Tag Archives: Walmart

Amazon Prime Day! What Does This Mean?

Amazon stock is up $6 in pre-market trading because it’s…”Prime Day!”  But what does this really mean?  It means AMZN will burn more cash selling and fulfilling commodity products with free 2-day shipping. But it will likely get another $20 pop in its stock because “Prime Day” revenues today will grow X% over 2016’s “Prime Day.”

Am I the only person in the world who has figured out that AMZN’s e-commerce operating income margin is nearly zero?  Does anyone besides me know that AMZN’s non-North American e-commerce business loses money on an operating basis?  The numbers are posted in its 10-Q every quarter.   North America and ROW combined last quarter AMZN’s e-commerce business did a whopping 0.3% operating margin.  At least that’s 0.3 higher than Blutarsky’s grade point average in “Animal House.”  Short Seller’s Journal subscribers know this because I show them the numbers –  Wall Street’s institutional investor clients do not know this because these market “professionals” can’t be bothered with doing actual research).

AMZN has already been crowned as the new “grocery killer” by the Jim Cramers of the world.  It’s amazing that he can make this assertion without having ever looked at AMZN’s real numbers.  In fitting irony, the opposite of Cramer’s assertion is the truth based on real world numbers.  Walmart, Target, Bed Bath etc have 3-5% operating margins that they can “play” with to attack AMZN’s e-commerce model.

Is AMZN “killing” brick-n-mortar or are the healthy brick-n-mortars going after AMZN’s e-commerce business?

Go onto Walmart’s website.  It’s now offering 2-day free shipping on millions of SKU’s without any requirement to pay money up front to join a “club.”  I was wondering by Bezos decided to offer low-income people a big discount on Prime memberships.  He knew Walmart was going to offer 2-day free shipping to that retail demographic without a “club membership” requirement.  Guess what Jeff?  WMT can afford to ship for free.  Your company cannot.  It doesn’t cost much extra for WMT to offer 2-day shipping because it can fulfill most orders from store inventory in the same county or city or neighborhood from which the order was placed.  AMZN can not do that.

Walmart is more than 3x the size of AMZN and it is many times more profitable.  BBBY’s e-commerce business last quarter grew 20% year over year.   I got news for  Cramer and all the robotic Wall St. analysts, and the lemmings who slavishly worship both:   Walmart, Best Buy,  BBBY and TGT have room to subsidize sales even more and still operate profitably.  AMZN does not.  If you don’t believe me then look at the SEC-filed number yourself.

Stay tuned…there’s more…two major category-killer discount grocery chains from Europe are expanding aggressively in the United States and Microsoft is cutting back on certain of its operations to focus on its cloud enterprise business.  AMZN’s AWS business will be attacked aggressively by MSFT, ORCL, GOOG and IBM.  The price of cloud computing will eventually approach zero.  Did anyone out there realize that AMZN’s cloud margins decline every quarter?

Happy Amazon Prime Day!  AMZN will lose money on just about every item sold today.  I guess that’s a great reason to celebrate…

Retailing Is Bad And About To Get Worse

Americans are filing for bankruptcy at the fastest rate in several years. In January 2017, 55,421 individuals filed bankruptcy. That’s a 5.4% increase over January 2016. In December 2016, 4.5% more individual bankruptcies were filed than in December 2015. It’s the first time in 7 years that personal bankruptcies have risen in successive months on a year over year basis.

Also notable, in 2016 the number of U.S. Corporate bankruptcies jumped by 26% over 2015. U.S. Corporations have issued $9.5 trillion in bonds. That’s 61% more than they borrowed in the eight years leading up to the 2008 de facto financial system collapse (aka “the great financial crisis”).

The Financial Times reported that over 1 million U.S. consumers – prime and subprime – were behind on their car loans and that the overall delinquency rate had reached its highest level since 2009. The FT also stated that “lending to consumers with weak credit scores has been one of the fastest growing parts of the [banking] industry.” It’s starting to smell like early 2008 out there.

This is information and data that you will not hear on any of the “Bubblevision” financial “news” programs or read in the mainstream financial media. It’s also information that is not being factored at all by stock prices.

Americans are bulging from the eyeballs with mortgage, auto, credit card and student loan debt. The amount of outstanding auto debt hits a new record every month. Of the $1.2 trillion in auto loans outstanding, over 30% is considered subprime. In fact, I would bet good money that the number is closer to 40%, as the same type of non-documentation loans that infected the mortgage market in mid-2000’s has invaded the auto loan market. It was recently disclosed that the 61+ day delinquency rate on General Motors’ securitized subprime loans has soared to levels not seen since 2009.

To put the amount of subprime auto debt in context, assume 35% of total auto debt outstanding is now below prime (subprime and “not rated”). This equates to $420 billion of below prime debt. The total amount of below prime mortgage debt during the mid-2000’s housing bubble was about $600 billion. In other words, the subprime auto debt problem could easily precipitate another financial markets catastrophe.

Although the retail sales report for January earlier this month purported to show a 4.9% year/year increase in retail for January, the majority of the “gain” came from the rising price of gasoline during the month (the gasoline sales category showed a 13.9% gain over January 2016, most of which can be explained by higher prices). In fact, the .4% “gain” from December 2016 to January 2017 reported for the overall retail sales number lagged the Government’s measure of inflation. Real, inflation-adjusted sales from December to January declined by 0.20%. (Note also that the retail sales report is derived largely from Census Bureau “guesstimates” due to the supposed unavailability of real-time data. This explains why typically previous reports are revised lower – I detail this in my weekly Short Seller’s Journal).

Debt-squeezed Americans are spending less on discretionary items, especially clothing. This is why Walmart has launched a new price-war agenda aimed at the grocery industry, big-box retailers and Amazon.com.    The retail spending “pie” is shrinking and Walmart intends to do fight hard to maintain the size of its piece.  For all the attention focused on Amazon, Walmart’s annual revenues are nearly 4-times larger than Amazon’s.   And make no mistake, Walmart has plenty of room to fight, as its operating margin is nearly double AMZN’s – and that’s before we adjust AMZN’s highly misleading accounting, which would reduce AMZN’s margins.

Despite the Dow hitting new all-time highs for a record number of days in a row, The S&P retail ETF, XRT, is currently 10.4% below its 52-week high.   It’s 15% below its all-time high, which it hit in mid-July 2015:

Target (TGT) is today’s poster-child for the retail sector, as its Q4 earnings missed expectations badly and it warned for 2017.  Its quarterly revenues dropped 4.3% year over year and its full-year 2016 earnings fell nearly 6% vs. 2015.   Operating earnings were crushed, down 42.2% in Q4 2016 vs. Q4 2015.  The stock is down over 11% right now (mid-morning trading on Tuesday).

I would also suggest that the revised GDP  for Q4, reported to be 1.9%, is derived from Government statisticians’ manipulation because most of the gain is attributed to consumer spending.  Tell that to holders of XRT and RTH.

The economy is sinking further into a recession despite the propaganda coming from Wall Street, financial bubblevision “meat with mouths” and the mainstream media.  Real median household income continues to decline and the Fed/Government intervention in the stock market is helpless to prevent this fact from being reflected in many sub-sectors of the stock market “hiding” beneath the headline-grabbing Dow and S&P 500.

My Short Seller’s Journal presents analysis like this to subscribers every week.  There’s a big difference between what gets reported and what is really going on.  My journal looks “under the hood” of the headline economic reports in order detail what’s really going in in the economy.  Most of the analysis and assertions are backed up with actual data.  I also “de-construct” the game of “beat the earnings” which makes headlines and stocks pop, but also creates short-sell opportunities.  Each issue presents at least two short ideas, along with suggestions for using options and managing positions.  The retail sector has been fertile shorting ground and the housing market is next.  You can subscribe by clicking on this link:  Short Seller’s Journal – plus receive a discount link to my Mining Stock Journal.

“The Financial Condition Of Most Of America Is A Train Wreck”

Consumer liquidity woes remain the basic constraint on broad economic activity in the United States, which remains heavily consumer oriented.  Without real growth in income and/or debt expansion and willingness to take on new debt, and with consumer confidence and sentiment at levels consistent with a significant portion of consumers under financial stress, there has been no basis for a sustainable economic expansion since the Panic of 2008.  – John Williams,  Shadowstats.com

The lively retailing industry expert Howard Davidowitz was on Bloomberg Tuesday (May 19) to discuss retail sales and Walmart’s quarterly results.

We’re closing a record number of stores. We’re going to close a record number of malls. Vacancies are gonna be up. More chains are going bankrupt than I’ve ever seen.

Davidowitz is known specifically for his remarkable insight on the retail industry and consumer behavior.  And he’s known for having an unfiltered willingness to call it like is, which probably why he has not been a guest on CNBC for quite some time.

Everybody is in the tank, I mean the whole economy is in the tank. We’ve had five months straight of down [negative] industrial production – you gotta watch that number. The biggest thing we got going up is the [Treasury] debt.

You can watch part of his segment on CNBC by clicking on the pic below:

Davidowitz

They spend time comparing Walmart’s on-line business to Amazon.com.  Davidowitz asserts that Walmart can’t compete with Amazon because AMZN has an enormous technology advantage.   He states that AMZN has spent billions on its technology.

This is indeed true.  However Howard has not spent time dissecting AMZN the way I have.  As I’ve demonstrated painstakingly in my AMAZONdotCon research report, AMZN’s business model loses money because it does not charge enough per sale to cover the entire “cost accounting” all-in cost of getting a product from the AMZN’s website to the customer’s mailbox.  The more it spends on technology and fulfillment, the more it loses.

Of course Walmart can’t compete with AMZN.  No one can compete with AMZN because AMZN plays the game to lose money.  It has been forced to issue $9 billion in debt over the last two years in order to fund its money-losing operations.  AMZN has been in business for 20 years and it still has not figured out how to make money.  In fact, its operating margins and net income have been steadily eroding  since 2004.   It lost money on a net income basis in 2014.

And now Walmart has announced that it will ramp up its spending on e-commerce into the billions, including testing free shipping:  WalMart Eyes Costly E-Commerce Battle With Amazon.   This is a spending war that could put a dagger in AMZN, given that AMZN is bleeding cash flow (per my research report).

You can access my research rreport here – AMAZONdotCON – to understand why AMZN will be an incredible short-sell play when reality finally grips the stock market.  In fact, the S&P 500 has recently been hitting all-time highs again and AMZN has declining since it’s absurd spike up to $450 in late April.