Year-old trends continue:

• Same Store Sales (SSS) remain generally weak, more so at high end retailers (left end side on the chart) while discounters (right end side) outperform.
• September SSS were less bad for all retailers with negative sales trends and better for others. Obviously, as year-ago comps began to worsen at mid-year and got increasingly bad throughout the second half, comparisons have to improve. SSS turned quite weak for most retailers in September 2008.The fact that results beat analysts estimates only prove that analysts are not great in predicting monthly sales patterns (who is?).
• For example, GAP (GPS) and JC Penney (JCP) are showing much improved trends in September but their SSS were down 11.0% and 12.4% respectively in September 2008.
• At the opposite, BJ's (BJ)’ 5.5% sales gain this year is excellent given that it is against a 10.4% jump in September 2008.
• Also noteworthy: Aeropostale (ARO) keeps it up. TJX maintains a strong sales momentum.

One of the most exciting trends in e-commerce over the last couple of years has been the trend towards “shopping as entertainment”. Traditionally e-commerce has been a chore type activity. Customers know what they are looking for (a digital camera, a new laptop) and are looking for the best product and best price with a very “research” based mindset.

This is quite unlike the real world, where a customer might walk around a mall without any particular purchases in mind, and perhaps opportunistically buy something that caught their eye in their wanderings. There is no real “intent to buy” in a trip to the mall. It is more like entertainment time which may, or may not, lead to a purchase.

The credit tightening squeeze is about to get silly. Indicative loans averaged a year to date tight of 461 bps while bonds were trading at 905 bps (click to enlarge).

Sooner or later, the economy's going to turn a corner. Some think it won't be until 2010 or even 2011, since unemployment seems certain to rise for the foreseeable future and fall only slowly after it finally peaks. Others are more optimistic, pointing to evidence of an imminent turnaround. Merrill Lynch, for instance, declared in a recent research note that "the recession is over."

Whenever it happens, a recovery is likely to be sporadic and uneven. Industries that have held up over the last 18 months, like healthcare, education, pharmaceuticals, energy, telecom, and some high-tech sectors, should remain stable places to work. A few industries that have been battered during the recession may actually be poised for a bit of growth, since failed companies and consolidation have left openings that healthy companies can exploit. Some smaller regional banks, for instance, could nab credit-card business from wounded giants like Citigroup (C) and Bank of America (BAC). And while billions in government bailouts once signaled the fragility of the financial and insurance industries, they've also helped contain the damage, which could bring back some jobs over the next couple of years.

Total short capitulation: that's the best way to describe what happened in the loan/bond universe during the last week. The only bond that widened was that of Aeroflex. Continued tightening in retailers and auto names has gone on beyond stupid-pill levels and officially entered the bizarro twilight zone: TRW Automotive Holdings (TRW) bonds tighter by 400 bps, with both Sealy (ZZ) and Neiman Marcus (NMG) tighter by roughly 300 bps. Fixed income fund managers merely looking at what is not tighter than comparable Treasuries and buying it without regard for rating, underlying fundamentals or how much time a company has before it files for bankruptcy. As all bubbles, this one too will end very badly.

Click to enlarge

The jobs report was a little better, retail sales not so good.

Initial claims as reported by the NYT fell from 625,000 to 621,000 while the four-week moving average increased by 4,000 to 631,250. Continuing claims fell by 15,000 to 6.7 million. At least it isn’t getting worse.

Loans have officially entered the twilight zone. (Click to enlarge)



source: LoanConnector.com

Heat seeking in both bonds and loans was the dominant theme, with the usual suspects continuing to rip. Comparing current levels on garbage credits like Neiman Marcus, Sealy and TRW with their spreads 3 months ago and one can only question the sanity of even the credit market. Unlike last week when there were just three Fox Two instances, targeted at Huntsman, Graham Packaging and Neiman Marcus, this past week's IR-signature tracking selection is broader and even junkier.

"Solid" names like Compucom, Huntsman, Neiman Marcus, Sealy and TRW continued their ripfest tighter in bond land, and in many instances, in loans as well, while Aeroflex loans where the best relative secured performer. The only bonds widening in the entire 30 name universe were those of Michael Foods, and Constellation Brands - obviously consumer staples have every right to be seen as the riskiest last week when the rolling squeeze among garbage credits was doing all it could to flatter the equity markets.

Just when we thought the heat-seeking short squeeze in credit land may be subsiding, three new bonds rip tighter: old shorter max-pain name Neiman Marcus (NMG), whose bonds tightened by 540 bps, Graham Packaging which ripped by 550 bps and Huntsman Int'l which tightened by 425 bps. As in the last week, the rolling equity squeeze in unique stocks and sectors has caused comparable squeezes in corresponding highly-shorted credits.

Some odd names that stand out this week with respect to a disproportionate widening in loans and a tightening in bonds are: BE Aerospace, Centennial Communications, Constellation Brands, First Data Corp and Pantry, although the moves are marginal enough to be likely noise.

Tightening continues the universe of 30 tracked names although at a much more moderated pace compared to the prior week. The average loan spread tightened by 24 bps to 674 bps while bonds tightened by 64 bps to 1,317 bps from the prior week.

The equity market squeeze continues, and while the squeeze in Neiman Marcus bonds is over, Sealy's is continuing unabated: following last weeks 800 bps tightening, this week Sealy collapsed another 600 bps. And as in the prior week, Sealy loans barely moved. TRW also saw a significant tightening in both bonds and loans.

Neiman Marcus (NMG)

The U.S. luxury retailer, posted a second-quarter loss after cutting prices during the holiday shopping season and writing down its assets by $560.2 million. “We expect retail demand and revenues will remain weak for an extended period,” the company said. Sales at stores open at least a year plunged 23 percent.

News Wednesday that Neiman Marcus (NMG) posted a quarterly loss provides more evidence that the recession is hitting luxury retailers hard.

Fitch Ratings expects comparable store sales trends for the U.S. luxury department store retailers to remain highly pressured in 2009 with expected comparable store sales declines in the double digit range. Sales for this group are expected to underperform the broader department store sector after being relatively resilient through the first half of 2008.

CreditSights’ comprehensive analysis Retail Sales: Dark Days of Winter makes for some depressing reading.

Highlights include:

Make 121% when Amazon (AMZN) announces the true cost of surviving the washout of 2008.

Circuit City (CCTYQ.PK) is really dead this time. They've had troubles in the past. In fact, they've threatened to go belly up most every time the economy stalls a bit. But this go round they have sold out down to bare walls, and then padlocked the doors.

Analysts and the media have focused plenty of attention on how overindebted and tapped out consumers are responding to deteriorating economic conditions.

So far, there are clear signs that Americans are becoming more disciplined -- cutting back, saving, reusing, repairing and, overall, adjusting to a world where uncertainty is on the rise and there is much less to go around.

F1Q09 Earnings Call

December 10, 2008 4:00 pm ET

As expected, November retail sales were just terrible. Here are same store sales* for some retailers:

• Kohl’s (KSS): -17.5%
• Macy’s (M): -13.3%
• JC Penney (JCP): -11.9%
• Neiman Marcus (NMG): -11.9%
• Target (TGT): -10.4%
• Gap (GPS): -10.0%
• Saks (SKS): -5.2%
• Costco U.S. (COST): -2.0%
• Wal-Mart U.S. (WMT): +3.0%

* Last year there was an extra week of post-Thanksgiving shopping that fell in November whereas this year it will be in December therefore pushing down November’s sales and pushing up December’s. Therefore, the most accurate comparisons will come from comparing November and December with last year. Nevertheless, it’s pretty clear that retail sales are getting crushed.

From Gap Inc.'s FQ308 conference call: (GPS)

F4Q08 Earnings Call

September 24, 2008 11:00 am ET

In the battle of high end apparel retailers, Nordstrom is really starting to separate itself from the pack. When looking at Nordstrom (JWN), Bloomingdales, Saks Fifth Avenue (SKS), and Neimen Marcus (NMG) from an online perspective, there really is no competition. Nordstrom recently revealed that they did $169 million in online business the second quarter of this year, a 15% increase from their 2Q 2007. Let’s take a look at how this compares to their competition.

As a group, these four retailers have seen an increase in traffic to their websites from 2Q 2007 to 2Q 2008. Below is a chart showing the average number of unique visitors (UVs) per month for each retailer. You’ll notice both Bloomingdales and Saks doing a good job of generating more traffic, but still significantly trailing Nordstrom by over 1MM UVs per month.