Retail's News Just Isn't Good Enough

 | Jun 06, 2013 | 2:02 PM EDT
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What makes someone like me skittish about the stock market? First, I am a sector-by-sector, bottoms-up guy, meaning that I don't take much stock in various broad government numbers, except the employment number we get tomorrow, as that is very important for the market. I don't care all that much about the charts, but I respect what they say.

In reality, though, I care about what the companies are telling us, and I try to form a worldview, an outlook based on what real business people -- not politicians, bureaucrats, strategists or chartists -- tell me. That way I am more certain in my convictions and I feel grounded. I always say that you need to be confident in your choices, and I don't care how you make those choices. Chartists like to look at pictographs. That floats their boat. Big macro thinkers like all of that data. I like the conference calls, the earnings reports and the research, and, alas, I haven't liked what I have heard of late, particularly in retail.

Take last night. We got earnings reports from four retailers, and three were just plain disappointing: Vera Bradley (VRA), Francesca's (FRAN) and Ascena Retail Group (ASNA). Now we have not been a fan of Vera Bradley, the women's accessory store, and we actually had put it in our "sell block" not all that long ago. We didn't like the fashion aspect, the hit-or-miss element of its business, particularly its handbag line.

Sure enough, the company talked about merchandise assortment challenges, which, to me, don't happen if you have the right assortment.

Francesca's, which aims for the 18-to-35 demographic, talked about a weak spring for its apparel and accessories.

Ascena, which we have had on many times, just simply blew up, with every one of its store chains, Maurice's, Dress Barn, Justice and the newly acquired Charming Shoppes, well below plan. I mentioned on Friday's "Game Plan" that this could get hammered if it missed at all. I never expected it to be this bad, including down 7% for the core Dress Barn line and down 4% for Justice. That's plain terrible, and the company blamed weather, and more importantly, the weak middle-income consumer.

You put these three together, and you get a pretty gloomy picture of what's out there, with pretty much all ages, shapes and sizes spending less. When you couple that with Dollar General's (DG) disappointment the other day, you get a sense that May was a very weak month in the U.S. economy.

Now, that would be fine if we are all expecting that the Fed will keep rates low. But the huge increase in interest rates, at least on a percentage basis, is happening just at the wrong time. Plus there are all of these jabbering Fed heads who are thinking the Fed is too easy. When you combine higher rates with less business, that's a recipe for lower stock prices.

Now it wasn't all bad. We had a hard-goods retailer, Conn's (CONN), report good numbers. It sells all sorts of goods for the home, including appliances and consumer electronics. Normally that would be an important offset to Vera Bradley, Francesca's and Ascena. However, Conn's is a regional player, and the region is the Texas area, which happens to be in the middle of an oil boom. So I take its strength with a grain of salt.

Therefore, when I put it all together, I come back with a mixed retail picture at a time when I expected an improving picture. That, unfortunately, dovetails with the potential for a weaker housing market, now that mortgage rates have gone over 4%.

Is it the end of the world? Nope. But do these numbers embolden me to think the correction is over? No, not yet. And that's what gives me less confidence that things are going to improve for stocks, even though they've come down enough to embolden me to pick among some of the rubble.



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