"Best Buy Net Falls 18%, Trailing Analysts' Estimates (Update1)--------------------------------------------------------------------------------------------By Mark Clothier
June 19 (Bloomberg) -- Best Buy Co., the largest U.S. consumer-electronics chain, said profit fell 18 percent on sales of less profitable laptop computers and lower prices for flat- panel televisions. The company cut its annual profit forecast, sending the shares down 3.9 percent."
Retail has been surprisingly resilient. I'll remind you that last month, most of the retailers were reaffirming their guidance. In fact, CNBC and others were going out of their way to make that notation after May sales came in and underwhelmed. Only a handful of retailers stepped up to the plate and revised their FY07 forecast downward. I found it a bit funny that these folks could unequivocally affirm guidance when there were still eight months or so of unknowable consumer behavior.
I'm sure that many of you know this, but it bears repeating. Executives/managers do not have a crystal ball on the economy that is any more accurate than that of anyone else's. Remember the homebuilders' guidance. They reported a crappy quarter but forecast smooth sailing ahead. In fact, they did that at least twice before the incontrovertible evidence that declines would continue had to be publicly acknowledged.
My friends, retailers have the SAME CRYSTAL BALL as that of the homebuilders. Perhaps more accurately stated, they have the same MOTIVATION to hold out for the rosiest view (affirmed prior guidance) just prior to the evidential matter of declining prospects becomes so overwhelming that they have to capitulate and say that they were wrong. This is PRECISELY what EACH one of the homebuilders did. Now the consumer may still prevail. But I would hazard a guess that Best Buy is a pretty accurate bellweather for the gadget heads' appetite for jiffy cool neat-o stuff.
My point is simply this--Always be skeptical of guidance from management, particularly when that guidance seems at odds with observable data. The timing could be askew--that I know well. But never look at management's guidance as a salve for any misgivings that you may have for a company's future prospects.
Position: I do own some RTH July 100 puts that are not doing so well. These were up as much as 30%. I broke my own rule on options--to sell at 30% gain--but because I thought the retail decline would be complete by now, I elected to be greedy and wait. I managed to mitigate the pain by going long on RTH and getting a nice pop when it bounced. So, I'm not crying or anything. But you make your rules for a reason; and it's best to be consistent in following them.
6 comments:
The tech retailers do not use crystal balls.
They disconnect their televisions from the cable/satellite dish and turn to an open UF channel. At which point they can see the patterns left by the tech gods on the static filled screen.
Some argue that vacuum tubes are more accurate then modern electronics, but there is pretty much unanimous agreement that crystal balls are just a bunch of superstitious hokum.
Soundslike Poltergeist!
I used to keep a magic eight ball on my desk at work to remind my colleagues of how ephemeral (and risky) any sort of prediction about the future might be. I'm always amazed by the emphatic commentary that folks make about the future.
Perhaps my many years of working with optimistic sales people has jaded by view!
Poltergeist! LOL, I never saw the movie!
I was actually thing of the well known opening line of the classic cyber-punk novel Neuromancer.
"The sky above then port was the color of television, tuned to a dead channel..."
- William Gibson, Neuromancer
As a side-note, this novel also introduced the term "cyberspace."
I just finished posting the following on Bill Cara's blog:
Richard Suttmeier (www.rightside.com) forecasts a recession (defined as two quarters in a row of negative GDP growth) in 2007 - 2009, and a bear market for U.S. equities to begin this year. Usually the U.S. election period seems to keep the market afloat, but this time he doesn't think that's going to happen. He believes the U.S. stock market bear market will last straight through the 2008 presidential election.
He also said that he would not be surprised if GDP in current dollars is lower in 2009 than in 2008, something that has happened very infrequently: 1929 to 1933, 1945/1946, and 1948/1949. Thus, most of us have not seen this in our lifetimes.
-----------------------
End of what I posted on BC's blog.
O.K., it's a prediction. But Suttmeier is astute and shrewd. He
says the woes of the housing and real estate markets begin with the homebuilders but extend to the community and regional banks that fund the homebuilders and other real estate developers. He believes that the problems discovered in the past year with subprime mortgage lending are the tip of a very big iceberg. Real-estate-related issues are deeply emgbedded in the balance sheets of our nation's financial institutions.
Given his bearish views, it's not surprising that Suttmeier thinks it would be good to be in 50% cash right now. Maybe more.
The trick will be in knowing when to get back in to the market. Many people who were in cash in 2000 (and there were a few: my hand is raised) made the mistake (he said) of not getting back in the water in 2002.
Puts:
My rule is to sell at $1.00 or higher; buy to close with a 60% profit unless I want to own the stock. Then I hold. If I don't get put, I sell again on a day that the market and/or the underlying stock drops.
GS--Suttmeier has been relentless in exposing the exposures of the banks to risky loans. I've come to believe that the "it matters when it matters" gels when people are unable to repay the excessive leverage that was borrowed on overpriced assets that are now deflating. WE are already seeing it with these broker supported hedge funds who borrowed heavily, lost immodestly.
The housing slowdown has to matter. I think that the real surprise is the glacial extent of it's pace.
The world currency markets are in such state now with polarized currencies such as the yen and the kiwi that are causing so many imbalances--but again, leverage is involved. While I think that some are looking for the rogue wave, it is likely to be a confluence of factors (high interest rates, government meddling (democrats w/tariffs, current account rebalancing that will cause currency shifts, slowing US consumer and rising unemployment). Discounting the timing and affect of these factors is impossible for any to do, and that is where one realizes the tightrope one walks.
Post a Comment