Thanksgiving weekend shopping reaffirms a recovering US consumer

the National Retail Federation survey…

The National Retail Federation released the results of its annual Thanksgiving weekend shopping survey, consisting of interviews of 4300+ consumers, yesterday.

The headline results are:  bigger crowds, $45 billion spent–up about 9% year on year.

The actual survey results, also available on the National Retail Federation site linked to above, contain more interesting information, namely:

–people traded up.  Shopping at discount stores dropped from 34.2% of the respondents in 2009 to 40.3% this year.  In contrast, department store shopping rose from 49.4% to 52.0%, and specialty retail store patronage grew from 22.9% to 24.4%.

–the types of gifts shifted from necessities to discretionary items.  For example,

—–14.3% of respondents said they bought jewelry last weekend vs. a low of 9.6% in 2007, 10.9% in 2008 and 11.7% in 2009

—–33.6% bought books, CDs, videos or video games vs. 41.7% in 2007, a low of 39.0% in 2008 and 40.3% in 2009

—–24.7% bought gift cards/certificates vs. 21.0% in 2007, a low of 18.7% in 2008 and 21.2% in 2009

—–of economically sensitive spending areas, only housing-related (home decor and furniture) is a significant laggard.  Among survey respondents, 20.2%  are spending on this category this year vs. 19.6% in 2007, 20.3% in 2008 and 19.9% in 2009.

–a third of all purchases, by dollar value, were online, with 33.6% of respondents saying they had shopped on the internet.

Many news sources, the New York Times, for example, are reporting that shoppers were also buying things for themselves rather than just holiday gifts for others.

…adds to the evidence of a healthier consumer

Over the past several days, other positive consumer indicators have been announced.  Last week, the Labor Department reportedThe Thompson Reuters/University of Michigan survey of consumer confidence hit a five-month high, although the release itself makes for pretty dismal reading.  While respondents may be feeling more secure now than for almost half a year, they expect the unemployment rate to stay high and salary increases to stay low.

investment implications

For a long time, I’ve been writing that I think that the recovery of the US economy this time around would follow the pattern of the rest of the world (that is, industry improves first, consumer second) rather than the shape it has invariably had in the past, at least throughout my investment career (that is, consumer first, industry second).

Recent data, and especially the NRF survey, seem to me to be in accord with my view.  I read them as saying that finally, almost eighteen months after the economy low, the US consumer is beginning to perk up again.

Ex discount stores like WMT and TGT and home improvement outlets like HD and LOW,  this suggests retailers with significant US exposure may be becoming more profitable than the consensus expects.  Stocks whose main virtue is that the vast majority of their sales are outside the US, in contrast, may begin to lose their allure in Wall Street’s eyes.

It’s relatively easy to check any stock’s geographical revenue breakout (and maybe operating profit, as well, depending on the company).  It should be in the firm’s annual 10-K filing with the SEC, available on the agency’s Edgar website.

more on insider trading

A number of new ( to me, anyway) pieces of information about the current FBI/SEC insider trading investigation have emerged over the past few days.  They are:

1.  Many commentators have noted that the investigation resembles much more closely an FBI operation against organized crime than the “usual” kind of SEC action.  The latter case typically has involved followup from red flags that emerge from SEC monitoring of trading patterns in individual stocks.

In this case, in contrast, the investigation has apparently been going on for three years, involves the FBI, includes wiretapping, and seeks criminal penalties.

No one I’m aware of has publicly drawn an obvious inference from this behavior, though.  If the focus of this probe is organized criminal enterprises, it seems to me that the government will be seeking, or at least threatening to seek, penalties under the Racketeer Influenced and Corrupt Organizations (RICO) Act of 1970.

Under RICO, which requires that prosecutors establish a pattern (meaning at least two acts) of illegal activity, those found guilty can be sentenced to twenty years in prison for each racketeering act and fined $25,000.  They can also be sued in civil court by those they have wronged for triple damages.  Defendants’ assets can be frozen prior to trial (making it hard to pay your lawyer).  The government’s reach is also extended to include all a person’s assets, not just those connected with the legal entity where a crime has occurred.  In other words, if you’ve traded in insider information as an agent of a corporation or partnership, your house, your bank accounts, your art collection, your cars…are all at risk, not just corporate or partnership interests.

RICO has a history of being used in combatting financial markets crimes.  Corrupt junk bond king Michael Milken was indicted under RICO in 1989.  Drexel Burnham Lambert, the firm Milken worked for, was threatened with a RICO indictment as well.  Both pled guilty to lesser charges.

I think RICO is the next shoe to drop.

2.  Former SEC head, Harvey Pitt, has been making the rounds of financial TV shows giving his opinion about what the FBI/SEC are doing.  The most interesting point he makes, I think, is on CNBC, where he points out that this investigation can’t involve a gray area that may, or may, not be insider trading.  For the resources involved in this case, and given all the publicity the agencies have generated, it must concern clearly illegal activity.  (Mr. Pitt says this around minute 3:10 of the CNBC interview.)

Points Mr. Pitt makes in other interviews:  this action is focussed on hedge funds and comes as a result of authority explicitly granted to the SEC by the Dodd-Frank Act.

3.  Don Ching Trang Chu, an employee at  a California-based “expert network”

firm, Primary Global Research, was arrested by the FBI on November

24th and charged with conspiring to distribute inside information.  The way Mr.

Chu’s business is described in the US Attorney’s press release and by

Bloomberg among others, it seems to have consisted in large part in finding

compliant middle-level employees in technology companies.  These

employees would disclose company operating results, sometimes in great detail, to

hedge funds some hours in advance of their being made public in return for money.

In a narrow sense, for a long-term investor the question of whether a company’s

short-term results are 1% higher or lower than the Wall Street

consensus is of little consequence.  The larger issue, however, is that the

perception that monied interests can rig the game in even one aspect can

undermine the public’s confidence in the markets–thereby delivering lower price

earnings multiples for everyone.

And of course, a sheriff must fear that if everyone believes he’s asleep on the job

he’ll be thrown out office and replaced.

This story will likely get more interesting as it unfolds.

Tiffany’s excellent 3Q2010

the results

Tiffany reported surprisingly good results for 3Q2010 before the market opening on Wall Street Wednesday morning.  Earnings per share were $.46  vs. analysts’ consensus expectations of $.37.  Sales were up 14% year on year, again higher than anticipated.  Worldwide comparable store sales were up 7%.  In contrast to 2Q2010, when TIF reported strong results but saw its stock fall 6% on the news, the shares rose over 5% in Wednesday trading.

The company reported that results improved month over month through the quarter, and that 4Q2010 sales growth “is exceeding our expectations” so far.

Based on the strength of the third quarter, TIF is raising full-year guidance to a range of $2.72-$2.77, compared with the previous range of $2.60-$2.65.  In other words, the company is raising its fourth quarter guidance by $.03.  The content and tone of the company’s remarks, however, suggest that this is a really conservative number.


Generally speaking, TIF’s third quarter followed the overall pattern of the second (see my post), only business was stronger in almost all areas.

Sales outside the US were higher than domestic sales for the first time.  Given the much faster growth rate of the Pacific ex Japan and Europe for TIF, it may be a long time before US sales catch up, if they ever do.

Third quarter revenues break out as follows:

US     $331.8 million, up 9% year on year,  49.7% of total sales

Japan     $130.8 million, up 12%, 19.6%

Asia Pacific     $127.1 million, up 24%, 19.1%

Europe     $77.5 million, up 22%, 11.6%.

There were significant currency fluctuations during the quarter, with the yen rising and the euro falling.  On a constant currency basis, sales in Japan would have been up only 2% and those in Europe would have been up by 29%.

Comparable store sales were up as follows:

Worldwide     +9%, +7% on a constant currency basis

Americas     +6%, +5%

Asia Pacific     +15%, +11%

Japan     +8%, -2%

Europe     +16%, +24%

Let’s say that the current geographical growth rate continues at the same level for the next five years.  Unlikely (something unexpected always happens), but if so, the company’s geographical sales breakout would look like this:

US     39%

Asia Pacific     29%

Europe      21%

Japan     11%

In 2015, then, TIF would have about half its sales coming from Greater China and Europe, the US would remain a significant contributor, and Japan wold grow a little in absolute terms but shrink in relative size.  Not a radical transformation from where the company is today, but a more than subtle shift in the sources of earnings.

details of the quarter


Sales were driven by higher prices rather than more units.  Sales of items priced under $500, mostly silver ,were down year on year.  In contrast, sales of items price over $500 were up 10%.  Management said it sees this divergence as reflective of the shape of economic recovery in the US, not the effect of trading up.  I presume this isn’t a social/political opinion, but rather a statement of what its customer analysis software is telling it–that wealthier Americans are feeling more comfortable, but that the less affluent are not.

A greater proportion of sales is coming from foreign tourists.

Year on year sales growth was +1% in August, +6% in September, +10% in October.

Comp sales in the flagship Fifth Avenue store were down 3%, but that’s likely because the Annual Blue Book sales event at the store was held in October last year vs. in November this year.

TIF is “pleased” with the early reception of its new leather goods line (I don’t know the company well enough to understand whether “pleased” is good or bad).

Asia Pacific

Half the sales come from Greater China.  This half also has the highest growth.  As in the US, year on year comparisons strengthened as the quarter progressed.  Fine jewelry and engagement rings were especially strong.


Sales growth was driven both by increasing units sold and increasing prices.  the UK and Continental Europe were equally good. There was no trend to monthly sales.  Most business is done with local residents, but foreign tourist sales are beginning to increase as a percentage of the total.


Sales comparisons were increasingly favorable as the quarter progressed, with comps turning positive in October.  Relatively flat sales in yen were a product of decreased units and higher prices.


Strength was in the higher end.  Silver was good only in Europe and Asia Pacific.

The company continues to rehire staff laid off during the recession.

It will accelerate new store openings in 2011.

TIF has bought $72.8 million of its own stock, year to date, at an average price around $43.  It has $329 million left to spend under the current board authorization, but will probably not spend the full amount this quarter (which says the company doesn’t see the stock at $60+ as a screaming buy).

The company will probably raise prices again early next fiscal year, to offset higher raw materials prices.  Platinum and silver are the most important, with gold not so key.  Labor costs are also under good control.

my thoughts

I should start by saying that I was struck when I wrote about TIF’s second quarter that it was as cheap as I’d ever seen it.  So I ended up buying some in September.

TIF seems to me to be in an unusually advantageous position.

–It appeals to Europeans trading down and to aspirational buyers in emerging Asian economies.

–Although its main market, the US, is mature, TIF is a dominant force.  The company benefits from consolidation of the industry, as well.  And recession has accelerated the withdrawal of mom and pop jewelers from the market.  I regard the introduction of leather as an important telltale that TIF thinks it needs new ways to spur growth domestically.  If there’s any slowdown in the growth pace, I think it will be here.

–For investors worried about weak domestic growth and 10% unemployment as investment (not social) issues, TIF offers non-US exposure plus a domestic focus that is far away from the areas of greatest concern.

For me, today, the main issue with TIF is price.  Let’s say TIF earns $2.85 this year and $3.40 (a stretch, I think) in 2011.  And let’s say it deserves a 20x multiple.  That would mean the stock could trade as high as $68 a share next spring.  A 10% gain is nothing to sneeze at, but I think there must be better values around.  As an owner, however, I have absolutely no reason to want to sell.

“carrying” the dividend

Happy Thanksgiving

Today’s post will be short, since I’ve got a pretty full calendar of parade watching, turkey eating and football on TV.

dividend carry, a bit of arcana–but maybe important nonetheless

Back when dividend payments were a more significant part of total return, and of investor desires, than they have been for the past twenty years or so, market watchers occasionally remarked on the fact that some dividend-paying stocks “carried” part or all of their payout.  That is, they did not decline on the day the stock started trading ex-dividend (meaning the seller is entitled to the dividend payment, not the buyer) by the full amount of a soon-to-be-made dividend payment.

This phenomenon may start to become important again, both because aging Baby Boomers are more interested in current income than they have been in the past, and because the dividend yield on the S&P 500 is higher today than it has been (except at the bottom in bear markets) for a quarter century.

A recent example:

On November 2nd, WYNN  declared an $8 per share dividend.  It’s payable on December 7th, to shareholders of record on November 23rd.  The stock started trading ex dividend on November 19th.  (The difference between the last two dates is to allow for the lag between the trade date, when the bargain is struck, and the settlement date, when the money changes hands and the new owner officially takes possession of the stock.)

WYNN closed at $108.99 on November 18th.  That’s the equivalent of $100.99, ex dividend.  On November 19th, the major stock market indices were flat.  But WYNN opened at $101.33, traded in a range between $101.25 and $103.70, and closed at $102.99, up $2, or just a tad under 2%, on the day.  The stock never touched the theoretical ex dividend price.

Why does something like this happen?  I don’t know…but it does.  I haven’t studied the phenomenon closely, but my impression is that this happens mostly with better quality companies.  You might argue that the market is super-efficient, realizes that excess cash is like a dead weight and concludes that the stock is more attractive after making the payout and, so to speak, unloading extra baggage.  On the other hand, you might suspect the unusual support comes from inattentive investors who don’t realize that the stock has gone ex, think the stock has just made a random movement down, and swoop in to pick up a “bargain.”

This is not to say that dividend-paying stocks like this will outperform the averages.  But the returns may be a few percentage points better than what you could reasonably expect, given the risk inherent in owning the issue and its growth prospects.


You might check my “carry” thesis by looking at the price action of comparable stocks on the same day, last Friday in the case of WYNN, to see if they too had similar better-than-the-market performance, even though they didn’t go ex dividend.  The closest matches for WYNN are MGM and LVS.  Both went up on the 19th, MGM by less than WYNN, LVS by more.

My view is that although all three have operations in both Las Vegas and Macau they’re not very similar companies at all.  LVS and MGM have much higher financial leverage than WYNN.  And LVS has its spectacular success in Singapore.  But I think the best way to see the differences is to look at the stocks’ performances from their peak levels in 2007 and from the market bottom in 2009.

From the bottom, LVS is up about 35x, WYNN only about 6x and MGM less than that.  But WYNN is now around 75% of its 2007 peak, while LVS is less than a third of the way back and MGM is about a tenth.  I don;t think comparing the price action of WYNN, MGM and LVS on the 19th, although the obvious first thing to do, tells you much at all.