 were reported at 500,000 and 480,000, respectively. There is little doubt in my mind that this cycle sees those prints. The big question is can the US employment picture deteriorate to the 560,000 and 620,000 levels in claims that we saw at the peaks of 1972-74 and 1981-83 cycles, respectively.
The US Consumer is hostage to deteriorating RIPTE “Trends” until the facts bear out otherwise.
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