Americans return to malls, boosting stocks
The consumer was undaunted in February despite bad weather and the drumbeat from Washington.
By Jim Cramer, TheStreet
February was more of a fulcrum month than any I can recall in many, many years. February is when many things went right when they were supposed to be wrong.
Let's start from the presumption that February is not a very important month for the consumer. We know the months leading up to it are extremely important. September's back to school. October is ordering for the holiday season. November is black Friday and all of its attendant crucial days. December is make-or-break for almost all retailers. January is important for inventory concerns and returns as well as gift cards.
But February? It tends not to matter. Sure there is Valentine's Day and Presidents Day, the first a marginal day for consumers (tell me about it as I know when I used to make the rounds with my dad selling Valentine's Day gift wrap to retailers that you always wished sales were bigger), and the second day a created day, created by car dealers to clear inventory that didn't move that winter.
February is a nominal month.
Now let's layer in something else that meant a great deal to the economy: vicious weather. So many days lost in February. So many malls closed. So many roads not plowed. So much stay-at-home activity.
And what happened? Something extraordinary. We had a blowout month. A monster month. An insignificant month was transformed into a significant one as if it was a sunny every day and the consumer was exploding with discretionary money, bursting with spare cash.
Don't know about you, but it took my breath away. Many, many companies reported that February was incredibly strong. Incredibly strong, off-the-charts strong.
The best way to visualize this stunning turn of events when a month that didn't have an important employment gain, a month that featured a paralyzed Washington, is to look through the prism of three important consumer touch points, three companies that had already taken up guidance, three important, obvious broad consumer players: Darden (DRI), owner of Olive Garden, Red Lobster and Longhorn Steakhouse, Phillips-Van Heusen (PVH) and Williams-Sonoma (WSM).
Among Darden, PVH and WSM, you have a perfect trifecta of consumer spend along all lines.
First Darden. Get these year-over-year numbers: Olive Garden, plus 5.2%, Red Lobster, 1.9%, Longhorn 4.5% and Capital Grille, 13.79%. Even more granular, for February these stores performed extraordinarily well, with Olive Garden advancing 1% to 2%, Red Lobster 7% to 8% and Longhorn 1% to 2%. (Capital Grille wasn't broken out.)
Remember these were done in the face of horrible storms that should have kept many people home. These numbers let the chain take up guidance from 5% to 8% to 8% to 10%. Again, remarkable.
PVH had raised guidance significantly in part because of very strong Calvin Klein shirts but in part because the major department stores sold a huge number of dress shirts -- the PVH bread and butter -- during February. You should be asking, "Huh, how did that happen? How?" February is not national sales month or anything. It is just an ordinary month with far fewer selling days because of mall closings, and PVH sells its shirts in malls.
The company had just guided up a few weeks ago so you can only imagine how strong February finished and how it must have continued in March or they wouldn't have been so forceful in their increased guidance when they reported.
I said on my "Mad Money" show my initial take on the Tommy Hilfiger purchase was that the rally may have signaled too much greed and I wanted to pare back. I thought the price tag was huge and the need to pay debt will give you a better entry point in that it would be prudent for them to issue equity.
However, the synergies are huge and the sales for Tommy overseas will keep PVH from topping out as it already owns more than 50% of the shirt business in this country and the same when it comes to ties, especially now that it will be Wal-Mart's (WMT) tie maker. Have to rethink my profit-taking approach to this one.
Finally, Williams-Sonoma had been incredibly aggressive when it preannounced as housewares came on strong in January. However, this new raising of guidance encompassed a ton of home furnishings. Home furnishings! That had been a dead category for so long, trading in synch with how bad home sales have been.
We had an inkling of this improvement when Macy's (M) reported, but the Pottery Barn sales, not cookware, drove the increases with the ticket size increasing. The Pottery Barn West Elm catalog did well as did the "Nest at Home" February Pottery Barn catalog.
Home furnishings, dinners out, shirts, all better than expected in a nothing month like February that was afflicted with horrible weather.
You don't have to limit these good numbers to those three. Carnival (CCL) said amazing things on its call including this gem from Micky Arrison on page 12 of the transcript, "I think we are surprised at the level of pricing that has come back this year ... when we forecasted it we didn't expect us to come back this dramatically." He then went on to say "it does look like it is coming back a lot faster in North America."
Jeffrey T. Metzger said the same on the KB Home (KBH) call, especially this gem about the worst hit area in the country: "Clearly California is performing well now for us, inventory levels are way down in the state." That's quite a statement from the company that has the largest market share in a state that represents about a fifth of this country's economy.
I find these data points, coupled with the oodles of fresh money that we are hearing is streaming into this market now that it is getting back to even where the selloff began, as the main reasons why this market didn't quit when it should have. I know I misjudged -- a topic of my show tonight -- how strong the market would be in light of the drumbeat of Washington. These numbers just weren't in the cards.
So, the data points for the consumer are rocking and undaunted by the weather or the government. Any stats that showed low consumer confidence now seem to me as if they are simply discredited surveys. Any conclusions about the high number of unemployed as a way to predict this kind of surge are out the window.
Simply put: February was amazing. I don't know anyone who thought it would be amazing.
It was and it powered far more of this market in the last 48 hours than anyone expected.
At the time of publication, Cramer had no positions in the stocks mentioned.
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