Christmas Creep

 | Sep 16, 2011 | 9:45 AM EDT
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The latest jobless claims report surprised to the upside; talk about a surprise that doesn't leave you with a warm, fuzzy feeling. Jobless claims advanced in 39 states, easily outnumbering the locales where claims dropped. Of all the economic releases yesterday, jobless claims left a bad taste in my mouth since they suggest that after a zero headline print on August nonfarm payrolls, not much has changed on the employment front in September.

Stocks were too busy feeling loosey-goosey to acknowledge the claims numbers, compliments of the morphine shot from the Federal Reserve, which pulled a page from its Lehman Brothers handbook by trying to ease the pressure in the global financial system. However, I suspect the market will at least revisit the claims data, so I am weaving a topic of "Christmas Creep" today.

Definition of Christmas Creep

My unofficial definition of Christmas Creep is as such: Profit-hungry retailers attempt to use the capitalistic system to lure U.S. consumers into spending first and asking questions later by bringing in seasonal merchandise earlier and earlier each year.  

I'm a total holiday buff, and enjoy the traditional family festivities right down to the last-minute, gift-wrapping frenzy. Since becoming a maniacal equities analyst, the holiday season has morphed into one part a season of enjoyment and one part analytical madness, fueled by the products sold by a good personal friend, Star B. Ucks, also known as, Starbucks (SBUX).

Each year, I put pen to paper to share a tale of retailers trying to make an extra buck by bringing in seasonal goods way ahead of the actual season. Last year, the trend was to set holiday displays in October. This year, the situation is simply silly, with the likes of Home Depot (HD), Wal-Mart (WMT) and Costco (COST) showing goods in September. A big round of applause to Target (TGT) for maintaining a sense of holiday spirit by opting to keep its Christmas merchandise mostly absent from the store until late October (in line with usual practices), though the company may be pressed to amp up its game early in the month in an effort to slow Wal-Mart's advances.

Think about it: Ghoulish Halloween costumes sitting next to Santa outdoor lawn ornaments (Wal-Mart is back in a bigger way with these items). What's next? Jolly 'ole St. Nick dolls residing next to pool cleaning supplies in June? Retail is heading down the path of turning its most important annual financial period of the year into a 365-day annual event, and, in the process, zapping out the magic that encourages consumers to purchase that one extra, full-price gift in the latter stages of December via the charge card, as cash has run dry.

A reason behind Christmas Creep this year is the current economic realities as retailers bought holiday merchandise prior to the August macro shock in the U.S. Retailers purchased goods according to a specific sales plan, modeled for promotions around that plan, and they are simply unsure if the onset of economic malaise will require discounts that were not planned for and that could obliterate fourth-quarter profit margins.

Understanding Christmas Creep

  • ·         To save money on inflationary inventory, retailers decided to receive goods early from their vendors. Instead of keeping the merchandise in the warehouses, they decided to be productive and put it on the sales floor.
  • ·         Holiday items in stores during September elongates the holiday season, which maximizes the full-price sales potential of the products.
  • ·         Out-of-stock items may come about by December in popular goods, leading to more full-price opportunities once a minimal new supply is brought back.

Christmas Creep is smart management by retailers of their most vital asset -- inventory. However, it's still a strange phenomenon to walk down a Wal-Mart aisle and see a Santa hat next to on-sale bathing suits.

Holiday Pick Number One – DECK the Halls

I have been reluctant to churn out ideas in retail land, and being generally underweight in the group at key points in the year has worked quite well. I have no desire to recommend ideas that I am not comfortable with especially within a macro picture that is evolving daily. That said, it's high time to get "constructive" in the sector, as the sell-side equity research analysts in black-rimmed glasses would say.

"Constructive" in the Soz realm is very targeted stock calls of consumer discretionary companies that have sold off amid the broader market pullback, yet have a fine thesis on which to hitch investing dollars.

The first name on the holiday docket is Deckers Outdoor (DECK), the maker of Ugg brand boots and shoes. Earnings estimates for the holiday season have already begun to trend higher a positive sign only if one thinks demand will exist and products will be on the mark to support the upside. Both of these factors are true for Deckers, in my opinion, based on early channel checks, with notable enthusiasm around the men's line. Moreover, I am not ruling out the potential for an Ugg replenishment boom following the harsh winter last year. Remember, Ugg boots do not hold up well straight from the box, so the basic wear and tear of a bad winter will likely cause a new round of buying this year.

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