In retail, pessimism doesn't pay
Consumers are tenacious, and one company's miss doesn't sink the whole sector.
You 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 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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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.
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.
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)
"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...
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.
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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