Tag Archives: retail stocks

A Massive Bubble In Retail Stocks

Financial Markets, Housing Market, Market Manipulation, U.S. Economy, , , , , ,

Retail, especially the “concept” retailers, are going parabolic. It makes no sense given the declining rate of personal consumption, retail sales, etc. The kinkiest names like RH, RL and W are going up like the dot.com stocks went up in late 1999/early 2000. The move in these stocks reflects either mindless optimism or momentum-rampaging by hedge fund bots – or both. The hedge fund trading flow can turn on a dime and go the other way. I suspect this will happen and, as it does, squeeze even more mindless optimism out of the market.

The cost of gasoline has to be hammering disposable income for most households. On top of this is the rising cost of monthly debt service for the average household.  Non-essential consumerism is dying on a vine.

Fundamentally the retail sector is not recovering. If anything, the economic variables which support retail sales are deteriorating. I think some of the shares caught a bid on better than expected earnings derived from the one-time bump in GAAP non-cash income from the tax law changes reported by numerous companies in Q1. I just don’t see how it’s possible, given the negative wage, consumption, credit and retail sales reports that the sector has “recovered.”

In just the last eight trading days, XRT has outperformed both the Dow and S&P 500 by a significant margin. It has all indications of a blow-off top in process. You can see that, with industry fundamentals deteriorating, XRT’s current level now exceeds the top it hit at the end of January, which is when the stock market drop began. The RSI has run back into “overbought” status.

Some of the “kinkiest” retail concept stocks, like Lululemon (LULU), Five Below (FIVE) and Restoration Hardware (RH), soared after reporting the customary, well-orchestrated GAAP/non-GAAP earnings “beat.”  Of course, RH’s revenues declined year over year for the quarter it just reported.  But it used debt plus cash generated from reducing inventories to buyback $1 billion worth of shares in the last 12 months.  Yes, of course, insiders greedily sold shares into the buybacks. (Note: If insiders were working for shareholders other than themselves, companies would pay large, one-time special dividends to ALL shareholders rather than buyback shares to goose the stock price)

The retail stocks are setting up a great opportunity for bears like me to make a lot of money shorting the most egregiously overvalued shares in the sector.  Timing is always an issue.  But complacency has enveloped the stock market once again, as hedge funds have settled back to aggressively shorting volatility.

It won’t take much to tip the market over again.  Only this time around I expect the low-close of February 8th (2,581 on the SPX) to be exceeded to the downside by a considerable margin.

The above commentary was partially excerpted from the the latest issue of the Short Seller’s Journal.  It’s not easy shorting the market right now – for now – but there have been plenty of short-term opportunities to “scalp” stocks using short term puts. I cover both short term trading ideas and long term positioning ideas.  You can learn more  about this newsletter here:  Short Seller’s Journal information.

 

Shorting Stocks Will Outperform The Market

Financial Markets, Market Manipulation, U.S. Economy, , , ,

On December 1st, with a short-sell report I wrote on L Brands (LB) and published by Seeking Alpha (note:  that was the last article I submitted to Seeking Alpha – you can now find my work on Simply Wall St.)that I used to launch the Short Seller’s Journal, I explained why L Brands was a great short idea at $96.  Here was my rationale:

L Brands (NYSE:LB) is a specialty retailer that operates the Victoria Secret and Bath & Body Works chains. It also operates La Senza, a Canada-­based intimate apparel retail concept, and Henri Bendel, a high­end accessory products brand. The stock has run from under $7 in March 2009 to its current (November 27) price of $96.68. In that time period, it has outperformed the S&P 500 by over 350%. But, in the context of rapidly slowing revenue growth, declining operating margins, increasing financial leverage and a likely pullback in consumer spending, LB’s stock is extremely overvalued relative to its underlying fundamentals and relative to its peers. In my view, LB represents a compelling opportunity to short the highly overvalued stock of a company operating in a business sector facing significant economic headwinds.

Here’s how the LB short performed from 12/1/15 to present, after reporting an pre-arranged “beat” of Wall St’s earnings estimates (the big game that has developed over the years is for management to “wink wink” walk Wall Street’s robotic analysts’ quarterly estimates down to a level below the actual numbers the company plans to report) but was forced to warn about the rest of the year:

As you can see, shorting LB on December 1, 2015 has significantly outperformed the XRT retailer ETF. It has also outperformed going long the S&P 500 by a factor of nearly 400%. Nothwithstanding what to me was the onset of a consumer spending recession and an obviously overvalued stock market, LB at the time was overvalued relative to both the stock market and the retail stock sector:

The traits specific to LB, and that is based on information that is freely available to anyone who is motivated to do the research, included:   a stock priced for perfection, aggressive debt issuance to finance huge share repurchases, heavy insider dumping of shares into the share repurchases and a stock valuation far in excess of industry peers.

Despite the inexorable grind higher in the Dow, SPX and Nasdaq indices, hundreds of stocks are either at 52-week lows are getting ready to embark on a “price-seeking” mission to find their 52-week lows.  Just ask the Dick’s Sporting Goods (DKS) or Advance Autoparts (AAP) bulls.  LB, DKS and AAP are examples of stocks will get cut in half at least two more times in the next 12-18 months.

The Short Seller Journal was launched with the goal to expose the truth about the stock market and the truth about the manipulated economic and earnings reports fabricated with the intent to support the most over-valued stock valuations in history and, more important, to use those truths to find short-sell ideas that will outperform long strategies. LB is an example of the types of ideas uncovered by the Short Seller’s Journal.

You can learn about this newsletter here:  Short Seller’s Journal information.  There’s very few, if any, newsletters that focus on shorting the market.  The best time to invest in a market theme is when the rest of the market is doing the opposite.  As a testament the quality of the Short Seller’s Journal, the subscriber turnover rate is remarkably low. There’s no minimum required subscription period and subscribers receive a 50% discount to the Mining Stock Journal.

 

The Consumer Is Broke: “Restaurant Sales Worst Since July”

Financial Markets, Market Manipulation, U.S. Economy, , ,

At -1.3 percent, disappointing restaurant sales growth in November was the ninth consecutive month of negative same-store sales; and the worst sales growth since July…Same-store sales for third and fourth quarters, at the end of November, are both -1.1 percent. – Black Box Intelligence

That’s the restaurant industry.  Here’s a retail sales report from Dollar General, which would represent about 40-50% income and spending demographic:

Interestingly, we talk to our consumers each and every quarter through panel data as well as we bring them in and talk to them in general and I can tell you as late as mid third quarter, they were telling us that their sentiment – feeling – is even more dire than it was in previous quarters in early 2016  – Dollar General CEO in response to an analyst question on the quarterly earnings conference call.

Granted, DG’s core customer is low-income. However, as more Americans slide into the “low income” segment, it will affect overall retail sales, especially with regard to disposable income. My point here is that, despite the sense of “hope” signaled by the “Trump rally,” in general the average American is not feeling optimistic about the economy and I believe this will translate into a poor holiday season for both retailers and the overall economy. – Short Seller’s Journal, Dec 4 issue

Retail sales this holiday season are going to be abysmal.  Everyone with whom I’ve chatted who’s been out holiday shopping – I mean everyone – has commented on how eerily quiet the stores are this year.

The Census Bureau and the National Retail Federation will issue phony sales reports that will be contradicted by the actual sales reports from and guidance from retailers.  This report written by NY Post editor, John Crudele, outlines the methodology by which the Census Bureau manipulates the monthly retail sales reports:

Halfway down the page is a listing for Health and Personal Care Stores. It had a 7.6 percent increase in October. But underneath that calculation, there are no data, only an asterisk. That’s explained in the footnote to mean “advance estimates are not available for this kind of business.”

So how did Census determine that there was a 7.6 percent increase in Health and Personal Care Stores when the only category listed doesn’t provide data? “Furniture and home furnishing stores” also had a 3.4 percent sales increase. But, again, Census came up with a calculation despite no data.  – John Crudele on October retail sales report

If you pull up the actual retail sales report issued by the Census Bureau, you’ll see that several categories are “asterisked,” meaning the CB imputed its own estimate for October retails sales for that category.  In other words, about half the reported headline number is made up.

Restoration Hardware’s earnings report yesterday is an example.  The stock is down 18% after missing Wall Street’s earnings estimates – badly – and issuing dismal guidance on holiday sales and its outlook for 2017.

The point here is that the average household real disposable income is declining. As such, the average consumer is choking on debt, Obamacare premium increases, and the spiraling cost of everyday living – especially those households with children.

Despite a stock market that is going parabolic and in the final stages of a blow-off top, several of my stock picks in the weekly Short Seller’s Journal have provided profitable trades since August (some have not, to be fair).   One retailer in particular dropped 20% after I presented it in August and is now back up to the price at which I recommended shorting it.  I will be discussing this stock as a great short idea in this week’s issue.  You can access the SSJ using this link:  Short Seller’s Journal.

Payment terms are monthly and you can cancel at any time.  The SSJ issues are weekly and delve in-depth into economic data and analysis that you will not necessarily find on in the mainstream or alternative media.

It’s Official: Black Friday Sales Plunge 10% From Last Year

Financial Markets, U.S. Economy, , , ,

Total sales in the US on Black Friday fell 10% to $10.4bn this year, down from $11.6bn in 2014, according to research firm ShopperTrak.  – The Guardian

Store-based sales dropped $1.2 billion, while online sales increased $150 million.   The media is going to highlight the increase in online sales.  But remember, online sales represent only 6% of total retail sales.  The plunge in brick-and-mortar sales was nearly 10x greater in total dollars than was the increase in cyber sales.

The bottom line is that consumer is dead on arrival.  Stagnating nominal wage growth, decline real (inflation-adjusted) median household income and skyrocketing non-discretionary expenses are eating the middle class alive.  Throw in the huge increase in Obamacare premiums and it’s like throwing gasoline into a bonfire.

The retailer stocks are going to get crushed, regardless of what happens with the five stocks used by the Fed and the banks to keep the overall S&P 500/Dow indices propped up (Facebook, Amazon, Netflix, Alphabet (Google) and Disney).

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Click on the image or here – Short Seller’s Journal for two great ideas to short the retail stock sector

Another Retail Stock Bites The Dust On EPS/Revenue Miss

Financial Markets, U.S. Economy, ,

Update: This stock closed down 15.8%. Anyone who read my retail short report and set up a short in this stock yesterday made a quick 15.8%, minimally. The stock was down over 20% at one point.

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As my 2-stock retail report details, there’s plenty of downside left in this stock and the other company reports on December 3.

You can access this report here for a special price:  Two-Stock Retail Report

Not every stock pick will perform like this but the retail sector is going to get hammered from a middle class consumer that is out of disposable income – a situation that will be made worse as the new Obamacare premiums start to take affect…the stock market is not even remotely pricing in this reality.

BlogLOGO_retailThe 2nd stock in the report close up a bit today, along with the SPX, and is setting up nicely for a short-sell opportunity ahead of its earnings on 12/3.   If the demographics of company attached to the stock above is getting pinched – which it is – the demographics of the 2nd company is really getting squeezed.

Click on the image to the left to access my report.