All three major Gap (GPS) concepts are slipping, with Old Navy leading the way with a -10% comp. The guidance for the first quarter is almost 30% below already dismal Street forecasts. It has been a tough period for the group, as well as many other apparel names, like Coach (COH) and L Brands (LB). The stores appear to be having a difficult time finding their voice to customers.
Pricing power is eroding and saturation appears to be causing consumer fatigue. There is nothing really that exciting going on. You can find a lot of this merchandise anywhere and there is very little fashion or quality appeal to drive more premium pricing.
These are battleship brands. Customer loyalty programs likely exhausted the Gap mothers in that 2013-15 time period when basics were in and coupons were plentiful. They're having a tough time driving incremental traffic now, though. The stock and results reflect these dire issues.
GPS results the last two years really show how fickle the consumer can be. But it also articulates how fickle the consumer investor is. They want comps now. They want traffic now. They will bid shares in a winning concept to extraordinary valuations.
The scary part is when these results turn in a retail and consumer concept. And they inevitably do. I always keep a rolling list of high fliers in consumer land as an arsenal for alpha shorts. Look to the high fliers that are reaching new heights and make sure Street forecasts accurately reflect the inevitable consumer cyclicality that can reduce ebullient forward expectations. Gap is a recent example. Vince (VNCE) and GoPro (GPRO) are others.
Results turn rather quickly in a retail and consumer concept. I always keep a rolling list of high fliers in consumer land as an arsenal for alpha shorts. Look to the high fliers that are reaching new heights and make sure Street forecasts accurately reflect the inevitable consumer cyclicality that can reduce ebullient forward expectations. Performing companies receiving accolades today -- such as Ulta Salon, Cosmetics & Fragrance (ULTA), Norwegian Cruise Lines (NCLH) and Ross Stores (ROST) -- could be the consumer dogs of tomorrow.
May 9, 2016 | 4:15 PM ET
Where's the Volume?
- ·There is a fine line between complacency and over-extrapolation.
What a volume-less, conviction-less, zombie day.
Here into the close, the S&P 500 and Russell 2000 trackers are up about 25 bps and 65 bps respectively. There is net selling in the industrials and net buying in the retail, consumer and tech complex. But where is the volume? Even Freeport-McMoRan (FCX), which announced an asset sale for $2.8 billion to assist in its debt repayment initiatives, is trading just around average volume.
That isn't conviction selling to me. It's merely the traders taking profits and trend traders responding to price action.
I'm not sure anything has permanently changed. China is still volatile. American energy and industrial companies continue flexing working capital down and evaluating capital spending budgets. The algorithms bid consumer-related stocks up when oil moves more than 1%. And commodities are taking a breather today.
I am not sure where the forward trend is. Maybe the very easy money's been made in the cyclicals in the near term, but initiating an all-out short in many of them still feels early to me. Take some profits to make yourself feel better. It is tough for me to press shorts aggressively with this paltry volume environment in the background.
Chalk today up as a normally ebbing market, with a more obvious sector rotation. Tomorrow is another day.
There is a fine line between complacency and over-extrapolation in the near term.
May 9, 2015 | 10:20 AM ET
Restaurant Stocks Are a Source of Funds as Sector Runs Out of Gas
With the space showing ctracks, 4 names are ripe for profit-taking.
Restaurants are still trading at much higher-than-average price-to-earnings multiples. These companies are valued as accelerated growth stories. Even Shake Shack (SHAK), which has had a meaningful decline since the IPO fervor, is still sporting a hefty P/E multiple.
The backdrop of rising wages, food quality issues and concept saturation is real. Yet, with the collapse of valuations in specialty apparel and among the big-box retail stocks, the restaurant sub-sector seems to be the only place where investors would like to pay up for growth.
We are starting to see cracks, however.
We have observed brisk multiple expansion in the restaurant group since oil collapsed in 2014. The idea was simple: the average person is spending $60, not $100, to fill up their SUV. That extra $40 will be used to go out to dinner. It's a novel concept, and may have had a minor halo effect on restaurant traffic comps over the last 18 months or so. But now we are starting to lap that economic effect.
Traffic and comparisons at high flyers Dunkin Brands (DNKN) and Buffalo Wild Wings (BWLD) are starting to slow. We've seen falls from grace in stocks like SHAK and Red Robin Gourmet Burgers (RRGB) and Famous Dave's of America (DAVE).
Look for areas for sources of funds in the space: Action Alerts PLUS holding Panera Bread (PNRA), Texas Roadhouse (TXRH), BJ's Restaurants (BJRI) and Dave & Busters (PLAY) look ripe for some profit-taking.