The Daily Dose: Retail Needs the Springtime

 | Apr 02, 2014 | 1:00 PM EDT
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"And I miss you like the desert misses the rain."

 -- Everything but the Girl

Feels like yesterday I had that quasi dance tune pumping through 12-inch Rockford subs hooked up to a sweet Alpine amp from Circuit City. During the drive home last night in my more adult buggy, that song came back on the airwaves. It made me think about what I have been missing lately with individual companies I stalk, namely going into the field and then grilling executives. Here are a few scribbles from my notepad:

lululemon athletica (LULU): Because of my harsh criticism of the company for over a year as the stock has underperformed the major equity indices and key names in specialty retailing, executives have shut me out. I will keep trying to extend the olive branch to the new team, but in the meantime I am relegated to observations in the store in order to make buy, sell or hold decisions on the stock. lululemon's shares have received a couple of brokerage upgrades after its recent earnings report, but keep in mind that there is tsunami of new athletic apparel penetrating the mall and off-mall scenes. When you visit the stores this weekend, start counting the number of bright offerings from competitors, all of which have raised their games from when lululemon was first founded. Give me some same-store sales acceleration to reverse course in terms of a rating.

Urban Outfitters (URBN): Until the namesake brand turns from a same-store sales perspective, I cannot get behind the stock. This is especially true in light of sales growth moderating at the premium brands in the company's stable, Free People and Anthropologie. To fix a brand that in my view is failing, Urban Outfitters needs better quality merchandise at lower price points, and that will be initially unfavorable to operating margin.

State of retail, right now: The more teams I chat with, this much is becoming clear: Spring has to arrive in a big way in the next four weeks, or else "conservative" sales and earnings guidance ranges won't be so conservative. From my viewpoint, consumers continue to wait to buy non-essential goods until those goods are absolutely essential, and by then, the retailer has had to step outside of its promotional comfort zone. By the way, I remain negative on Target (TGT).

As I noted on Monday, to be a believer in any market rally after the topsy-turviness of a week ago, momentum names (notably biotechs and other Nasdaq stocks) would have to come into favor once again. That appears to be unfolding on lukewarm reads on the economy as we enter April. The overall assessment is that this lukewarm economic data will morph into warm data that beats consensus for April reports.

Try This at Home

I'm working on something to hit on Friday morning regarding the economy. Try this: Do a Google query on "bankruptcy" and compare it with the action in the major stock indices, using a six-month window. Interesting, right?

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