Alarming. That's the only word that comes to mind when I think of the restaurant and retail group right now. When Action Alerts PLUS portfolio holding Costco (COST), COSTCO!, disappoints as it did yesterday, with its +5 comps when the Street was looking for just a little better than that, gasoline adjusted, you better believe that things are anything but OK in retail land. When almost every restaurant save Bojangles is imploding in front of our eyes, you know that something's very wrong for the dining out crowd.
When Ralph Lauren (RL) is squeezed up huge, though, the money comes back into apparel. And when Michael Kors (KORS) and Kate (KATE) are so beaten down that they rally on so-so numbers, the buyers come right back -- ultimately, I believe to be disappointed again.
You would think with gasoline so low, with inflation relatively tame and with employment robust enough to support 18 million vehicles, coupled with still ultra-low mortgage payments, this would be a time to shine for these two important consumer groups.
However, that's just not panning out.
What's ailing the groups? I have a few theories.
First, I think that health care costs, the need to pay for health care coupled with higher premiums, have taken out about as much as gasoline might have put in.
Second, when it comes to restaurants, the prices have gone up for most items to cover ag complex inflation, and they have stayed up even as they should be coming down.
Third, everyone is scared of higher wages for workers. It's in the news, it's on the conference calls and it is undeniable.
So you have that unholy combination of higher wages, higher costs and less traffic. That's what's really happening to Whole Foods (WFM) and it is also what's happening to all the casual dining places. It's a huge headwind.
Then you have the weather. There are so many warm weather clothes in the stores right now, and there's no cold snap to entice buyers. It's truly a difficult situation that will lead to discounts at the worst possible time, the holiday season.
Finally, there's Growth Seeker portfolio holding Amazon.com (AMZN). That stock's going higher because it is the sum of all retail fears, a zero sum game against everyone else in the category. The restaurants are immune, but people are just staying home. They aren't going out. Not to eat. Not to shop. That combination is what makes for deadly numbers.
Don't I know it. I have waited for ages and points for Jack in the Box (JACK) to come down because it has really good numbers. Then, when it finally dropped 10% for the year, I picked some up for my charitable trust. Then it got the true windfall that you can only dream of: the Chipotle (CMG) e-coli problem that should boost its Qdobe division.
What happens? Hammered again. Just dreadful yesterday. So bad that anyone looking at it just has to say "it doesn't matter, these dogs won't hunt." I feel the exact same way about Macy's (M), which I felt was attractive below $50 after having been at $72 this past summer when we got a Delivering Alpha presentation from Starboard, the activist firm, that made me feel it could be worth a heck of a lot more if it REIT'ed, the way Darden (DRI) did.
Now I think it doesn't matter. The warm weather won't let it lift.
At a certain point these two groups will get too cheap to ignore. But one thing is for certain: we are not there yet!