- Does this change my mind on the 1-2 year call? No. In fact, with the sales in department stores having stabilized relative to this time last year (See my 7/30 post), my sense is that LIZ is using on-line clearance channels to a greater extent than funding markdowns on the product to retailers.
- Nonetheless, anything that is 80% off in retail is nothing short of pathetic. Mizrahi has his job cut out for him. The good news is that the brand has sunken so low that if he hits a fashion trend – even if by accident – then it’s a big potential margin event.
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Today, Bloomberg reported that according to the Experian Group Ltd., British consumers made fewer visits to retail outlets in July, the third consecutive fall, as fears of an economic decline and rising energy and household bills deterred shoppers. Retail visits fell 2.6% from a year earlier and Experian forecasts sales volumes in the next 12 months will be ``the slowest period since the early 1990s.”
- McDonald’s management said on its recent 2Q08 earnings call that “even in spite of declining consumer confidence in the U.K., our sales, our guest counts, and our margins continued to grow in the second quarter and were a strong overall contributor to our overall results.”
- It is important to remember that MCD stated on its 4Q07 conference call back in January that “historically though McDonald's has not been as affected by a slowdown in consumer spending as other retailers because of our everyday affordability.” Although MCD’s U.S. comparable sales have held up relative to other restaurant companies after flattening in December and then turning slightly negative in March, its margins have suffered significantly (down every quarter since 1Q07). MCD’s U.S. margins have been hurt as more of its customers use the Dollar Menu. In 2Q, U.S same-store sales were up 3.4% with guest counts accounting for 75% of the growth. Pricing was up 4%, which implies negative mix or some trading down. MCD’s U.S business has been impacted by the economy and signs of a weakened economy in the U.K. will inevitably emerge in MCD’s Europe results as the U.K., France and Germany account for two-thirds of MCD’s operating income in Europe.
Everything levered to cheap money has either crashed, or is in the midst of crashing. Commodities of course were the hold out, until they had their worst month in 28 years (July).
In a market where access to capital continues to tighten alongside cost of capital rising, CASH IS KING.
- Keith R. McCullough
Chief Investment Officer
Research Edge, LLC
After this week's alarming Japanese economic data, I am much more comfortable being outright short Japan, than hedged with a qualitative catalyst, like China's upcoming Olympics.
China led Asian advancers overnight, closing up another +0.94% at 2939 on the Shanghai Index, which has equated to a +5.7% advance since July 1st, outperforming most major asset classes, globally, for the month.
Buy low, Sell High.
*Full Disclosure: I sold my FXI this morning into a strong open.
(chart courtesy of stockcharts.com)
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