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Fast Forward
MONTHLY
Themes for 2009 and Beyond
As we do every year in our Fast Forward report (the title we use for our Outlook),
we try to look beyond the near term and consider what the key issues will be as
the year unfolds. The near term issues are more visible and likely priced into
stocks so we try to look out a bit further to help us project how our stocks will be
valued throughout 2009.
2008 was a tough one (to say the least) punctuacted by a disastrous Holiday
season. Unfortunately, while many investors/analysts are finding reasons to
think positively about 2009, we believe 2009 results will be worse.
Contrary to the old adage, we no longer believe retail stocks are early cycle, as
we seem to be at the inflection of a 25 year consumer bull run. This belief
makes us hesitant to think the worst is behind us just one year into the downturn,
as consumers are facing different economic dynamics today.
While some may debate all the potential boosts and drags to the consumer
income statement for the upcoming year(s), the consumer balance sheet has
fallen apart. A few numbers: we estimate the incremental change to consumers’
spending power in 2009 (vs 2008) range from a $263 bn boost to a $1.1 trillion
drag. Even in the best case scenario, that number is dwarfed by the balance
sheet destruction that has occurred, as it was the first year in recent history that
both equity and real estate values declined simultaneously. By the time all
numbers are in, the wealth destruction from just those two sources is likely to be
$6-7 trillion, which puts the consumer in a tough psychological spot.
Add to that several retail themes (for both 2009 and beyond) which we have
discussed over the past two years (and we expand further upon in this report)
that present challenges: sales productivity likely reaching new trough levels and
structural issues presented by the overstoring of the country. We do not believe
this is an environment where retail stocks outperform.
Given our continued bearish outlook, we believe the most important factors to
consider when looking at softlines stocks in 2009 are balance sheet strength,
opportunity to reduce SG&A to help offset sales and gross margin pressure, and
the level of pessimism already priced into the stock.
We developed a tier system to help rank retailers on these three metrics. Based
on our rankings, retailers that come out looking the best/safest include ANF,
AEO, TIF and JCG. On the opposite end of the spectrum were CAB, TUES,
TLB.
Themes for 2009 and Beyond: An Introduction
It is no great secret that the U.S. consumer is currently in a tough spot, and the dreadful
Holiday season helped punctuate what was the worst year for discretionary spending since
1991. The recent rally, however, with our universe up 30% from its November 20th lows,
might suggest the market is becoming more hopeful.
We have heard investors provide a number of reasons why one should own retail, including:
the prospect of a stimulus plan, tax cuts, the new administration inspiring renewed
confidence, the government’s willingness to do whatever it can to avoid a consumer
meltdown, funds moving from underweight retail to equal weight, retail being “early cycle”,
the ton of cash on the sidelines needing to go somewhere, lower gas prices, lower mortgage
rates, easy second half comparisons (this one was very popular at the same time last year
by the way), and the bearish view held by nearly everyone. These reasons we have listed
are in no particular order, but we have to say that in aggregate we have heard them too
often to be comfortable buying into the recent rally and believing that the last reason we
listed (that everyone is bearish) could possibly be true.
On a high level, after a 25 year consumer bull run characterized by savings rates that
approached 0% and store growth well in excess of population and spending growth, we have
a hard time believing that the market was able to digest the end of this era (and move on) in
such a short period. Perhaps we are biased by our own shortcomings trying to
understand/project exactly how all of this is going to play out, but it seems unlikely that the
market has figured out and become comfortable with the answers to what we believe are still
many remaining questions and issues.
We will address many of these issues and their effects on the softlines group in this report.
As we do every year in our Fast Forward report (the title we always use for our Outlook
report), we try to look beyond the near term and consider what the key issues will be around
mid year and beyond. The near term issues are more visible and likely priced into stocks so
we try to look out a bit further to help understand the big picture fundamentals, which may
take some time to play out and be processed by the market. This should help project what
will move the stocks and how they will be valued in 2009.
We will first provide a few of our macro thoughts, which we believe remain at the heart of
many of the issues facing our retail universe. Adding to the macro hurdles, we will touch on a
few of our micro concerns including still-high sales productivity at many retailers and industry
overcapacity. We also lay out a few of the metrics we believe are important to pay attention
to this year – balance sheet strength, which companies have SG&A opportunities, and which
stocks trade at multiples that adequately address downside risk to EBIT.
Before we tackle the future, let’s take a quick look at 2008 stock performance.
A Quick 2008 Recap
In Exhibit 1 below we show the 2008 stock performance of the companies in our universe,
and the corresponding percentage of each company’s stock performance that can be
attributed to EPS estimate revision vs. multiple compression.
287671.pdf
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[此贴子已经被作者于2009-1-20 20:34:09编辑过]
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