The Daily Dose: The Fall of Retail CEOs

 | Jun 20, 2014 | 12:00 PM EDT
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Slow news day, so I want to take the time to reinforce one key thing: the need to ignore Wall Street analysts. I realize that yes, I am a Wall Street analyst mixed with all sorts of media training and doing videos, and God knows what else these days. However -- and I know I have opined on this a great deal -- the analyst community (mostly at the banks; hedge fund analysis and some third-party firms are killing it) is slacking. 

I believe sector analysts must start getting a better handle on the real economy outside of their urban bubbles, surveys, and Excel docs. Human emotions cannot be picked up in survey answers or number crunching into the wee hours of the morning. One just has to watch people, think critically, and not be in such a rush to make calls on stocks to generate a headline or trade. Or, conversely, not be so afraid to reverse course on a stock call when it's blatantly wrong (really, Mr./Mrs. Analyst, it's OK to watch the S&P 500 and Dow). The $175,000 annual salary for a stock analyst (low-end) is paid because they are supposed to be driving value to trading desk by seeing things in the future their competitors don't. Sadly, in so many sectors, this is not happening.

I remind you today of the sorry case of Coach (COH), on which I came out negatively on RealMoney ahead of its analyst day on Thursday. The stock plunged amid the announcement of store closures (thank you, former CEO Lew Frankfort, for that) and a horrid sales forecast. Today, the stock is receiving downgrades. Totally unacceptable.

As a refresher, here are my words from earlier in the week. Read them carefully, see how I think, and then apply this rationale to the stocks set to be researched this coming weekend.

"Coach has an analyst day prepared for June 19. As someone who has covered Coach for seven years, I thought the inclusion of this analyst day was highly suspect, for the company usually does the investment bank speaking circuit prior to its late July/early August earnings report. At this analyst day, Coach execs will wax poetic on current business trends, key growth opportunities, transformation initiatives, and the long-term outlook. 

With Coach shares down 5.5% in the past month into this stock analyst fiesta, the market is clearly yelling the company is having another challenging quarter. Coach's North American same-store sales were down 18% in the previous quarter, just jaw-dropping in and of itself, but especially against the 26.2% notched by rival Michael Kors.

Here are the signs I am seeing that Coach could be prepping to convey some more bad news:

First, full price stores are no longer full price. In a new move, Coach has decided to run a semi-annual sale on its website and within its full price stores. This was never the case (was solely friends and family deals in stores), but seeing it amid the introduction of allegedly trend right styles is a signal the customer remains uninterested in the brand.

Second, the great Coach markdown plague has spread to key wholesale accounts such as Macy's and Nordstrom. I am seeing online discounting across product categories in the range of 33% to 50% in a female handbag and accessories category that continues to expand."

Retail CEOs Shakeup

American Apparel's (APP) pretty ridiculous founder and CEO Dov Charney finally got the boot yesterday. From reportedly showing up to meetings in his underwear and making sexually suggestive comments to female employees, this fella should have gotten the axe placed over his head a long time ago. 

As Mr. Charney likely sits at home cooking up a new retail concept to debut in NYC's Soho district and fighting to regain control of his baby, here are three other retail executives that could be shown the door soon:

  • Aeropostale's (ARO) CEO Thomas Johnson was appointed as sole leader of the teen apparel chain on December 1, 2010. Since that day, Aeropostale shares have plunged 86% as the company failed to evolve quickly enough into a fast fashion business model, instead milking a dead cow in its hoodie business. Now, the company has been forced to raise outside funds to make it to the holiday season of 2014. I think Johnson is toast by February 2015.
  • Walmart's (WMT) U.S. president and CEO Bill Simon was promoted to his current position on June 29, 2010. Here is a hashtag fun fact to share on Twitter: Walmart's U.S. same-store sales haven't been positive since holiday 2012! The main issue: the stores are over-stuffed with unproductive inventory, which is weighing on profits. Simon may survive longer than Johnson, due to Walmart's culture.
  • And finally there is Family Dollar (FDO) chairman and CEO Howard Levine, who is also the founder's son. Mr. Levine has overseen a colossal misuse of shareholder capital the last few years in the form of aggressive store openings. The company recently announced it will be closing 370 stores as part of a restructuring process, and more closures are likely on the way. With Carl Icahn now involved in Family Dollar, Levine's days atop the dollar store ship his father built are numbered. Levine could be the first of this group to exit, as Icahn takes his justified musings to shareholders.

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