The Day Ahead: Shun the Smoke Blowers

 | Jul 31, 2013 | 8:00 AM EDT
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Yeah, Gordon Gecko smartly advised to never get emotional about a stock. But that doesn't mean you shouldn't get emotional about companies.

I am emotionally attached to 100 companies that I have personally covered through the years. These are the businesses and teams that I like to think I know inside and out to such a creepy extent that the slightest change in operating performance or tone on an earnings call is easily spotted.

Given this level of attachment, it shouldn't come as a surprise that it's deeply troubling when I sense lies are being told. When I pick up on this corporate naughtiness, I add these companies to my "Smoke Blowers" list, which includes various business contacts as well. These are the companies and human beings that are trying to blow smoke at me for one reason or another, warranting either complete daily avoidance or a strategic plan to circumvent their shadiness.

New to my "Smoke Blowers" list is Coach (COH), joining a re-added first place position for Sears (SHLD). Although there was no chance I was going to put clients into a Coach stock that has been dead money for months (#Toptip: this was a telltale sign of a bad quarter considering the S&P 500 has been moving along and credit card companies reported rather solid second quarters), I still felt the earnings call was a disgrace as 90 days earlier the team was hyping the effectiveness of its turnaround plan (and this quarter we received store closures).

As for Sears, let's just say that its position on the list was reaffirmed following a social media exchange with a very nice guy at the company. His points didn't strike me as robust compared to my awesome stats.

Four Things to Know on Coach:

1. Same-store sales are running negative at both full-line and factory stores (Tanger Factory Outlet Centers (SKT) posted a +2.3% same-facility sales increase last night);

2. I have no clue on the same-store sales rate for Coach in China, other than it is "double digits", meaning the trend could be slowing (it is);

3. It will take at least three quarters to see ideas from Coach's basically entirely new executive team;

4. I think Coach is mentally prepared to overpay for an acquisition to reignite growth (rumors are that it made an advance for Tory Burch but was rebuffed).

Two Stats to Know on Sears:

1. Capital expenditures as a % of revenue in 2012 were 0.9% vs. 1.1% in 2005. Wal-Mart in 2012 was at 2.74%;

2. For the year ended January 2006, Sears' cash, according to Reuters, was $4.4 billion vs. $609.0 million for the year ended February 2013. Honestly, Sears is sitting on dour news; it's a matter of time before it's communicated (definitely before the end of the year).

Fed Day Crib Notes

Tired of the Fed already? Obviously. Here are the important items to look out for in an FOMC statement being billed as a yawner -- which usually implies it won't be a yawner.

  • Any upgrade from these phrases, taper on in September, baby: (1) economic activity has been expanding at a moderate pace; (2) Labor market conditions have shown further improvement in recent months; (3) The Committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace; (4) The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall; (5) The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially.
  • More than two dissenting votes (there were two last time in Bullard and George) could also suggest an early taper as it signals disagreement.



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