Retail has become the microcosm for both the stock market and for society as a whole. That's the only conclusion you can reach when you sort through the now completed earnings season for the company's linked to the consumer.
Consider the panoply of earnings reports and you will know what I mean.
First, let's consider what is working: Dollar Tree (DLTR) , Dollar General (DG) , Walmart (WMT) , Costco (COST) , Target (TGT) , RH (RH) - the old Restoration Hardware - and LuluLemon (LULU) .
Let's unpack these. Dollar General and Dollar Tree cater to a vast cohort of Americans who are trying to make ends meet. The stores strive for ubiquity, They are extraordinarily good at what they do. This morning Oppenheimer put out a piece called "Dollar General Corporation, The Bull Case Continues to Strengthen". In it the analyst says it has some of the best above plan top-line momentum, a new initiative Dollar General Fresh, which brings in perishables, and it fits a time when rates are dropping because business has weakened. In other words, it is a defensive holding.
Dollar Tree with its merger with Family Dollar is similarly well positions and the conversion of Family Dollar stores into Dollar Trees is finally beginning to pay dividends, as CEO Gary Philbin said on Mad Money not that long ago. This was no easy feat. I, frankly, couldn't bear my nearby Family Dollar store that's right next to my place, preferring to go out of the way for a Dollar Tree. I know it's downscale but Dollar Tree offers some real advantages. I go through sunglasses like there's no tomorrow. I lose them and I break them. So I buy five for five dollars. No store on earth has a nostalgic a candy aisle as Dollar Tree. They are just plain fun.
Both of these companies were targeted by short sellers because they were thought to be hostage to Chinese tariffs. Both have lots of Chinese imports but they are fantastic at sourcing so they haven't sacrificed their margins, something that's simply incredible. That's why both are handily beating the market with Dollar General up 25% and Dollar Tree up 19%.
Last night we got a taste of the highest of the high end and how they are doing and it is the best of times for these purveyors: I am talking about LuluLemon Athletica and RH which reported masterful beat and raises the likes of which we haven't seen among any retailers.
Lululemon is looking for low double digit comparable stores in the future because of innovation and staggering execution, helped by the "educators," that's right, not salespeople, not the overused "associates" but educators. This call was nothing if not a praise for sweat and stink. They have a fantastic 35% growing digital business, more than doubling of last year. It's as they say, "the experiential brand of people living the sweat life." While so many people are worried about China, Lulu is killing it there opening 10 to 15 stores this year and growing 70%, including an awesome on-line business.
It's loved by women and men with the popular ABC pants for men seeming to have no price resistance - in fact there seems to be no price resistance to anything they sell. Sure they made reference to port congestion and the need for airfreight, but that all comes out in the wash if you are able to raise prices. As J.P. Morgan's Matt Boss says, this is the retailer with "untapped opportunity" to put stores up around the globe. At a time when most retailers are retrenching, this company can't put up units fast enough.
I can't believe how strong RH's numbers are. It was only a quarter ago that the growth story seemed tapped out but you can never count out CEO Gary Friedman. The company was supposed to earn $1.53, it came in at $1.85. The Street was looking for RH to make $8.30 for the year; now Gary, who will be on Mad Money tomorrow night, says, it can do $8.76 to $9.27.
More important, Gary has learned that you can't be as complacent about sourcing from China without killing your stock. When we pulled up with Gary at his museum of furniture in Soho New York, a store that he said would do "comfortably in excess" of $100 million, he said he had no choice but to continue to do a huge amount of business in China because it was easy to ship, cheaper and at the same time higher quality than elsewhere.
That was then, this is now, as he said he is moving "certain production and new product development out of China plus exploring new partnerships and expanding our own manufacturing facilities in the U.S." Plus his customers seem to have no resistance as is solidified by his statement, "we have renegotiated product costs and selectively raised prices to mitigate the impact of the increase (of the tariffs) from 10 to 25%." The new tariffs are already embedded in his guidance, something the vast middle of the market didn't do. How certain is Gary of the long-term trajectory of his company? He bought back 2.2 million shares at $115. That means he's taken in 60% of the entire float over the last few years with a $61.44 price. While other retailers bemoaned the second half of the quarter, Gary crowed about it because he said the stock market came back and his business responds to stock prices. There's that rich thing again as the middle and lower classes don't own enough stock to care.
How about Costco, Walmart and Target? They are all duking it out on low prices and delivery. Target today announced same day delivery for $9.99. It's website says it can deliver 65,000 items within an hour.
All three of these have the scale that they can dictate price, even to the Chinese. All are moderately priced and convenient non-mall stores.
So who is doing badly, who is being squeezed? The middle class of shoppers who go to the mall, that's who. Mall stores are falling by the wayside. J.C. Penney (JCP) is too small a stock to talk about. Macy's (M) has missed quarters and then made them and no one seems to care because it has been written off as a hapless mall store. We went to see the Herald Square store and marveled at its ingenuity. But the street yawned. Nordstrom (JWN) missed again, no shocker. But the usually reliable, affordable Kohl's (KSS) got rocked with stores that seemed to be losing shoppers by the boatloads. I disagree and I think that Michelle Gass will get thing under control, especially with its new tie-up with Amazon (AMZN) to allow easy returns.
But it doesn't matter. The middle's the loser unless it shops at the stores with the heft and the clout, of which I am drawn closest to Target, which gave you a nice 3.1% dividend boost today.
Oh yes, I would be remiss if I didn't' mention the most powerful force in retail: Amazon. It's putting up great numbers, of course, and I think that every time the weather is bad - and its been really bad this year - more and more people stay home and order in.
Still, the main takeaway is one that describes this country well: the stores that are catering to the super haves and the super have-nots are the winners, because that pretty much explains the nation's stratification.
(Kohl's and Amazon are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells KSS or AMZN? Learn more now.)
