The Daily Dose: More Turbulence Ahead

 | Aug 04, 2014 | 10:00 AM EDT
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The market on a two-day losing streak. Say it ain't so! It's almost hard to fathom given how the Fed has turned us all into master stock pickers. Nonetheless, I believe the market is due for a bit more turbulence near term, the unfortunate catalyst dragging it lower being earnings from Wal-Mart (WMT), Target (TGT) and those in the mall not named Macy's (M) (ahem, JC Penney (JCP) and Sears (SHLD)). 

Best Buy (BBY) shares are down 4.5% in the past month. Target shares reacted negatively to its new CEO announcement, in part because the timing (weeks before 2Q earnings) likely signals another soft quarter and outlook in an economy gaining close to 300,000 jobs a month. The abundance of fresh reads on the consumer will only lend support to the thesis behind July's disappointing payrolls numbers. Come January 2015, this market will be left to its own devices and that is worrying as companies are a far cry from lighting it up on the sales and earnings lines.

Earnings Season Grind

Michael Kors (KORS) apparently is having success with its supremely ugly new camouflage (or camo) bag this summer. Kate Spade (KATE) is gaining floor space at Bloomingdales and others. While I can see the efforts of Coach's (COH) new designer in certain bags and womens wear, dear god stop buying this damn stock into earnings on the premise valuation is absurdly attractive.

I can't mentally handle the e-mails I get from longs that are going against my advice after another quarter of heartache from this dog. Even if the stock rips 20% on the report as comps slightly beat consensus, spurring takeover chatter, I will have been quite comfortable stating to not buy the stock. 

Obsessed with picking stock bottoms? Then here are three things that must happen before considering nibbling at Coach (as in happen, not guessing could happen).

  1. Comp declines improve meaningfully vs. deeply negative year-ago comparisons.
  2. The earnings warnings have to stop.
  3. There has to be evidence of store closures yielding bottom-line upside compared to consensus estimates.

I have been in the trenches researching Papa John's (PZZA) for the past two weeks. I am concerned on how the quarter came out, reflecting execution by the company, Domino's (DPZ) strong quarter and a very promotional pizza environment. At its existing level of valuation, any in-line earnings report, or miss, will be death from the powerful market.

Burger King (BKW) is trouncing on McDonald's (MCD) globally. Chipotle (CMG) is trouncing them both and Wendy's (WEN). There is little reason for me to believe that Wendy's, with no breakfast day part, will have many positive things to report to investors when it announce earnings on Thursday.

You should expect a negative Lululemon (LULU) preannouncement on the second quarter and full year from the company ahead of its Sept. 11 earnings release. The quarter has taken a rather poor shape as a result of missing wow factors in the assortment and robust quarters for Under Armour (UA) and Nike (NKE) in women's categories.

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