The Daily Dose: A Mid-Life Epiphany

 | Nov 14, 2013 | 10:00 AM EST
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Contrary to popular belief there is only one of me. Even if given the cosmic opportunity to clone a Brian Sozzi, the Human Finance Beast, I'd choose against it.

 I would always have this worrying suspicion that Sozzi #2 is an idea thief that could not be trusted. Sozzi #1 definitely frowns upon idea thieves and the unfriendly, and those who double cross him (it will end ugly for you, trust me). But on Wednesday I simply had to go off the grid and mix it up with John and Jane Doe consumer following Macy's (M) eye-popping earnings beat (notice I said earnings beat, not quarter; gross margins were hit). The financial report card truly took me by surprise as it seemed to be genuinely solid overall, not solely derived from a massive lowering of banker expectations back in August.

So I plopped my rear inside a Panera (PNRA) (free Wifi, too) for two hours to observe people during the peak lunch rush-hour. This was after reading Macy's earnings transcript while power walking a J.C. Penney (JCP) and a lame Kmart.

Seven Highly Relevant Takeaways from a Free Macy's Earnings Call

  1. A company that was a Nervous Nellie a couple months earlier was apt to assume a "cautiously optimistic" posture on the approaching holiday season. Why? Business was strong throughout the quarter (opposite at Polo Ralph Lauren, which acknowledged early fall demand weakness) and seemed to incrementally accelerate into November.
  2. I obviously view negatively that Macy's had to enhance its value offering to its patrons to drive: (1) +1% in the number of transactions; (2) +2% in units per transactions (that's UPT for the cool crowd); and (3) a slight rise in average unit retail prices (aka AUR). That McDonald's-like product value enhancement sent merchandise margins (aka merch margins) lower. However, the key takeaway is that the consumer responded to Macy's reinvigorated, planned promotional strategies, creating predictability in the business and leverage over operating expenses. This is critical for a retailer that is willing to forego some of its precious gross margin. Yes, this is all geeky stuff, but totally VIP.
  3. Sales improved across all regions, not only those exposed to the U.S. natural gas boom (Home Depot (HD) is building a few stores to take advantage of the nat gas build out trend).
  4. The women's apparel business has continued to strengthen. All sorts of messages are contained in there -- a layup being the head of household is finding money to spend on herself and family members in her roost.
  5. Macy's is all in with Michael Kors (KORS) baby. Makes sense, Michael Kors actually gives a damn about its appearance in top wholesale accounts and product quality. Ahem Coach (COH)!
  6. Watch demand trends moderated. I have to dive into this a little deeper to see if there is earnings risk for Fossil (FOSL) and Coach. Michael Kors watches remain hot.
  7. New licensed shops, such as Finish Line (holla at me, I have pictures!), are causing a spill over into other departments. Holy halo effect! Think a person buys a pair of Nike sneakers from a Finish Line (FINL) shop and then heads to the athletic apparel section for a Nike (NKE) t-shirt to compose a gym outfit.

Three Things I see Out There

  1. Seniors out spending in force and using mobile devices like teen champion texters!
  2. Restaurants and malls have the traffic you would think is appropriate for peak consumption periods.
  3. Companies lagging in customer service had better up their game, those companies doing it right for their consumer are starting to stand out from the laggards. I sense companies are retraining their employees to become more efficient. But employees are also more anticipative of a customer's needs, addressing them before questions even arise.

As for the broader stock market, it sort of resembles the "2013 Stock of the Year", Tesla (TSLA). Stocks will continue to have a bullish bias until the perception on Fed policy is skewed more heavily to taper on (sorry for the jargon). The taper debate has been recharged this week for sure, but not enough to spark that "healthy" 5% pullback that was supposed to happen months ago.

Now let's move on to listen to Yellen and Bernanke comments this week, which could easily add fuel to the reignited taper fire.

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