In retail, pessimism doesn't pay

Consumers are tenacious, and one company's miss doesn't sink the whole sector.

By Jim Cramer Nov 2, 2012 9:38AM

TheStreet logoBaerbel Schmidt, Getty ImagesYou know what's been a real sucker trade? Being gloomy about retail. I keep thinking back to Wednesday's interview with Manny Chirico, the CEO of PVH (PVH), which made that remarkable move on Warnaco (WRC). At the same time he announced that deal, he pointed out that October was a very strong month for his company, a statement that's incredible, given the breadth of his business, which encompasses shirts, slacks, ties and shoes at a host of different price points.

 

Frankly, that's not supposed to be happening. We've heard endlessly that October was not a strong month in this economy. We know it from the tech businesses we have heard from. We know it from the giant industrials. We know it from the chemical companies and the materials companies.

 

But you know whom we don't know it from? Consumers. And consumers are remarkable in this country. Whether it be homes or cars or shirts or sweaters, consumers are spending beyond what would seem to be possible.

 

Every time you think consumers are quitting, whether because there's a hiccup at Coach (COH) or a downbeat number from Nike (NKE) or a disappointment from Deckers Outdoor (DECK) or a skipped beat at VF Corp. (VFC), you draw the wrong conclusion.

 

Hedge funds in particular are guilty of this kind of corrosive, across-the-board thinking. They don't think, hmm, Coach has taken its eye off the ball in this country by stopping its couponing. Instead, they short every department store. They don't think, aha, Nike's charging too much for goods in China, they say footwear is awful everywhere. They don't think Uggs, the key brand from Deckers, has peaked, they think the stores that carry Uggs, like Nordstrom (JWN) and Macy's (M), have stopped ringing up big sales. And when VF Corp. botches the quarter, they don't stop to ponder how strong the U.S. was and how Europe offset it. They just bet against every apparel company.

Which brings me back to PVH. You know a stock doesn't go up 20% in a day just because you bump numbers by 30 cents, which is how much the company predicted it would gain simply by purchasing Warnaco with its Calvin Klein jeans and underwear licensing businesses.


PVH goes up that much -- and then follows up with another rally Thursday -- because so many hedge funds are short it. They figured how can they lose if the analogs to PVH, the shoe, handbag and outerwear makers, had messed up.

 

The answer is that the other companies simply didn't execute as well as they should, and when they get the execution right, people will flock right back to their stocks. Plus, it doesn't hurt to get terrific numbers from the likes of Macy's, Kohl's (KSS) and Nordstrom, as we did Thursday.

 

The extrapolation of weakness from the weaker reporting apparel and store chains never seems to stop, though, simply because the vast majority of active trigger-pullers just can't get their arms around the idea that consumers are alive and well, especially not with this slow employment growth. They seem shocked when something good happens. They are constantly fearing and betting on the worst happening when the smarter wager is to bet on consumers, not against them.

 

Ladies and gentleman, gloom is not a strategy. It is a feeling, and the feeling has not been actionable, no matter how many times people try to shoehorn it into their stock thinking. So before you get too negative across the board because of one player's weakness, remember the PVH run. Sometimes the big money is made with optimism, not pessimism, especially when it comes to U.S. retail spending.

 

Jim Cramer's face, TheStreet

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.

 

 


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19Comments
Nov 2, 2012 11:41AM
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Basically:

 

You can always bet on the stupidity of the people.

 

In the other hand, if you take REAL inflation into the equation then I'm not so sure if the numbers reflect what you know its going on at street level:  "Pay more for less"
( I will trademark this slogan...before the Waltons use it in a future sales campaign)

Nov 2, 2012 10:43AM
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Consumer confidence ? Unemployment at 22% and climbing if you dont rig the numbers ! 10 million homes in the 5 big Banks shadow inventory !   3 million homes in some stage of default or foreclosure ! But yes consumer confidence is on the rise the recovery is happening right in front of our eyes ? HAPPY HOLIDAYS TO WALL STREET= YOUR( TO BIG TO FAIL)=ABOVE THE LAW
Nov 2, 2012 11:37AM
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"But you know who we don't know it from? The consumer. And the consumer is remarkable in this country. Whether it be homes or cars or shirts or sweaters, the consumer is spending beyond what would seem to be possible."

 

Is anyone going to point out that this means consumers are going back into debt?  We've ridden that train before and we know it can only last for so long...

Nov 2, 2012 10:52AM
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sucker trades:

 

aa(BEST DOW STOCK) at 18 now 9

sell clf at 32 now 37

buy clf at 44 now at 37

nyx(STOCK OF THE YEAR) at 93 now at 27

 

PLEASR RESEARCH THIS HACK .....THE DISCLAIMER ON CNBC IS THERE FOR A VERY GOOD REASON

Nov 2, 2012 9:56AM
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Advice for the day ---  Don't take no wooden nickels.
Nov 2, 2012 10:48AM
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you wanna know what's been a real sucker trade?  following this hack is close to the worst

you could to your net worth

Nov 2, 2012 12:35PM
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"Gloom is not a strategy.... it is a feeling....." oh yea right, that feeling depends where you are in the grand scheme of things or where you are standing in the unemployment line. For elderly retired folks with incomes that did not go up in how many years.... but the cost of food and fuel does not count you understand...... buying cars and shirts and electronic gadgets will not give us heat this winter, finding $2 longjohns at the Salvation Army might help. Listening to Mr. Cramer on TV a few times talking about things he purchases for his kids, yup that is wonderful to do for your family, but like the major poliitcos he has no clue what us below average income people are facing, he can't see far enough down the ladder. Santa long ago retired in my world but some of those lumps of coal would be helpful about now. Lies, damn lies, or statistics, take your pick. 
Nov 2, 2012 12:48PM
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Looks like the SPINNERS are back from lunch break.We're already headed out of the red,should be in the green by the end of the day.A good lunch always helps them turn reality into the green BS.                 Never mind,looks like we're headed to red-ality again !!!
Nov 2, 2012 5:52PM
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MIRAGE GUY:You should read some books on economics.Everything you say is dead

wrong.If you had put money in the market when Obama took office you`ld be up 60%

and be singing the praises of Obama instead of being mean, nasty and bitter towards

the Dems.We have a winner in there.Put your money in the market and by 2016

the Dow will be 20,000 and you`ll be rich and happy like my family.

Nov 2, 2012 11:17AM
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There`s never been an accurate way of figuring unemployment or inflation.Anybody

that quotes those numbers is a complete idiot.They might as well get their info from

the national inquirer.

Nov 2, 2012 11:41AM
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Let`s not forget that most of the economy is doing great, like where we`re living.If you`re

living in a depressed are you need to go to a booming area.The economy is booming

big time in N. Dakota.That`s where these sour posses should go.

Nov 2, 2012 11:12AM
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People just like to complain.I come from a family of die hard Repubs that always vote

a straight Republicans ticket, only now nobody really likes Romney with all his lies.My

sister lost her job that paid $20 an hour and now she got another that only pays $18 an

hour and she acts like nobody has it worse than her.We have a lot of problems that

havn`t been addressed for 10 years in this country.

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