By Jeffrey P. Snider
There is a growing incongruence in the mainstream narrative as it relates to the rather sunny and sanguine dispositions of current economic expectations. By now you have heard that 2014 is set to be “the year,” for once finally breaking free of all those mysterious “headwinds” that have cast asunder all the best laid plans to this point. This is an annual ritual where, if you really aren’t paying much attention, it sounds only somewhat disconnected.
Take yesterday’s compilation by Bloomberg. The basis for the cheery economic temperament in 2014 rests on the idea that the end of 2013 was itself, if not robust, then firmly on that trajectory. However, of the 2013 holiday quarter, Bloomberg reports:
With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found.
The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers. Earnings are expected to drop 6.1 percent on average during the holiday quarter, according to Retail Metrics data.
That should be very sobering to anyone expecting great things of this year. “A nation of penny pinchers” is not how you would describe the fertile path to prosperity. As with everything else in the mainstream, Bloomberg ensures that this ready dose of reality is mixed with the now-typical sunshine and convoluted pretexts.
Still, some chains are predicting a rebound this year. Target Corp. (NYSE:TGT) — which saw profit and revenue tumble last quarter, in part because of a hacker attack — said yesterday that sales have shown signs of improvement this month. Macy’s Inc. also predicted that spring would bring a sales recovery, after frigid weather forced it to close hundreds of stores.
It is interesting that Target should feel so. In December, the retailers’ chairman made a very unusual statement that he “was pleased with Target’s holiday performance – from guest experience and engagement to overall results both in-store and online.” It was a bold declaration in a very unusual quarter for the company, having suffered a major setback with the data breach introducing an idiosyncratic element (and thus excuse) to potentially poor results. As the calendar turned, however, it was clear that expectations were being adjusted by this kind of reassurance. Piper Jaffray analysts upgraded their expectations for Q4 comps on January 4, 2014, to +1.5% from 0.0%.
As it turns out, the fourth quarter was largely a disaster for Target. Comparable store sales in the US did not grow at all, missing even the previous Piper Jaffray estimate by a wide margin. Comparable store sales in the US fell 2.5% in the Christmas shopping quarter. Total revenue was down 6.6%, a number that certainly contains lost opportunities, particularly online, from the credit card information theft, with the comparable store numbers offering a more rounded picture of “penny pinchers.”
Given this annual sacramental optimism, in February 2013 Target issued its due sunshine for that calendar year. CFO John Mulligan detailed it:
We’re planning full year 2013 comparable store sales to grow in line with our 2012 rate of 2.7%. This growth will be combined with a moderate benefit from new square footage and offset by the comparison against this year’s 53rd week, meaning total sales are expected to grow about 2%.
That confidence lasted only a few months despite any heavy presence of QE and intervention on the monetary part. Full year results for 2013, just released, show a 0.9% decrease in overall revenue, in no small part due to the 0.4% contraction in comparable store sales. That’s a pretty big miss on optimism.
We can go back into 2012 to find exactly the same. Again in February 2013, Mr. Mulligan relayed this exact pattern for calendar year 2012:
In the call a year ago, both Gregg and I outlined that our expectations for US retail segment sales were stronger in the first three quarters of 2012 and more modest in the fourth quarter. It’s clear that we got the cadence right, but the contrast between the first three quarters and the holiday season was even more pronounced than we expected.
Year after year we get excuses for poor results. Remember it was last February where Wal-Mart (NYSE:WMT) was caught with its “disaster” for sales, only to excuse them as IRS malfunctions and “delayed income tax refunds.” Wal-Mart’s CEO pleaded, “We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year.”
That “more normalized weekly sales pattern” was itself closer to the original idea of a disaster than basis for optimism and economic rebirth.
If you stand back and look at these trends as they have developed over the past four years, you can see how a narrow focus might actually be captured by these excuse narratives – the weather, income tax refunds, data breaches, etc. But in the bigger picture the absolute levels of growth and advancement that counts as “optimism” itself dwindles further and further each year. At the outset of 2012, Target was looking for 4% comps, only to get 2.7%. In 2013, 2.7% was the standard for “good” results, only to get -0.4%.
Now, anything with a plus sign is the basis for a parade, to be led by the economic geniuses that “saved the world.” In the meantime, the economy continues to wind down in slow deterioration, leaving economists and the businesses that rely on their “competence” groping for some explanation that doesn’t involve complete failure of the paradigm.