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Retail/Apparel Stocks Back to Pre-Crash Levels, Huh?
With the notable exceptions of Abercrombie (ANF), J Crew (JCG),and American Eagle (AEO), it looks like some of the big names in "teen" retail have all recovered to their pre-collapse (starting with XRT/S&P500 highs in 6/2007). Shockingly, some are even double-digits higher than they were at the height of the credit bubble. Judging from the below chart, one could speculate that the winners have gained market share at the expense of incumbents like Abercrombie, but a cursory look at these firms SEC filings (ARO, biggest gainer, v. ANF, one of the biggest losers, for example) doesn't seem to support that conclusion.
With unemployment, depending on which measure you use hovering around 10% or 20%, and consumer credit nowhere close to the level it was in 2007 (or even 2008), I'm completely at a loss to explain this optimism for retail and apparel stocks.
Anyone care to enlighten me?
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Just as inflation (for instance in energy) impacted different age groups to a greater or lesser extent, I daresay that deleveraging will too.
Given the past decade's rise in the standard of living of teenagers thanks not only to their parents increased 'housing wealth' (bubble ATM) but also as the major beneficiaries of Chinese/Tech deflationary forces (now barely to be found without PCs, cars, outfits galore etc), I wonder if they aren't ripe for a 'downsizing'.Teen McJobs are also becoming a competition ground as retired/underemployed workers try to get by.
I think the middle class teenagers of America are about to learn what the word 'no' means and that only a 24 carat idiot would buy stocks that rely on their discretionary spending in the next five years.
anal_yst: With unemployment, depending on which measure you use hovering around 10% or 20%, and consumer credit nowhere close to the level it was in 2007 (or even 2008), I'm completely at a loss to explain this optimism for retail and apparel stocks. Anyone care to enlighten me?
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Market neutral and conservative long-short funds are suffering withdrawals and fears of withdrawals, so they are puking up their short positions in crappy retail stocks, and causing those junkers to go up and then you get a reinforcing cycle from the momo guys bidding up junkers and putting more pain on the neutral and long-short guys which leads to ...
Why is this surprising? Freshly printed Fed money is establishing perma-bids all throughout the market. Stocks with high short-interest means more bears become buyers, competing with the perma-bid and attracting heat-mappers.
So long as the Fed keeps destroying the dollar and becoming the world's biggest landlord, the worst stocks will continue to rise the most.
We might see a bit of a correction soon from these highly overbought levels, but the Fed is gonna keep on with this crap until at least March next year.
End of story.
Seems like the inevitably poor holiday season is going to punish these stocks eventually.
The macro indicators do not support this jump in share price. But retail is one of the most shorted stocks, and the market has been reflated thanks to Bernankee, so a short squeze is only a matter of time. Every one is expecting a V shape recovery imply by the market performance.
Ultimately, we have got to have a chain of negative events in order to bring this market down.
I'd heard of a few h/f's who pair traded long ARO short ANF --- don't know if there's much to it but maybe helped.
Teens are very easy to employ they dont moan about stocks, house prices, all the money they have lost during the downturn. They come in, get on with their work, get paid not much by the hour and spend it all on high street fashion and seeing friends. Its a no brainer really.
Clearly sir, you don't know anyone who has worked in retail/aparrel. In HS/College, my sister worked at several of them and from the stories I heard (and observed first hand) I've basically been short retail since.
My father has been running an independent clothing store in one form or another my entire life, 30+ years.
He got into gray market goods about 10 years ago, and in our neck of the woods, where the closest mall with A&F, AE, Aero, etc is 60 miles in any direction, has been making a killing.
About 5 years back, one of the largest gray market distributors got nailed by DHS or FBI due to payments they were making to the shops in Pakistan. Shortly thereafter, the market dried up - no one had A&F, AE, or any of the other prominent names in any large quantity because they were spooked.
In the last year, my father says it is unprecedented the amount of merchandise being made available to him now, difference being, it's A&F, AE & co offloading their inventory to the gray market folks & telling them "we won't come after you if your clients don't advertise our merch."
In the past, the understanding was that A&F would place an order for 10,000 hoodies; the shop in Pakistan/China/wherever would then make 20,000 - 10K out the front door to A&F, 10K held over for about a year & then sent out the back door where it eventually ended up in the hands of the gray market folks.
Well, now the dynamic is A&F gets clobbered on its estimates, orders 10K, sells 2K, the remaining 8K units are being dumped directly to the approved gray market distributors.
My dad says he's never seen so much merch being made available. And it's all the top labels, private or otherwise.
Steak, the accounting is simple. You can write down the value of your inventory in 08 and take the income statement hit in 08. This will reduce your cost of sales in 09 since cgs=bi + purchases - ei and voila, higher gross profit and net income in 09.
Folks its all about the dollar. MM's are banking on inflation medium term as our currency becomes devalued around the world. There is not short term interest being paid and who would touch treasuries that is not one of the "inside players". Stocks are seen as better option than dollars and this creates a feeding frenzy. At some point, the Govt manipulators are going to say thats enough for the dollar decline and make some moves. For now, they are buying time. This means the market is totally irrational. This is a once in a life time occurence with no precedent for the U.S. Watch UUP. Dollar down and stocks are moving off the lows which should have created a very negative day. Also, don't think chinese,japenese and the like are not buying up our company stocks at dollar devalued levels.
I will enlighten you,,,,
it is simple Obamanomics,,
or as it is better known,,,,Bundynomics,,,
hahahahahahahahahaha
I shorted ANF yesterday, but I don't agree with this ...
"one could speculate that the winners have gained market share at the expense of incumbents like Abercrombie, but a cursory look at these firms SEC filings (ARO, biggest gainer, v. ANF, one of the biggest losers, for example) doesn't seem to support that conclusion."
Compare the SSS of ARO, AEO & ANF to that chart. Your initial speculation is affirmed.
ps: the comps get a lot easier soon. the fast money always plays those games
If you think fundamentals (or anything happening in the real world for that matter) has ANYTHING to do with stock prices these days, think again.
I am also watching the stimulus money.
It has literally disappeared. It is all going into state projects that were going to have to be cancelled because of diving state tax receipts.
Money created out of nothing disappearing into nothing.
Better believe the same thing will happen next year, too--those budget deficits aren't going anywhere, and if your a state governor and you get a billion-dollar windfall, where would you put it--into "mostly private sector jobs" like the administration promoted when this thing passed, or into your rapidly shrinking state welfare and education budgets?
My guess for the optimism is better than expected cash flows.
Looking at some cash flow statements, many retailers are generating considerable amounts of cash. That's because they're not restocking inventory (source of cash). At the same time, suppliers are requiring payments (accounts payable down, use of cash, but less than the inventory cutback). In addition, CAPEX is being cut.
So cash flow looks good today given all of the cutbacks. But many retailers are not investing in their future. And the reason, I think, is because demand continues to decrease; hence, sales growth is slowing and in many cases contracting. Why make investments into soft demand?
IMO, the present may not be the best indicator of the near future. We'll see what investors think about these stocks if demand continues to decrease.
Yes, the retailers, in aggregate, are wildly overpriced and probably among the best shorts. But some, like ARO, GPS, and BKE have weathered the downturn fairly well because they offer better value and are picking up customers at the expense of ANF and the like.
The worst stocks have done the best since March. Call it never ending short squeezes. Call it Fed buying the stock market (which really is illegal).
But what you can't call it is solid fundamental long term investing. Where are the insiders to these companies purchasing big blocks of undervalued stocks? Nowhere.
Who would you trust, CNBC market analysts or the insiders who know their own books?
In this high-beta rally the more leverage a financial institution or company has the better they performed. With funky balance sheet instruments came the privelage of funky accounting that makes numbers look so much better. Companies with no real debt issues have lagged as they don't have stuff on their balance sheet that can be marked up with reckless abandon.
For retail their toxic assets so to speak are their inventories. I don't know the specific ins and outs of accounting that makes it so, but across the board retailers have been working alchemy with their inventories in a way thats supposed to supercharge bottom line earnings regardless of the top line.
So yes, retail is back at pre-crash levels. Apparently the majical accounting of inventory adjustments can more than make up (on the bottom line) for people cutting back drastically on buying things. Which put that way explains perfectly why of all my college friends ('06 baby!), the accounting majors are the most well off.
There may be widespread confusion that hyperinflation may reward heavily indebted firms that can now avoid marking inventories to market.
In fact, debt service insolvencies during deflationary depression may put that big lie to rest.
Another way of looking at retailers (except WMT) and junk stocks hitting pre-crash highs may be the demise of the free market, for a time replaced by politburo central command policies before the black market returns.
We all now how that worked out for Argentina, Colombia, Cuba, the National Socialists, Nicaragua, North Korea, PRC, USSR, Venezuela and Vietnam.
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