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Retail Surge a Puzzler

By Rick Ackerman Posted on April 9, 2010, 1:37 am EDT Last Updated April 9, 2010, 5:08 pm EDT

The upbeat earnings reports issued by retailers yesterday would have seemed inscrutable, had we not been buying merchandise ourselves hand-over-fist during the month of March. Our non-cash household purchases were all made on a single Master Card, and, for sure, the latest monthly bill was a whopper. It included a spring ski vacation, a set of Michelins, a porcelain crown and subscription tickets for next year’s season at the Denver Theatre Center.  But who could have imagined that millions of Americans would join us in shopping up a storm?  Our excuse is that the guru business has been good. Great, actually. But we have many friends who have been struggling through the Great Recession, and even the ones who have managed to keep their heads above water have succeeded in part by cutting back on household spending.

So how to explain the impressive results turned in not only by high-end sellers such as Nordstrom’s, but by mid-level department stores like Kohl’s?  Sales there rose 22.5 percent for stores open at least a year, and Nordstrom’s led its group with a 16.8 percent jump. Its competitors did strong business as well: Saks reported same-store gains of 12.7%, and both Neiman Marcus and Bergdorf’s were up 9.2%. Women’s clothing, shoes, handbags and jewelry were the most popular items.

A Pleasant Surprise

This is hard to square with first-hand impressions gleaned at the local mall. The place usually feels pretty empty except on weekends, and the aisle traffic at Nordstrom’s, the shopping facility’s largest tenant, nearly always seems sparse. Still, it comes as a pleasant surprise that Nordstrom’s numbers have improved. It is one of the very few retailers that still does business the old-fashioned way, putting knowledgeable salespeople on the floor, selling high-quality goods, and standing behind everything they sell 100%.

News accounts of the pick-up in shopping were cautiously optimistic, reflecting the outlook of the stores themselves. “We are celebrating the strength of the first quarter,” said a Target spokesman, “but we are not taking anything for granted. I think the rest of the year’s sales will have ups and downs, but the general trend line will be up.  Target recorded a jump of 10.3% in March.  Coincidentally, Rick’s Picks initiated a short position in the company’s stock yesterday when it rallied 6 percent intraday, achieving a long-term price objective and then some.  We bought May 55 put options for 1.40, and it felt like we were bucking the tide. Will the uptick in the retail sector turn out to have been just a fleeting outbreak of spring fever?  Ask us again in May.

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  • Rick Ackerman April 11, 2010, 7:19 pm

    The following is being posted by Rick for FranSix. It is a link to the latest, very bullish, precious metals forecast from Ross Clark at Insitutional Advisors. Although I would never knowingly violate Bob Hoye’s copyright, this material has been posted elsewhere and is publically available on the web. Here’s the link:

    files.me.com/fransix/k95iib

  • kevin April 11, 2010, 2:49 pm

    RICK:

    I closed out of GLD this last week due to fears that physically delivery could reveal massive fraud in “paper” gold. It was difficult for me to do, since Paulson and Soros are evidently into GLD. I’d be interested in getting your opinion on this… there’s a bit of buzz on CAPS (TMFSinchiruna) that’s picking up a decent amount of attention. Is this just conspiracy theory?
    Still stalling on paying for your options advice, but I’m getting closer… I want to buy about $2,000 worth of puts starting in the summer.

    &&&&&

    Don’t buy puts — EVER — because, in the 37 years they have been listed for exchange trading, no retail customer has ever made money on them. I’d suggest spending $350 of the money I’ve just saved you on a Rick’s Picks subscription. Regarding Soros, his myth is way overblown. Neither he nor anyone else is smart enough to have shifted money as often as would have been required during the last four years to preserve one’s capital. Do you think he’s 100% in gold now? He may need to be — but then, maybe not. RA

  • David Tanner April 9, 2010, 7:38 pm

    You don’t think they would fudge the numbers do you? Nahh!

    • Dude April 10, 2010, 5:54 pm

      My wife does contract accounting for a major footwear manufacturer, and they continue to report record revenues, with Nordstrom being their largest customer. I can guarantee that they are not “fudging the numbers”. She does SEC compliance work, and has the knowledge and experience to know whether anything is not on the up and up, (and no, neither of us can explain the continuing strong sales either…). Like Rick, we both make plenty of money, and we (along with my hundred million dollar net worth clients, have pulled in our horns too). Sometimes you just have to realize that you don’t know everything all the time, and that it is the market’s job to keep us all on our toes.

      &&&&&

      There are several posts on this topic that explain the anomalous jump in sales. Regardless, savings and investment are the only way to produce wealth, so we’ll need to see whether Nordstrom’s upswing in March — going up against the worst y-o-y retail figures since the Great Depression — impells them to undertake a major new expansion and hiring spree. RA

  • ben April 9, 2010, 7:11 pm

    Scratch “moving out of dollars” and make it “moving out of Euros.” The Europeans have been avoiding dollars for years.

  • ben April 9, 2010, 7:05 pm

    Anyone notice that gold in Euro terms is busting through all-time highs? We’re about 5% higher than the December highs in Euros. I don’t seen any talk of this anywhere. Maybe the Europeans are quietly moving out of dollars and into gold.

  • kevin April 9, 2010, 6:52 pm

    Target May put options. Do you mind telling me your strike price?

    Glad to see the guru business is working out for you. Most people have a hard enough time picking just the direction of a stock, let alone the timing. Glad to see you are an expert at stock options.

    &&&&&&

    We bought May 55 puts for 1.40 and sold half of them this morning for 1.60, Kevin (“a 5400% annualized gain!!!!!!!!!!” in promotional-speak). There is no trick to getting the trend right without ever making an error — it’s simply a matter of reckoning impulse legs in various time frames. Regarding options, I’ve been at it for 35 years, including 12 on the trading floor, have written “The Striking Price” for Barron’s on an occasional basis and taught a course with Larry McMillan, so I do qualify as an expert. Even so, using every trick I’ve learned, and applying all of those tricks every time I trade, my edge is slight. RA

  • Mike Eck April 9, 2010, 4:52 pm

    Mish explained this very well in an interview on King World News a couple of weeks ago. Closed stores equal higher same store sells for those still open, but lower overall sales which explains the drop in sales tax revenue. http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Entries/2010/3/20_Mike_Mish_Shedlock.html

    Mike

  • Bam_Man April 9, 2010, 4:33 pm

    Wow Rick, that’s a lot of spending in one month. When did you stop paying your mortgage?

  • Mike April 9, 2010, 4:04 pm

    Like I said before and I’ll say it again the powers that be, in this country and across the world will somehow just MAKE UP NEW RULES and knock off all the debt from the books or say this is worth x and that is worth z and we move forward from here. they will claim victory some people will get hurt and it won’t be “fair” to others. and life goes on. and I know most of you will say that can’t just do that. but if things ever got that bad thats what they will do. and they’ll come up with all kinds of equations and processes but, in effect it’ll be as I stated.
    you heard it hear first

    &&&&&

    So, um, who will emerge victorious when real estate clears at prices 70% off peak values? RA

    • Mike April 10, 2010, 7:23 am

      the people, corporations or institutions that have cash or whatever is of value being used as currency that will be able to scoop those bargains up.

      the alternative answer is no one . no one will emerge “victorious” . we’ll just restart at a much lower baseline.

      I think the “NEW RULES ” makers will not let real estate get to 70% of peak nationwide. unless GS has something to do with it and their motives would be obvious.

  • Wyz April 9, 2010, 3:53 pm

    Two more caveats.
    1. Recall Mar 09 markets bottom and panic was in the streets of continued declines. Retail was also dismal. YOY comparison is to a low number last year.
    2. A lot of retail is out of business over the past 2years, concentrating current in the remaining stores. As an example, if Best Buy still shared electronic sales with Circuit City and CompUSA, how much lower would there sales be? Or, how much are they benefiting from fewer competing stores? If overall sales are the same as year ago the remaining stores will show an increase YOY simply from fewer stores!

    Probably retail sales are up from a year ago and numbers are skewed by these and the other conditions mentioned.

  • Chuck Griffiths April 9, 2010, 3:15 pm

    INCOME TAX RETURNS

    Those that get returns send them in early
    Those that have to pay send them in late

  • Martin C April 9, 2010, 1:23 pm

    Some of you guys crack me up. You pour scorn (quite rightly) on talking heads who can only see the bright side while being equally or more delusional in finding reasons for “good news”.

    Well done bob for the most desperate piece of hyperbole with “no one is paying their mortgage, so they are out spending at the store”.

    Baah, baah black sheep – keep following the herd, some of you lot are better at spin than the Fed

    PS I am considered an utter pessisimist by most having predicted the credit crunch, hoarded scrap silver for post break down and made my money out of shorting stocks and buying commodities but some of you guys make me seem like a ray of sunshine

    • Dude April 10, 2010, 5:42 pm

      Martin’s post was one of the most refreshing I have EVER read on this blog. There seems to be such utter despair and outright certainty that nothing good will ever happen again. I can’t explain many of the things we are seeing, (like the market continuining to rally and retail sales), but if you perennially ignore what the market is saying, you’re either much smarter than the rest of us, or you just like to complain.

      &&&&&&

      The lies about the supposed “recovery,” and the absurd tactic we have used to achieve it — i.e., consume our way back to prosperity by having the government borrow trillions of dollars to mis-spend and malinvest — are so breathtakinglly egregious that it’s hard to imagine why ANYONE would believe things are getting better. RA

  • Jeff Kahn April 9, 2010, 1:04 pm

    The last bill people keep paying, after they stop paying rent, phone, gas – is cable TV. Discretionary spending dies hard in this country.Doesn’t mean they can afford it.

  • breezer1 April 9, 2010, 12:54 pm

    Canadian dollar at par might explain some of the numbers.

  • Other Paul April 9, 2010, 5:35 am

    Top 10 reasons, not in economic impact or seriousness order, for retail sales increases:

    1. Wealth effect from more pocket change (more McDee lattes and less “Mermaid” lattes.
    2. Priorities have been re-set. More spending on flat-screens and iPads and less on contractual obligations (See #3 a, 3 b and 3 c.).
    3(a) Stopped vacation house mortgage payments.
    3(b) Stopped primary house mortgage payments.
    3(c). Stopped new “cash for clunkers” auto payments.
    4. Happy days are here again, per MSM.
    5. More cash available; finally stopped shorting the S&P500.
    6. Selling the baseball card collections to Europeans who are dumping their euros.
    7. Larger than expected tax refunds after using Chinese-pirated versions of Timmy G’s Turbo Tax program.
    8. Sales per store up, the ones that are still open.
    9. “Last hurrah” spending before filing Chapter [pick a number].
    10. And, the most likely reason–reported retail sales marked-to-myth.

  • Benjamin April 9, 2010, 5:03 am

    I think the reason behind all of this is Obama’s policy on not taxing the lower brackets, along with more defaulted mortgages being forgiven. Spend, spend, spend… It’s what the good ol’ U.S. of A does!

  • Bob April 9, 2010, 4:54 am

    “Target recorded a jump of 10.3% in March.”

    Am I being too simple here? Shopping these days is a 7 day a week affair. There are 10.7% more days in March than in February. Target was down .4% for Pete’s sake.
    Or do I not have the right attitude?

  • bob April 9, 2010, 4:47 am

    If retail sales are so great, why are most state’s sales tax revenues still dropping. Something doesn’t make sense here. Like the Financial Armageddon article cited above ,no one is paying their mortgages , so they are out spending at the stores .The stores are probably fudging or using questionable accounting methods, hey no difference than the government when they put out their phony reports .

  • mark April 9, 2010, 3:13 am

    Actually, Panzer brought us the answer yesterday:
    http://www.financialarmageddon.com/2010/04/it-makes-sense.html , citing Business Insider (http://www.businessinsider.com/mortgage-modifications-and-consumer-spending-2010-4), citing Jackson at HousingWire: http://www.housingwire.com/2010/04/05/for-consumers-time-to-shop-until-the-mortgage-drops/

  • toptick114 April 9, 2010, 2:21 am

    Lower YOY Comp’s; Store Closings (Inflating Same Store Sales), as well as Easter falling into this years March numbers did the trick!! Will such continue/prevail? Highly unlikely as the second (2nd) leg lower nears.


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