The Daily Dose: Quick Hits for a Friday

 | Jul 18, 2014 | 10:00 AM EDT
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Earnings season continues to roll along, and I find myself noticing the same stuff that I saw at the start of the first quarter. Specifically, price increases are being passed on to end users but volumes are suffering. Ideally, with the market at its current valuation, one wants to see prices and volumes growing at the same pace -- or at the very least with volumes staying stable sequentially as the company charges more for goods or services. Declines are unacceptable.

Also, the sales mix is unfavorable. Those lower-profit accounts are demanding goods and services quicker than higher-margin accounts. I don't know how a trend like this gets reversed. It would appear to me that companies are taking on low margin accounts and hoping to trade them up to premium products and services with limited to no success. Even greater commitments to marketing aren't necessarily bringing in the business.

Microsoft (MSFT) won't be the only super-large company to announce mass layoffs before the end of the year. I see cost and expense structures out of alignment with the quality and volume of sales that companies are registering. The sad truth is that companies will have to cut workers and their processes further to drive shareholder value in the future.

I am quite concerned about inventory levels at big box retailers such as Wal-Mart (WMT) and Target (TGT). The team at Wal-Mart is tough to get along with and doesn't disclose much of anything to me (counter to every other team I work with), but Mattel's (MAT) elevated inventory levels are yet another red flag on the health of Wal-Mart for the back-to-school period.

Speaking of back-to-school season, sentiment is building that the season for retailers will be amazing. Has-been, fourth-tier former retail executives are opining that back-to-school 2014 has all sorts of favorable trends in apparel that children will demand. Hence, they are recommending Macy's (M) and assorted teen apparel retailers. Listen to none of them and listen to me instead. Wait for a specialty retailer to guide higher before wading into these waters. In fact, wait for better price action on retail stocks; the action continues to be discouraging.

That said, I believe Under Armour (UA) is teed up to announce a strong quarter next week. The company's products have become the daily uniform for mom, dad and the kids.

Starbucks 3.0

Earlier this year, Starbucks (SBUX) shared with investors that founder and CEO Howard Schultz would be expanding his focus on innovation and next-generation retailing and payment initiatives. Investors and global coffee drinkers alike are starting to see the big-picture thinking of Schultz unfold in his new role. How is that happening? Through the rollout of large, eye-catching global flagship stores in high-traffic markets. Starbucks' newly opened, three-level, 2,700-square-foot store in Colombia offers important clues on how Schultz views the future of retailing.

Starbucks shared with me yesterday that its newer stores in the U.S. are part of a "decentralized design philosophy." I will have further insight on this shortly, but be on the lookout for a few positive analyst notes out on the company prior to earnings on Thursday, July 24.



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