Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Short Circuit (By Fayssoux)

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Last week, Kroger was absolutely crushed for missing
numbers, despite its well deserved status as a “best in breed” retailer in the supermarket
category.  Today, Best Buy is missing on
some dimensions (same store sales results are underwhelming in light of the general
strength of electronics and the elimination of Circuit City
as a competitor). It is down 4% or so pre-market.  There is a great deal of optimism built into
the prices for best-in-class retailers. 
Kroger and Best Buy are showing how fast that optimism can drain out
when reality proves modestly worse than expectations.  There is a disconnect between what it is
going on in malls and what is priced in retail stocks, imho.

On a separate note, Best Buy highlighted weakness in gaming,
movies and music (versus strengths in notebook computers and flat panel TVs).  Gaming companies have been weak; it will be
interesting to see if the markets connect the dots and push them down
further.  This is not a consumer category that is
going to come back strong in my opinion, given changes in behavior (migration online
and away form stand-alone devices)

Kr

Santa Got Runover By a Reindeer (by Fayssoux)

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Friday 8:30am we get the November retail sales report.
 Gaming expectations and reactions to a reported number like
this one is always very hard, as there is so much noise in day to day equity
movements.  

Nonetheless, my hypothesis is that:  a) the number will
be less than expectation; b) this surprise is not embedded in current equity
prices; and c) the disappointment will catalyze a selloff in retailers.
 That's how I am positioned; we will see if I am right or wrong.

Why might it disappoint?  Black Friday was underwhelming.
 Online retail sales are up marginally, and online should grow faster than
brick and mortar (8-10% sales taxes in CA, IL, NY).  I posted before that
Google search data is down for many retailers, signifying intent to shop is down
as well.  Neiman Marcus and Abercrombie have had dreadful sales results.

The best supermarket chain in the business (Kroger) was taken to the
woodshed yesterday.  Videogame sales have been weak.  There is a fair
amount of anecdotal evidence that higher stock prices are not driving consumers
to spend more freely than last year. 
Consumers see unemployment all around them.  They know the amount of shadow inventory in
housing and the trajectory of house prices. 
They are deleveraging.

XRT is a good vehicle for betting against retail.  An individual idea mentioned on the Slope sometimes
is DECK.  My strong anecdotal teen
evidence says UGGs are on the way out. DECK market cap assumes otherwise.

Deck

Is RTH Worth Shorting?

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Perhaps the most confounding trading instrument to me this year has been the RTH, the retail holders trust. Of all sectors you think would be weak, it would be retail. We have record joblessness, crushed consumer confidence, evaporating credit…………and yet Americuhns just keep buying crap they don't need with money they don't have. Incredible.

I am frankly reluctant to touch this hot stove again, but I bring it to your attention nonetheless.

1130-rth

I’m Gettin’ Nuttin’ for Christmas (by Fayssoux))

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Retail stocks have been a tear since the March lows.  Conventional wisdom in the financial media is that leaner inventories combined with firmer demand than anticipated will lead to a good holiday season for retailers.

I am skeptical on the latter point. Consumer confidence data has been trending down, which is not part of the bullish script.  Housing and employment are nagging problems.  Consumers are dubious on the sustainability of the recovery.  One tool I use for consumer research is Google Insights — you can track trends in search volume by topic, like, for instance, Neiman Marcus or Kmart or Sports Authority.

In each of those instances and in many others I ran, searches in October and early November in 2009 were less frequent than in 2008.  This is healthy happy bullish 2009 versus Lehman is melting, TARP is coming the world may end 2008.  Will search volumes predict a weaker than expected Black Friday and holiday selling season? I don't know, but if they do, retail stocks should see some air come out.  Should does not mean will in the environment.  But one catalyst for a leg down is weaker than expected sales in mainstream retailers.

Xrt

The Softer Side of Retail (by Fayssoux)

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On the one hand:  shares
are hard to borrow, puts are very expensive, famous and aggressive hedge funds are heavily invested,
this stock has squeezed many shorts.  On the
other hand:  target consumers are under
stress, competitive position has been deteriorating for a generation, valuation is
tied in part to commercial real estate in an overstored America,  frequent management turnover, empty stores, questions about cash position, does not report same store sales regularly;
big earnings announcement on November 19. 
What do you do?

Shld