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Retail
Sales Forecast = Meaningless |
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Having
had some time to digest this year's holiday shopping projection from the
National Retail Federation (and some time to dig up their history),
we've come to a conclusion.... you really shouldn't worry about their forecast
this year, or any year for that matter.
The National
Retail Federation - or NRF - foresees a 1.1% decline in holiday
retail sales this year. It's not an unfair off-the-cuff assessment... consumers
say they're bummed, 9.8% of them aren't working, and Goldman Sachs and
Citi just confirmed the financial sector is not yet bulletproof again.
 Given
the NRF's track record though, perhaps investors should disregard its outlook.
Perhaps
investors should even use their pessimism as a contrarian indicator.
The nearby table
tells the story pretty well - the National Retail Federation is rarely
on target with their view. Oh, don't think for a minute we can't see for
ourselves that holiday shopping did indeed grow when they expected in to
do so. It did. That's not a hard call to make though.... holiday shopping
has increased from one year to the next the vast majority of the time since
the 70's. Any one of us could have done about as well just by forecasting
the average increase of about 4% per year.
Our issue is
simply that the 2.4% increase from 2007 versus the expected increase of
4.0% is more of a problem than 160 basis points suggests it is, considering
about 1/3 of all retail sales occur during this time of year. So, in
terms of real-dollar results, the forecasts are alarmingly useless.
Be that as it
may, a couple of notions must be addressed after an objective analysis
of this data, and its trends.
First,
given the complete whiff from the NRF last year, the group is likely
attempting to factor in the worst case scenario this year. It's much
easier to guess low and then be pleasantly surprised than it is to guess
high and be severely disappointed. In other words, we're being low-balled.
 Second
(and this is a more subtle reality), the National Retail Federation
has had a tendency to be overly-optimistic in tough times, and overly-pessimistic
in healthy periods. For instance, in 2004 and 2005 when the economy was
booming, retail sales were far stronger than guessed. In 2002, 2007, and
2008 when the economy was handcuffed (either the end or the beginning of
a recession), the NRF expected too much in the way of growth.
That idea has
bearing today, as the domestic economy is either (1) coming out of a recession,
or (2) is still in one. If it's the former, then the 1.1% dip is
grossly underestimated. Even if it's the latter though, it's difficult
to imagine thing being worse than last year. Bad? Yes. Worse
than last year? Not likely. Remember, it wasn't until September of
2008 that the whole thing (the economy and the market) came unraveled.
The echoes of the hard landing were still ringing in December. While the
pain of the recession lingers, the bulk of it is a distant memory.
By the way,
factoring out the effect the end of the Cash for Clunkers program, retail
sales were up modesty in September. An omen? Perhaps.
We've made no
bones about our stance... we feel the recession truly is winding down,
but the crawl out of the gutter should be a slow one (but it will still
be
a crawl out of the gutter). Our holiday retail sales expectation is actually
one of modest growth, which means retailers may be undervalued at this
point.
There's a fresh
batch of initial public offerings expected to go live in the near future.
As always, some are interesting, while most are overblown. Here's a quick
look at all of them on the near-term radar.
China
Real Estate Information (CRIC) - This one could literally start
trading any time now. Currently it's a subsidiary of E-House (China) Holdings
Limited, but once broken out on its own it will be the leading real estate
Internet business in China. The company also provides real estate information
and consulting services.
Our take?
The
$200 million the company is raising is a little on the high side for a
company that did $31.2 million in sales during the first half of the year
(though it's not out of the realm of justifiable). Not to knock the company,
but when it's all said and done it's simply a sophisticated real estate-oriented
site and network, which could be fairly easy to compete with. Revenues
are also linked to real estate activity, which may have been artificially
pumped in the first half of the year.
 ZST
Digital Networks (ZSTN) - Another Chinese IPO, ZST is a supplier
of digital and optical network equipment to cable system operators in China.
In other words, they manufacture internet protocol television ("IPTV")
set-top boxes. These boxes, however, also provide the hardware needed for
bundled cable television, Internet and telephone services.
The $20 million
ZST Digital Networks is trying to raise seems like nothing considering
revenues totaled $41 million during H1 of 2009. The only problem? Tons
of competition. Still, the value may be packed in there.
AGA
Medical Holdings (AGAM) - A closer look at the underlying numbers
here is strongly suggested. On the surface, the sale of 8.5 million news
shares (plus 5.2 million shares already owned that are for sale) indicates
that - after the IPO - 48 million shares will be in circulation.
At the likely $20 per share IPO price, that's a market cap of $960 million.
No big deal, except for one thing....the company's on pace to do about
$190 million in sales this year, and earn an operating income (not net)
of about $10 million.
To be fair,
not all companies with a new issue have to be profitable. This one's been
around for a while though, and income is sinking even though the top line
is growing. The added cash (about $170 million) may be the catalyst for
a turnaround, but it would have to be a whopper of a turnaround to make
sense of the IPO's price tag... even a return to the peak net income of
$12 million (from 2006) still doesn't justify the market cap.
Like we said,
the medical device maker may have great plans for the money. We're just
not quite sure how the extra $170 million will do them any real good though.
 Dole
Food Company (DOLE) - The food company is looking to raise something
in the neighborhood of $500 million through the sale of 35 million shares,
which will bring the total number issued and outstanding to 87 million.
The market cap will then be around $1.0 to $1.2 billion, depending on where
the stock settles in. For a company that earned $123 million last year,
it's a fair price.
We don't foresee
any fireworks here, good or bad. It's a solid food company, but it's just
a food company.
And, there are
three more that should still be a couple weeks away from hitting the exchanges....
-
Addus HomeCare
(ADUS)
-
Vitamin Shoppe
(VSI)
-
AEI (AEI)
We'll try and detail
those remaining three in a future edition, and add any relevant details
for the earlier ones as soon as we can.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
