Dick’s Taking It Hard

[edinbrooklyn]

Stock drooped by almost 25% today.

[+ azdr0710]

 

[edinbrooklyn]

18 minutes ago, azdr0710 said:

 

Apparently a big issue for a lot of retailers.

[Kevin Slater]

Retailers are oft eager to blame inventory shrinkage on shoplifters, but the true problem is more often their own employees.  And by definition, the stuff has disappeared, so most of the time you truly don't know.

Kevin Slater

[+ tassojunior]

I thought this was Dick's lap dance club in Phoenix. Glad I have a strong heart. 

[+ stevenkesslar]

3 hours ago, Kevin Slater said:

Retailers are oft eager to blame inventory shrinkage on shoplifters, but the true problem is more often their own employees.  And by definition, the stuff has disappeared, so most of the time you truly don't know.

Kevin Slater

 

 

On the face of it, cue up the doom and gloom melody:

 

 

And yet.  I read two articles off Yahoo.  This first said shrinkage by organized crime was about one-third of the miss.  And writing off outdoors stuff was the rest.  Both were called "short term."  It seems like it's popular these days to think everything sucks and cities are all going to hell in a handbasket because of lawless hoodlums, or whatever.  My impression is at this kind of scale it's actually organized crime that does need to be cracked down on.  But it's not a crisis. The first Yahoo article also said this:

 

Quote

"We saw growth across every single income demographic," Hobart said. "We did not see a trade down from best to better or better to good product...It is really clear and important to note that our consumer is doing very well."

 

Of course, that's corporate PR.  But it doesn't sound like the economy is going to shit.

 

Meanwhile, the second Yahoo article said this:

 

Quote

And so that is the right direction of travel. They expect to open over a period of multi-year period, 75 to 100 of these stores. But in the meantime, right, we always talk about early non-comp sales. You don't get the full kind of sales productivity out of that box until they mature over a couple of years. This is the right thing to do.

Quote

When companies have excess margin and have been doing well, you absolutely want to see them go into investment phase. But it's a painful part of the cycle until you get to the harvest phase.

 

So  it's an anecdote.  But it sounds like the same idea as building bridges and chip factories:  all these investments being made in a bigger economy.  Better this than stock buybacks.  We'll see. 

 

The article also uses the word "rebase."  Even after a 25 % drop, Dicks is still more than double the roughly $45 share price right before COVID.  And it went from a PE of 11.39 for the last year, which was low relative to the last 20 years, to a PE of 9.69.   These are the kind of stocks I'm buying right now.  Although I'm gambling more on tech stocks like INTT and ALGM.  Same idea, though:  just lost a third of their value.  But still profit machines with unusually low PEs.

 

My basic calculation is that Jim Carville always wins:  we do want to be reincarnated as the bond market.  And smart investors never fuck with an inverted yield curve.  So at some point - maybe next month, maybe next year, maybe not - a recession will hit and take down the market 20 % or more.  Dick's is telling us consumers are doing "very well."   So don't hold your breath for that recession, darlings.

 

If I'm going to be stuck, because I'm stupid and can't predict these things, these are the kinds of stocks I want to be stuck with.

 

Edited August 23, 2023 by stevenkesslar

[mike carey]

7 hours ago, Kevin Slater said:

Retailers are oft eager to blame inventory shrinkage on shoplifters, but the true problem is more often their own employees.  And by definition, the stuff has disappeared, so most of the time you truly don't know.

Kevin Slater

One of our two big supermarket chains reported yesterday, and among the issues they mentioned was a 20% year-on-year increase of shrinkage. They attributed it to cost of living pressures but the commentary I have seen saw the increase in self-service checkouts as also being a significant factor.

[+ augustus]

57 minutes ago, mike carey said:

but the commentary I have seen saw the increase in self-service checkouts as also being a significant factor.

Indeed. Same in the USA.  A cop making US$ 146,589 a year was busted at the self-service checkout for shoplifting.   How amusing and embarrassing.

 

Off-duty police sergeant charged with shoplifting from Walmart, officials say

WWW.NJ.COM

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The Point Pleasant Borough cop was arrested in Brick on June 25, according to court records.

 

[BuffaloKyle]

Macy's stock dropped 14% as they are reporting a huge uptick in delinquent payments on their store credit cards:

Macy's sounds the alarm on credit card delinquencies | CNN Business

WWW.CNN.COM

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Macy’s is warning of a spike in customers who are failing to make credit card payments, adding to the evidence of mounting financial stress on consumers.

 

[+ stevenkesslar]

15 hours ago, mike carey said:

One of our two big supermarket chains reported yesterday, and among the issues they mentioned was a 20% year-on-year increase of shrinkage. They attributed it to cost of living pressures but the commentary I have seen saw the increase in self-service checkouts as also being a significant factor.

So out of curiosity, I checked on the ten largest retailers in the US, according to their trade association.  For purposes of a thread on investing, I think the relevant question would be this:  are retail Goliaths no longer good investments, because we somehow broke America and made it the land of the criminal and the home of the break-in?

So of the Top 10 retailers (I excluded Amazon since they are mostly not brick and mortar), seven have seen their stock price go up since January 2020.  And three have gone down.  I picked January 2020 to see whether something changed during COVID times.

Apple went up over 100 %.   Three more (Costco, Kroger, and Lowes) went up between 50 and 100 %.  Three more (Walmart, Home Depot. Albertsons) went up 25 to 50 % since January 2020.  This of course includes all kinds of factors, as did Dick's 25 % drop.  As I said above, even after tanking 25 %, Dick's stock price is still over double pre-pandemic levels.  I see no reason to say retail theft is making it impossible for retailers to make money in the US.  Or anywhere, since many of these companies operate internationally.

The three that are worth less than their January 2020 price are Target and CVS, both down 15 to 20 %, and Walgreens, down over 50 %.  The big notable hit CVS just took was when Blue Cross California dumped them.   Walgreens has been the runt of the retail litter for most of the last decade.  But they cite a loss of COVID-related services as a big reason for their recent losses.   Makes sense.  Their stock price did surge in late 2020 and early 2021 when they became a vaccination center.  Now it's just gone back to being the runt of the litter.

In terms of whether larceny theft is actually a huge problem within the ocean of what drives corporate profits for huge retailers, The Atlantic argues it is hard to argue either way.  Because the statistics are muddled.  And people tend to mix apples and oranges.  Try finding a recent and easy to understand FBI report.  

Here's a few relatively recent reports that would address whether there's reason to think something about retail crime broke during COVID times.  Safehome.org says larceny theft went up 3 % from 2020 to 2021, but was still 25 % below 2011 levels.  Overall property crime was down 28 % from 2011, and burglary was down 58 %.  The one property crime that spiked was car thefts. This Council on Criminal Justice Report which goes to June 2023 says two things:  1) Larceny theft is cyclical, and always peaks in the summer; 2) the overall trend of larceny theft is down about 10 % or so from five years ago.

I agree with Kevin's point.   Even just talking about "shrinkage" is complex, since shrinkage happens in a number of ways. 

But there is no evidence that, overall, a crime wave is plaguing retail America and making big retailers like Dick's bad investments.  I'm guessing lots of people, including me, might buy on the dip. 🤑

 

Edited August 23, 2023 by stevenkesslar

[+ stevenkesslar]

1 hour ago, BuffaloKyle said:

Macy's stock dropped 14% as they are reporting a huge uptick in delinquent payments on their store credit cards:

Off topic.  But if the issue is what could mess up a stock rally, I'd worry a lot more about that than organized crime.  Moody's says that when student loan payments kick in again it could shave something like 0.25 % off GDP.  If true, that's a blip.  Not a recession.  I just read something about soaring auto loan delinquency rates, because interest rates for overpriced cars spiked.  If I recall right the article said something like 1 in 3 consumers with student loans also have relatively new auto loans.

But I don't think this is inconsistent with Dick's saying "our consumer is doing very well."  We're talking about a slice of Gen Z and Millennials who already have problems affording rent or buying a home.  And are now going to have deeper problems.  When my Millennial nephew who chose not to go to college is not busy making money on SOXL, he walks to work in a nice suburb.  Where he serves fancy $15 cocktails at a bar and makes something like $500 a night.  He feels like suburban America is thriving.  And he doesn't feel a lot of sympathy for his peers with student and auto debt.

 

[edinbrooklyn]

On 8/23/2023 at 5:43 PM, stevenkesslar said:

Off topic.  But if the issue is what could mess up a stock rally, I'd worry a lot more about that than organized crime.  Moody's says that when student loan payments kick in again it could shave something like 0.25 % off GDP.  If true, that's a blip.  Not a recession.  I just read something about soaring auto loan delinquency rates, because interest rates for overpriced cars spiked.  If I recall right the article said something like 1 in 3 consumers with student loans also have relatively new auto loans.

But I don't think this is inconsistent with Dick's saying "our consumer is doing very well."  We're talking about a slice of Gen Z and Millennials who already have problems affording rent or buying a home.  And are now going to have deeper problems.  When my Millennial nephew who chose not to go to college is not busy making money on SOXL, he walks to work in a nice suburb.  Where he serves fancy $15 cocktails at a bar and makes something like $500 a night.  He feels like suburban America is thriving.  And he doesn't feel a lot of sympathy for his peers with student and auto debt.

 

Mortgage rates at about 7.5%. Presumably all other consumer financing has seen similar leaps. Corporate debt too. Something has got to give. That’s the plan, right?

[+ stevenkesslar]

11 hours ago, edinbrooklyn said:

Mortgage rates at about 7.5%. Presumably all other consumer financing has seen similar leaps. Corporate debt too. Something has got to give. That’s the plan, right?

Or not.

I'll give you my predictably long-winded take below.  But are you suggesting a recession is imminent?

So here's two answers, one very anecdotal and one very broad.  My nerdy nephew and I have been in hyper-pen pal mode this week.  I just loaded up on a bunch of SOXL at $20 a share.  He was hoping to buy more on Thursday for under $20.  On Wednesday night before bed I emailed him and said it looks like he would not get his wish.  Both SOXL and NVDA (it's biggest component) were up close to 10 % in pre-market trading, based on another over the top AI-driven earnings report.  Then Powell opened his mouth and it all changed.  Today my nephew got his wish since SOXL dipped under $20.  But, right or wrong, we're reading all our RSI and other momentum indicators and thinking full speed ahead.  Take that, recession!

On a macro level, the Fed estimates for 3rd quarter 2023 GDP growth went from 0.6 % to 1.9 %.   Take that, recession!  The Fed estimates for fourth quarter GDP growth went from -0.00 %  to 1.2 %.  Take that, recession!  Let's just stipulate my nephew and I don't know shit.  But, supposedly, the Fed knows something.  🤔

Since this started as a thread on Dick's and shrinkage and organized crime, let me at least attempt to make this somewhat on topic.  Does Dick's bad quarter tell us that something has to give?  No, I'll reiterate. They were, and are, an earnings machine.  If I weren't buying tech stocks with even better growth prospects, I'd buy them on the dip.  Dick's is still worth more than double what they were a few years ago.  Which suggests the economy is humming along.  And their consumers are "doing very well," as they claim.  Arguably, something does have to give.  The rampant pessimism and gloom.  But I don't blame people.  Inflation sucks.  Or, it did suck.

But how to square the circle with all this consumer debt and delinquency?  If Moody's is right, as I cited above, the net effect of student loans kicking back in will be to shave 0.25 % off GDP growth.  Let's add a bit more for the pricey auto loans some of the same people have.  If correct, that means it could have been 2.25 % or 2.5 % GDP growth instead of 1.9 %  I swear to God I read somewhere in the last few days that some Fed-related document was actually talking about 3 % third quarter GDP growth. 

So it's possible for most consumers to be doing well.  While others, particularly Gen Z and Millennials, perhaps are doing less well.  My Millennial nephew reports that there are plenty of people driving fancy electric cars and buying fancy $15 cocktails in the fancy suburban bar he works in, when he is not secretly making a fortune in stocks.  He does not regret not going to a fancy college, or not owning a fancy electric car.  😉

In the shorter term (say next few years), my guess is something is going to have to give.  But it will be political, not economic, in nature.  And it will be coming from Millennials and Gen Z, who the data tells us are feeling the brunt of it.  All of that is beyond the scope of this thread, or website.

In the longer term (say next decade), I'll be broken record about Stanley Druckenmiller, who knows a thing or two about investing.  If we want to fuck up our own investment environment as much as we possibly can, we should pretend like the record level of government debt means nothing.  Polls says that most Americans, regardless of ideology, agree with Druckenmiller, who is center/right.  I sure do.  Because it isn't about ideology.  It's about not shitting in the bed you invest in. 

But that is a problem for down the road.  Or down the toilet, if we do nothing.

 

Edited August 26, 2023 by stevenkesslar

[+ stevenkesslar]

On 8/23/2023 at 1:18 PM, BuffaloKyle said:

Macy's stock dropped 14% as they are reporting a huge uptick in delinquent payments on their store credit cards:

 

On 8/25/2023 at 7:51 AM, edinbrooklyn said:

Mortgage rates at about 7.5%. Presumably all other consumer financing has seen similar leaps. Corporate debt too. Something has got to give. That’s the plan, right?

So here's a bit more data on that.  I'll start with @mike carey's sound reminder that economists have predicted two of the last 23 recessions.  I don't take any of these macro prognostications all that seriously.  But the way I'm treating this thread is this:  are there obvious warning signs in corporate earnings reports that the US economy is somehow broken, and on the precipice of recession?  My answer is "no."

Household Debt Service Payments as a Percent of Disposable Personal Income

There have been lots of anecdotal articles about scary levels of debt, either consumer or corporate.  Let's add to the list that Rite Aid, which I think is the third largest drug retailer in the US, is teetering on the edge of bankruptcy.  As I noted above, Walgreens ain't doing so well, either.

On a macro level, that Fed data shows that all the stories about how consumer debt levels are rising are true.  But what they usually don't mention is it is coming off historically low bases, thanks to all the pandemic savings.  As you can see from that chart, once we recovered from the Great Recession, we managed to stay at consumer debt of roughly 10 % of disposable personal income.  That level seemed to be relatively low, and very much sustainable.  

Delinquency Rate on Credit Card Loans, All Commercial Banks

Same with delinquencies.  It's true that delinquency rates are "soaring" compared to where they were a year or so ago.  It's also true that where they were a year or so ago was an all time low.  So my read of that chart is that, again, from roughly 2013 to 2019 we had recovered from the GR.  And the economy and stock market were humming along within the context of 2-3 % credit card delinquency.  Which is about half what it was during the Great Recession.

What I think is almost common sense is that for maybe 12 to 18 months in 2021, especially 2022, and maybe part of 2023 inflation was outpacing wage growth.  And people in the middle and low end especially were losing buying power.  So it makes sense that something had to give.  And in many cases credit cards did the giving.  I've seen a growing number of reports that this tipped sometime around Spring or Summer 2023. 

Thanks to lower inflation, Americans are finally getting a raise

For the first time since 2021, wage growth is now significantly outpacing price growth.

Prices won't go back to pre-pandemic levels.  But especially at the low end it sounds like people are gaining buying power back.  We'll know a year from now.  But it seems possible if not likely that debt and delinquency levels could start to stabilize at the levels they were at, which were quite sustainable, before COVID fucked up the world.

Unemployment Rate+Consumer Price Index for All Urban Consumers: All Items in U.S. City Average

That's the third piece of possibly good news in this data trifecta.  From roughly 2015 to 2019 the US was in this nice post-GR sweet spot of having both low inflation and low unemployment.  I keep reading these stories above how we're entering a dark ages of stagflation.  But the data don't support it.  The "misery index" is dropping like a rock.  At 6.8 %, it is back to what are historically normal to low levels already.  If these quarterly economic forecasts the Fed puts out are correct, it's possible it will be at about 6 % a year from now.  Which would definitely put us back in the sweet spot.

I would not bet that the Fed knows what they are doing.  But neither would I bet against them.

Then again, God hath no wrath like an inverted yield curve.  We'll see.

 

 

Edited August 27, 2023 by stevenkesslar

[ICTJOCK]

The "sporting goods"  sector (like many)  is remarkably competitive.   I chatted with employees at Academy Sports (where I spend way too much) about the onslaught in the local market with the new Scheels store locally.     If you haven't been in a Scheels,  it isn't just shopping,  it really is an experience.    It makes a trip to Dicks Sporting Goods a real boring event.    Scheels is definitely an "upper"  level kind of store with higher pricing,   but truly an interesting presentation.

[edinbrooklyn]

On 9/4/2023 at 8:00 AM, ICTJOCK said:

The "sporting goods"  sector (like many)  is remarkably competitive.   I chatted with employees at Academy Sports (where I spend way too much) about the onslaught in the local market with the new Scheels store locally.     If you haven't been in a Scheels,  it isn't just shopping,  it really is an experience.    It makes a trip to Dicks Sporting Goods a real boring event.    Scheels is definitely an "upper"  level kind of store with higher pricing,   but truly an interesting presentation.

Retail investing scares me a bit. The internet is so disruptive for a lot of the segment. But . . .  do check out The Tractor Supply Company. It’s not aimed at real farmers, hobbyists

[GlenDale]

I’m not surprised Dick’s is suffering. I would blame their very poor operating standards. I’ve shopped there for a long time and they’ve gotten worse exponentially of the years. Just ry to find a sales associate on the floor. Ha!

as for all chains experiencing stock drops: I’d like to look at their balance sheets in a year. How much stock buy-backs are they doing now and what will that mean as the prices start rising again?  Macys did this in a big way in the 90s to squeeze out investors.