In Retail, Pessimism Doesn't Pay
Posted at 12:23 p.m. EDT on Thursday, Nov. 1
You know what's been a real sucker trade? Being gloomy about retail. I keep thinking back to last night's interview with Manny Chirico, the CEO of PVH (PVH - Get Report), which made that remarkable move on Warnaco (WRC). At the same time that 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 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. Every time you think the consumer is quitting, whether it be 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, such as 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.