Nice rebound yesterday- just in time as another down session would have spooked a lot of the investors who have simply become complacent. We are seeing pent-up demand from the sidelines, mostly from professional investors woefully underperforming the market. The "smartest guys in the room" crowd simply overthought this thing from the lows back in March 2009. Still, for many, their bet is to now wait this rally out and maybe pick up the pieces later. However, that is still a losing proposition. In addition, unlike the doomsday cabal when pros have missed a five-year rally, they do not get accolades when there is a correction.
On that note, this earning season looms larger than at any time since the beginning of the rally, as acceptance of mediocrity expressed by terms like "green shoots" no longer matter- investors are looking for big news and bigger guidance.
The Wrong Model
On June 20, I took on The Container Store and other companies pushing the so-called Conscious Capitalism movement on my show, "Making Money with Charles Payne," on Fox Business. Any business that puts the environment, or other social issues, ahead of customers and profits is really a not-for-profit. The fact is that so many businesses want to be publicly traded, yet make the bottom line an afterthought is politically worrisome, even from an investment point of view.
Putting social issues ahead of profits bad for business? Watch the video. Have a question for Charles to answer on air? Ask him on Twitter with hashtag #askpayne then watch the show at 6pm weekdays on FOX Business channel or listen on Sirius channel 113.
Letter from our Chairman and Chief Executive Officer:
I would have to say that first and foremost, we're an employee-first, yummy company. "What does it mean to be yummy?" might be your next question. Well, it's the opposite of yucky. We know our employee-first mantra defies conventional business wisdom, most famously expressed by the late American economist Milton Friedman.
It's actually about creating this one-of-a-kind experience, where we operate our business with a focus on all of our stakeholders, but with our employees first.
This employee-first approach -that borders on cultist- eats away the would-be profits, which at the end of the day, are not only what outside investors seek, but what's needed to build the business. Unfortunately, management was not conscious when it came down to throwing all retailers under the bus. In fact, one could say their comments were "yucky."
Earnings Statement July 8, 2014
We thought our sluggish sales were all because of the weather and calendar shifts that began last November and continued into the spring, but now we've come to realize it's more than weather and calendar. Consistent with so many of our fellow retailers, we are experiencing a retail 'funk'. Our comparable store sales declined 0.8%, in the first quarter." said Kip Tindell, Chairman and Chief Executive Officer.
Here's the problem, Kip, while we know it has been tough for a lot of retailers, your problems can be found in the heart and bottom line of your income statement, not your top line growth.
Selling a lot of molded products can be very lucrative, as seen by the giant gross margin, but when all profit is used to operate the business, there is nothing left for shareholders; your stock takes a drubbing.
|
Hanger-Sellers |
Gross Margin |
SGA % of Gross Profit |
Operating Margin |
|
TCS |
58.1 |
90.4% |
-$1.2 million |
|
BBBY |
38.8 |
70.8% |
$11.3 |
|
WMT |
24.6 |
78.1% |
$5.4 |
Yuck!
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