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Macy’s Facing The Big Needle

Attention Geeks:

The American Customer Satisfaction Index for retailers in 2015 came out today and it’s a pretty good read for those with a taste for the dry.

Retail is a game of expectations and momentum. Tell the customer what to expect then give them just a little bit more. As long as a chain is doing that well the business (and stock) will survive inevitable setbacks.

Shoppers are surprisingly reasonable. They don’t expect to have their hand held at a Target. They just want the store clean and orderly. Department stores need fancier fixtures than discounters. All grocery stores have to seem clean.

The ASCI numbers are typically fairly well correlated. In better economies customers want their arse kissed more. Not one merchant scored higher this year. I blame the Millennials and their sense of entitlement.

There are some notable standouts. Home Depot’s less capable sibling Lowe’s had the biggest drop in the survey. Only 74% of Lowe’s customers were happy with their experience in 2015, down from 81% in 2014. Home Depot stomped a mudhole in estimates this morning (in a good way) and we hear from Lowe’s tomorrow.


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The fact that HD and LOW fell is also an economic tell on housing. Housing supply stores have a hard time staffing in hot housing markets. Anyone who knows how build can make more money practicing their craft than working retail.


Big Freaking Problems for Macy’s

I showed the department stores earlier but it’s worth revisiting.



Macy’s customer satisfaction drop off was the second largest in the survey but suggests a much bigger problem than Lowe’s. When I rant about retailers wasting money on buybacks it isn’t (only) because I’m an ass. It’s because I’ve worked retail. I was at Macy’s when the chain went bankrupt in the early 90s.

All this is really personal to me. When I see an 8% drop off in customer satisfaction at Macy’s I see a bunch of laid off employees sitting at home as customers go un-waited on in stores and bankers collect pennies per share on Macy’s dumbass buyback. I see a company dying. I see it all at once.

Which doesn’t make Macy’s a short. In fact, I’m long because I believe management will be ousted by the end of the year. But customers won’t come back just because some activist starts spinning off Macy’s stores. The chain will die. It can’t justify it’s own existence as it is. As the fixtures start falling apart and the place becomes a dump shoppers will stay away in droves.

The other day my lab took himself for a walk. He’s 11 and I’m attached to him the way a man gets tied into a dog after a while. He defines an era of my life.

So my heart sank when I found Dunkin’ slowly loping towards me across a street in front of an oncoming car. It’s a residential road so the neighbor’s car only bruised my knee a little when I threw myself on the hood to save a slightly decrepit animal that’s pushing 90 in people years.

The feeling of dread I had watching the scene unfold, that sense of “oh crap, I’m watching this thing die”, has lingered with me all week. That’s what I see with Macy’s. It’s an old, dumb, sort of lovable-ish animal about to unwittingly kill itself for no good reason at all.

Dunkin (and friend): Destined to outlive Macy's
Dunkin (and friend): Destined to outlive Macy’s



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Macy’s Liquidation Works For A Trade

Shares of Macy’s are higher in the pre-market after the company reported exactly the type of dumpster fire Wall Street was told to expect.

Those of you who took part in last night’s investor Bootcamp know I’m long the stock. The thesis isn’t my confidence in management. Quite the opposite. Macy’s has terminal cash flow cancer. The play here is the company falling into activist hands.

From that admittedly dark perspective here’s my favorite part of the quarter:



Cash flow from operations fell 27% last year. Despite the decline in liquidity Macy’s spent $2b on buybacks (avg cost: $69.80). They made up the difference by cutting cap ex. Cutting cap ex is death in retail. Cap ex is retail speak for store maintenance and the little touches that make a customer feel special.

Macy’s can’t afford to cut cap ex more. In the just-released ASCI report on consumer satisfaction Macy’s had by far the largest year over year decline among general merchants:




Macy’s scores lower than JC Penney. If they were running M for the long haul they would Jack up cap ex dramatically. Macy’s is going the other way, reducing spending in stores by 19%.

As my dad was fond of telling me, “a dirty store says f*** you to the customer”. Macy’s is planning to insult even more customers this year.

This isn’t a long term position. It’s a trade and it’s working. If you want to hear more sign up now for Part 2 of the iBankCoin Bootcamp.

Off to the Macy’s call… This oughta be interesting.

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AutoNation Doubles Down On Buybacks

$250 million doesn’t go as far as it used to, especially if you’re a flagging retailer trying to prop up a drooping stock.

AutoNation doubled down on its latest round of buybacks this morning, authorizing a new $250million share repurchase program. If the amount sounds familiar that’s because AN did exactly the same thing less than 6 months ago.

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How’s that working out for shareholders? Not great, as it turns out:

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Per some nice work over at SeekingAlpha, AN seems to have purchased about 7-million of its own shares since January 27th.

I’ve written extensively about my personal experiences discussing buybacks with AutoNation execs. I’d guess they feel the program is a success based on the fact that shares are only down ~25%. All they had to do to contain losses was repurchase 5% of the company on the open market.

If you’re a long term believer in the company you want the shares to fall. By manipulating the price AN’s board is preventing you from getting a better entry point. To the extent buybacks actually work to prop up stock prices they effectively steal from outside investors by artificially inflating your cost basis.

I don’t have any position in the stock so I really don’t care. It just makes me feel bad to see investors applauding a board for ripping them off.

See Also: How’s The Buyback Going, AutoNation?

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The President America Deserves

Donald Trump laid waste to the field yesterday, winning his second straight primary and sending Jeb Bush to the showers.

If Trump were any other candidate the remaining primaries would be academic. What the GOP is supposed to be doing right now is coalescing around the obvious front runner while Ted Cruz and Rubio fight to the death for VP. Instead Republicans seem content to simply keep running these things until anyone other than Trump wins so they can declare him the official nominee.

As Josh Brown noted, yesterday Trump won South Carolina in a walk after picking fights with Apple computer and the most popular Pope ever. Who’s going to stop such a man from getting what he wants?

Of Course Trump Can Win

Because we have the attention span of gnats there is general amazement Trump has made it this far. That’s just silly. Trump is working the same playbook Jesse Ventura and Arnold Schwarzenegger used to become governor of Minnesota and California, respectively. The platforms are different but elections have little to do with policy. They are about emotion. Outsiders all work the same gimmick. “The incumbent doesn’t care about you… I know what real people want and I don’t take shit or handouts. No one believes us but we are going to shock the world“. For as long as we’ve been holding elections this message has struck an emotional chord with American voters.

As it should.

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The Hon Jesse Ventura (MN) and Arnold Schwarzenegger (CA)

I’m not a political historian but I did spend most of the 80s either lifting weights or getting my brother to take me to see Jesse do his professional wrestling thing at the St. Paul Civic Center. I’ve seen these types of guys come around and watched them closely. People forget but you could count the number of white guys who shaved their heads on one hand until about 2010. Jesse took us mainstream and went from working as a bouncer to governor by playing to our natural desire to flip off the boss.

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America elects the leaders it deserves. We take offense at the slightest gesture and are relentless ball-busters. If we don’t have a mortal enemy to fight at any given moment we simply invent one and quickly, mercilessly vanquish it. We are a great and powerful nation, just not quite as much so as we think. The United States is like a successful friend who would be lot cooler if he could just shut-up and stop making every damn thing a mortal competition.

Our bombastic national leanings leave us vulnerable to the occasional Ventura or Schwarzenegger. “We need a tough guy in office!” we cry. “He couldn’t be any worse than the jackasses we have now.”

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And on the margins that’s pretty much the case. Minnesota and California survived celebrity leaders just fine. Ventura’s reign came and went. Schwarzenegger proved the governor of California literally has no authority other than death sentence appeals. Both states went back to more conventional candidates eventually.

It hardly matters that there’s little to suggest Trump would be an effective President. If you removed the names of the candidates and just looked at the primary data so far you’d say this was obviously going to come down to Trump vs. Hillary with Trump sitting as a slight favorite.


The Trump Reality

The most Reagan-esque thing about Trump is how easy it is to underestimate him. I was very young at the time and am too lazy to Google on a Sunday morning but I’m 90% sure Jimmy Carter’s 1980 platform was “The guy from Bedtime for Bonzo? Are you f-ing kidding me?“. Carter could do the Sunday Times Crossword with a felt-tip pen in the time it took Reagan to pick through Ziggy but elections aren’t an IQ contest. If you were going on a road trip with Reagan and Jimmy Carter you’d flip the keys to Reagan. Sometimes it’s just that simple.

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Much of Trump’s appeal is based on tweed-wearing ninnies blanching at the vulgarian. Trump is clearly having more fun than anyone officially in the race right now. He’s the Last Call candidate. “We’re out of decent people… Might as well take that guy”. If something I’m doing offends Chris Mathews there’s a pretty good chance I’ll do more of it, just for sport.

Trump is a gaseous planet. There’s substance in there someplace but it’s hard to measure. Take his offspring. I have no idea how much Donald had to do with the raising of these children but they are extraordinary by any reasonable measure. Finance is more gossipy than a sewing circle and you don’t hear anything bad about the Trump kids. Ivanka could probably finish 4th or 5th and she’s not even old enough to run.

“It’s easy to be great when your dad is rich” is the biggest beef against the spawn of Trump. It’s BS. The streets of NY are strewn with failed brats of the rich and famous. Ivanka should be doing blow with the Kardashians instead of beaming like a goddess at her dad’s victory party. Trump’s kids haven’t ended up on TMZ. That says good things about the man. Under his odd orange glazing and $50,000 comb-over Trump is genuinely proud of his daughter in this picture I took off my TV last night:


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You can’t fake “that’s my girl” pride. That’s as sincere as you’ll see a man and Trump is genuinely likable grinning like a proud fool while his daughter bails out a disastrous speech by the current Mrs. Trump. The guy can’t be a totally vacuous idiot or least one of his kids would be a disaster. That’s just math. Here’s more math: Trump is winning. By the time MSNBC takes him seriously Trump will be gilding the Oval Office.


Disruption is ugly. Trump has blown up the entire funding system of elections. Jeb Bush blasted through scores of millions and didn’t make a mark in this race. Trump has obviated the 30-second campaign ad simply by being really good on TV and Twitter.

Trump’s legacy will be obliterating the SuperPac. He has monetized charisma via social media. A good Tweet from Trump is worth 2 or 3 Morning In America commercials. The American political machine is being saved from itself, accidentally, by a hyper-levered megalomaniac. A billionaire figured out how to run for President more or less for free.

There’s a certain cosmic beauty to that fact. It speaks well of America to have created such a system. That might be hard to see for a few years but is nonetheless true. Trump is an agent of chaos. We could use a little chaos right now.

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If you’re not familiar with Jesse Ventura’s political career here’s a decent piece from FiveThirtyEight.

It’s Morning Again, In America

Update: Melania Trump speech

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WTF Did Yahoo Say? The Strategic Translation

Yahoo provided some more clarity on its previously announced plan to pursue strategic alternatives this morning. Which is to say, the company issued a boilerplate statement about putting together a Strategic Review Committee and named the banks who will now be paid to make contact with the pool of maybe 15 groups on earth who could conceivably have an interest in acquiring the company.

Nice work if you can get it. A special shout-out to Goldman and JPMorgan. Both firms were on the team that was hired 3 years ago to try to find a tax loophole big enough for Yahoo to hide as much in $16b in taxes the company would owe if it sold Alibaba on the open market. After the subsequent plan failed to get a nod of approval from the IRS Yahoo was forced to apparently start from scratch. It’s a credit to GS and JPM that they could be paid both to help light a company on fire and snuff it out effectively as possible later.

Yahoo is firing 15% of the company (in small tranches every Wednesday, according to re/Code).

Today was supposed to be an update on the release February 2nd when Chairman Maynard Webb said “The Board also believes that exploring additional strategic alternatives, in parallel to the execution of the management plan, is in the best interest of our shareholders.”

Yahoo liked that phrasing so much they had both Maynard and CEO Marissa Mayer repeat it almost verbatim a couple more times today. There’s nothing new here beyond an updated roster of advisers. Unless Maynard and Mayer had the same writing teachers from 3rd grade through college I’m guessing their statements were written (cut and pasted) by a third party. There’s something chilling about a company issuing a form letter this lazy the same week they sack everyone tasked with pursuing fruitless vanity magazines for 3 years.

Tough situation. I wish the best for all.


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It’s Groundhog Day. Again. Danger!

Humans are lousy at pattern recognition.

There is a ton of cool research on this topic. The studies have names like the Clustering Illusion and the awesomely graphic Texas Sharpshooter Fallacy. They ¬†all say essentially the same thing: Humans underestimate randomness. We miss obvious clues and find patterns where they don’t exist, especially when doing so fits our existing beliefs.

This glitch in our mental Matrix explains the appeal of charts like this one making the rounds yesterday:

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It’s the S&P500 chart from two different time periods. The blue line is the index from 2015 through yesterday. The red line is the S&P 500 during 2008 and 2009.

In the off chance the bright red “You Are Here” arrow wasn’t clear, the suggestion is the stock market is on the cusp of a total collapse. The S&P500 fell more than 38% in 2008. Bad times.

This is great charting in the sense that it’s a nice visual and viral as hell. It punches all the right emotional buttons (fear, recency, the desire to not feel stupid about missing the 4 day rally). It’s a shot of dopamine in graph form. That’s what makes these things so popular.

A few years ago we were on the verge of “another 1929”. According that Doomsday chart the early stages of 2014 were the summer of 1929: the last exit ramp before hell:

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The prediction turned out to be bullshit. Stocks have yet to repeat the 90% decline following the 29 crash. (Remember… I said “yet”.)

We don’t need to work this hard to be scared.

You want a frightening and far more likely trading analog? Today could be another Groundhog Day. Again:

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From January 20th to February 1st stocks rallied more than 7%. 8 trading days later (last freaking Thursday in case you just got here) stocks made new intraday lows then reversed once again.

In fact, the action near the lows in January and February was so similar I used the same basic graph twice:

February 8th: “Stocks Rally -1.4%”
Greatest Comeback since the first Easter
January 20: “Stocks Rally -1%”

I wasn’t being lazy but ironical. I was making fun of the fact that the job of financial punditry is to watch basically the same things happen over and over again and pretend like it always matters. It was also gallows humor; a personal favorite and staple of market crashes throughout time.

It’s a clickable story to compare this period to 2008 but a far better, scarier, explanation is sitting right front of us. Last week’s rally left us near the top of a mean-ass range and are about to plunge back to 1800.

Such an outcome would be just as my dog foretold the last time stocks were fighting to stay above 1920


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Walmart Needs A Real Friend

I wonder if Walmart realizes how screwed it is.

I don’t mean that smugly. I want Walmart to win. I think it’s run by smart, generally good people. But even smart people can lose perspective if they don’t have outsiders getting in their face occasionally. Corporate cultures are like royal bloodlines; if you don’t freshen the breeding pool up every so often you start to go a little “Windsor”.

I love Walmart, though. It makes me sad to sincerely wonder if the company has any grip on the degree to which it’s getting murdered in what it still calls “the e-commerce space”. Because there’s a growing chasm between how Walmart should be viewing its online efforts and the spin the company is offering in public. Such disconnects are the calling card of a company losing it’s grip on reality.

Corporate dementia is usually bearish. In this case it’s a matter of life and death.

This morning Walmart reported .6% comp store gains in the US for the 4th quarter. That includes 25-basis points of boost from e-commerce which sort of counts as one big store*. Walmart says online sales grew globally by 8% in Q4 and 12% for the full year, rising to $13.7b. Walmart is crowing about serving 20 US markets with online grocery already.

Some problems:

  • Walmart’s growth online is lagging the growth rate of cyber-retail as a whole, which grew 14% last year according to the government.
  • Amazon grew US sales by more than 24% to $21.7b in Q4.
  • This morning Amazon is leaking reports that it plans to hire more “Uber like” delivery employees. That’s not really “news” (as I’ve reported Amazon is already doing same day delivery in many markets… they’ll be same day, nationwide by next Christmas). It’s just a reminder of how far ahead of Walmart Amazon is. In fact, I’m pretty sure Amazon is hyping this just to screw with Walmart. I have no proof of that but I really want to believe it.
  • Walmart should not be at all pleased about a below-average growth rate online. It has more resources than any other retailer on earth. Online is still up-for-grabs and Walmart is losing share to the field. Walmart is getting its ass kicked by Etsy. Saw Walton would not be pleased.
  • Look at the growth rate of E-commerce as a percent of total US sales in the graph below. If there was a country with a market that was 10% the size of the US and growing in the teens Walmart would be throwing every available penny at the opportunity:

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  • I can forgive Walmart not growing abroad. Retail concepts seldom travel well. Merchants should assume every foreign country is Vietnam. I wouldn’t expect Walmart to grow any faster than US GDP at physical stores**. But Walmart has to grow online. Walmart can’t afford to be 1/8th the size of Amazon and fading fast.
  • That being the case, the execs should actually be sheepish about these stats. Instead they are marveling at the shopping habits of online grocery buyers. That’s either an awesome job of spinning or evidence of a disturbing lack of urgency.
  • Walmart is run by very smart people. It’s a legendarily tough company. That makes me wonder if they have any real friends in-house. A friend is someone who isn’t afraid to tell you when you’re screwing up. They tell you uncomfortable truths, over and over again. That’s how you can tell they’re you’re friend. I’m not sure Walmart execs have anyone with the wontons to tell them they’re 10 years from becoming Sears.
  • I’ll be your friend, Walmart. Call me.


*Walmart doesn’t make it easy to put this data together, for obvious reasons.

** NOT the Law of Large Numbers.

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Jack Splat! Who Killed Jack In The Box?

Shares of Jack in the Box are down some 20% after the former darling of last year’s “casual burger dining” bubble reported disappointing earnings and cut guidance last night.


In the short term the biggest concerns were the weak same store sales, both at the main Jack in the Box units and the once high-flying Qboda Mexican food unit. Qboda comps rose 1.8% despite the extreme tailwind provided by competitor Chipotle’s widely publicized E. Coli problems. Chipotle comps have down 30 and 36% in the last two months yet Qboda struggled to stay flat.

Red flags don’t come any bigger.

Jack said namesake units were hit by McDonald’s all-day-breakfast initiative. It would be more accurate to say Jack and its peers got stampeded by MCD simply waking up from a long slumber.

Here’s JACK vs MCD from 2012 when MCD posted negative comps for the first time in memory and last year when MCD named a new CEO:




It was an amazing run and Jack is to be credited for grabbing share from a sleeping giant. Of course it’s easy to win when the competition is unconscious. The trick is not getting stampeded once the giant awakes. On that front Jack isn’t so nimble:




This is would an outstanding time for Jack to consolidate the gains it can save and dedicate resources to invigorating company concepts. Life in a world where MCD is posting 5.7% comps is much different than the situation 3 years ago when Japanese customers were finding bits of human beings in McDonald’s fries.

To its future shame, Jack is answering the threat of a rejuvenated McDonald’s with repurchases. In fiscal 2015 Jack spent $317m buying shares at an average cost of $84. In Q1 Jack spent another $100m buying stock at over $78. Last night the company said it was adding another $100m to the program.

That puts Jack on pace to spend 4x as much on buybacks as they do on Cap-ex. It’s the worst capital allocation since the French paid for our revolution rather than spending Parisian citizens. Look for a Franchisee revolt by the middle of this year if Jack puts up another quarter as bad as the one we just saw.

I’m playing by staying long McDonalds. No sense making this too complicated.

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Amazon Is Flirting With Me

I know you want to chase the rally. In less than a week all your fears of a market crash have pulled a 180 and become a pit in your stomach that grows larger and more painful every time you see Netflix slide across the screen up $4. Good lord you missed the entire correction of 2016!

It feels like the only way to assuage the pain is getting long. Sure, you missed the lows but you can still catch the meat of this move if you hurry up and buy. You really want to wait?! You waited yesterday and all that did was cause you to miss the gap higher this morning.

Every time I look at Amazon it’s a dollar higher and openly mocking me for not buying it below $500. Shares of AMZN are a Siren Mermaid, becoming more irresistible as they get more expensive. They aren’t just going higher. They are naughty.

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Amazon is supposedly up today on news the former bookseller is going to start selling private label clothing.

I’m picturing lots of khaki. Suffice it to say Amazon has a ways to go before it catches up to Nike. The point is, Amazon news is being driven by the fact the stock is higher, not the other way around.

Market timing isn’t magic. It’s not science. It’s art and probabilities. Right now the most likely scenario is this rally carries just a little higher than anyone thinks then dies a miserable death. All the stocks being squeezed a lot (GoPro) and a little (TWTR) today will most likely take out old lows, if past is prelude (which it never is precisely but often enough to pay attention).

We could go back to old highs but a full bull market from here is the lower probability bet. So the smart money says take gains but, wow, chasing would feel so much better.

For my personal siren, about $580 for Amazon is the level at which I plan to have my son bolt my hands down so I can’t get long just a little bit. Rallies tend to be the most dangerous time of bear markets. Control your emotions by paying attention to little things like the way I notice Amazon is flirting with me.

Again, your fetish may vary.

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Rally Hats! Fat Candles And A Hot Market

Another day another gap higher as investors celebrate the world not blowing up last night with a decent rally.

As of the open this morning the S&P 500 had tacked on a cool 85pts since the lows from last Thursday. The high on February 1st was 1947. Yesterday’s close at 1894 marked a perfect 62% retracement of 147pt 6-day loss.

Which is sort of cool but probably won’t prove critical. More concerning are the crazy trading ranges that have been happening for the last month. Today could be the 14th time intraday and 8th time the 1900 level has been taken by the forces of good or evil.

The idea of endlessly taking on and off S&P500 1900 hats and all the fat candles over the last month got me thinking of Lumiere, the hyper-sexual candle in Beauty and the Best.

I’m sure I’m not alone on that…

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It’s not normal for the S&P 500 to move 2% a day. Not remotely. Here (via Bespoke) is average daily market data from the 2009 lows to 2012.

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During this relatively benign but not uneventful period stocks changed about 9-basis points, or .9% a day.

Here’s what it looks like now:

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The ATR is the the 14 day moving average change of stocks. It’s true volatility in the price of stocks. Right now the ATR is 37.5 or about 2% (37.5pts = 1.98% if the S&P 500 is 1895). That’s more than double the long-term average. It’s not a historically high level but it is elevated.

What has me obsessing about this wonky measure is that this is the longest I’ve ever seen a market grind and reverse with such weird consistency. Stocks have gone nowhere for a month but they’ve done by moving 2% a day.

That’s weird. I tend to think it’s bullish (weak hands getting flushed) but it certainly represents a turnover in the nature of people holding stock. Presumably we have stronger hands in stocks than we did a month ago. If oil drops to $10 tomorrow that won’t matter at all but all things being equal it’s good to have braver money long stocks.

When the market gets healthy the ATR will fall immediately. Bull markets take escalators higher then fall down elevator shafts. We’ve spent 20 trading days shaking furiously in place. That’s generally not great but may not be today’s business.

What matters today is that Tuesday’s close is now nice support. 1947 is huge resistance but there’s supply every step of the way. Today feels “reversalish”… like it wants to start higher and roll-over all day. I’m not trading on that feeling as the feeling could just be me not feeling like I’m long enough. Watch the close. More in a bit.

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