The consumer is making capital allocation decisions and the home furnishings category is losing share due to a slowing product innovation cycle, softening housing, and an ultra-competitive environment. Operating in this environment may become a balance of promoting to drive sales without losing too much margin. The worrisome read into broader retail is that Pottery Barn generally approaches a higher end consumer, and slowing comps for this brand bode poorly for the thesis that weakness is isolated into the lower end. For the past few years, the high end consumer has been the rock, while retailers also benefited from aspirational trade up. The creeping of consumer weakness upstream is concerning.
In a surprising move, 55-year old Mike Roberts, who spearheaded the dramatic turnaround in McDonald's (MCD) U.S. business, resigned from his position as president and COO. He will be succeeded by Ralph Alvarez, who previously succeeded Mr. Roberts to lead the U.S. business. The company gave no additional insights into Mr. Roberts' motives. His decision suggests that CEO Jim Skinner may lead the company for a longer period than Mr. Roberts was comfortable with. The market had considered Mr. Roberts as next in line for the CEO job. But for a 29-year MCD veteran, that interpretation sounds odd because it should not make much difference if the waiting period for the top job is a few years longer.
Mr. Roberts' departure is a loss, but we shouldn’t read anything more negative than the loss of a capable executive into his decision. Mr. Alvarez is also a very capable leader with a strong track record in his 12 years at McDonald's. There may be talk of Mr. Roberts becoming a candidate for the Wendy's CEO position, but expect non-compete agreements will make that unlikely.
Moody's Investors Service placed the ratings of Rite Aid (RAD), including its B2 corporate family rating, on review for possible downgrade. The agency said the action follows the announcement that Rite Aid has agreed to a $3.4 billion deal to buy 337 Brooks and 1,521 Eckerd drugstores from Jean Coutu Group.