MILLBURN, N.J. (Stockpickr) -- First-quarter 2011 was certainly interesting period. As I had anticipated, the quarter started off quite strong, but then the markets were broadsided by several exogenous events.
The most impactful event was a major earthquake in Japan on March 11, which was followed by a devastating tsunami that created a nuclear crisis at the Fukushima Daiichi nuclear plant. The nuclear catastrophe spread fear throughout the world's financial markets. I highlighted my
based off of these events.
Another major exogenous event occurred on the other side of the world in Libya, where dictator Muammar Gaddafi faced a rebel insurgency in the North African nation. On March 17, a United Nations resolution was passed permitting Western powers to protect Libyan citizens from Gaddafi and create a "no-fly" zone, which led to military action being taken by Western nations. Due to this and other events throughout the Middle East over the past few months, the price of crude oil continued to surge to levels not seen since 2008, which resulted in market concerns for higher levels of inflation and consumer retrenchment.
Crude oil was not the only commodity reaching new highs in the first quarter. We have experienced a broad-based and indiscriminate rally in commodities of all classes -- metals, crude oil and agriculture.
Also in the early part of the first quarter we experienced some of the worst wintry weather in over a decade. For example, here in the New York Metropolitan area, we had the second or third snowiest winter on record.
As finance is both a backward-looking and forward-looking science, all of these events were expected to impact first-quarter results and expectations for the second quarter or the rest of the year. But this hasn't necessarily been the case.
Impact of Japan Events
Several American retailers, including
, either have a big retail presence in Japan or rely on the Japanese consumer to purchase their products. While all of the companies felt some effect from the events in Japan, the impact was limited in the first quarter and is not expected to be material in the future.
Take Starbucks, for example, which is one of TheStreet Ratings'
. More than 200 of the company's 900 stores in were closed due to the earthquake and nuclear disaster. Of those stores, only nine will be closed permanently. The financial impact of the earthquake was so insignificant that it was not even quantified by the company when it reported earnings.
For Coach, Japanese sales were down 9% in yen and rose 1% in U.S. dollar terms. Seven Coach Stores in the Sendai area remained closed due to damage at quarter's end, while three reopened in April. Square footage for Coach in Japan is expected to grow 4% this year, despite the events in that country. The company estimates that the events in Japan impacted sales by approximately $20 million and earnings per share by about 2.5 cents during March and the company's fiscal third quarter. A similar impact is expected in the company's fiscal fourth quarter, which began in April.
Impact of Wintry Weather
Retailers' quarters tend not to end on the March-June-September-December cycle. Instead, most of their quarters will be on a cycle that ends in January or February. Thus, we have a spilt quarter for retailers that straddled the wintry months of January and February. According to the U.S. Census Bureau, which publishes the monthly sales reports, retail and food sales were up 0.3% in January, 1.1% in February and 0.4% in March (on a preliminary basis).
Anecdotally, many retail and restaurant companies have reported a pickup in business during April. While these figures may not all have met economists' expectations, which I consider unreliable, the impact of the poor weather was muted.
Bed Bath & Beyond
reported a spectacular quarter for the three months ended in February, as did Polo Ralph Lauren for the period ended in January.
reported a better-than-expected quarter, noting strong Valentine's Day-related sales. The only segment that reported disappointing sales was the teen/tween retailer space, which as we know has a very fickle customer base.
Impact on Tech
No matter what
Research In Motion
( RIMM) or anybody else throws at
, the formers' failures just make the latter stronger.
Motorola Mobility has a hot product with its Android phones. The company also launched its Xoom tablet product last quarter. Research In Motion recently released its PlayBook Tablet product. These products were supposed to be Apple killers. They were not. Instead Apple launched its highly successful iPhone on the
network and released the next generation of its tablet, the iPad 2. In the final analysis, Apple turned the tables -- or should I say the tablets -- on the competition and reported an extraordinary quarter.
, an Apple supplier, were both supposed to feel the pinch from the supposed supply chain shortage coming out of Japan. As Skyworks management commented on its recent conference call, the company does not foresee any supply chain impact. Skyworks reported a better-than-expected quarter and provided upbeat guidance. This means that Apple will not have any product shortages in the coming quarter, further enabling the company to outpace its competition.
Commodity Inflation Prep
We can separate the companies that have prepared for commodity inflation, such as
, from those that are going to have to take direct hits, such as Starbucks.
Unless you are living in a cave, you have noticed the recent surge in commodity prices. Many food and restaurant companies are subject to the double whammy of commodity cost inflation from both energy and agricultural prices. But not all companies are the same when it comes to anticipating and reacting to commodity cost inflation.
At opposite ends of the spectrum we have PepsiCo, which is one of TheStreet Ratings'
, and Starbucks. While PepsiCo focused on commodity costs as a continuing headwind when the company recently conducted its conference call, the company had proactive solutions already in place. PepsiCo's hedging program has created good visibility for costs through the end of the year. The company's product-pricing strategy has already taken commodity inflation costs into account, thus forestalling any need to raise prices to consumers for at least the rest of 2011.
Starbucks, on the other hand, has some problems that has the company stuck between a rock and a hard place. Commodity cost absorption accounted for about 200 basis points of foregone operating margins in its most recent quarter. The company's product demand elasticity is such that it can no longer raise prices. It simply must absorb commodity cost increases in the future, unlike other companies, which can easily pass on commodity cost increases or manage their other costs.
Thus, Starbucks' only hope -- especially with respect to its U.S. in-store dining business -- is for commodity costs to decline.
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At the time of publication, Rothbort was was long PEP, AAPL and SWKS and long AAPL calls., although positions can change at any time.
Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of
, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of
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. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.
Mr. Rothbort is a regular contributor to
TheStreet.com's RealMoney Silver
website and has frequently appeared as a professional guest on
Fox Business Network
and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.
Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.
Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.