Pythia Cap
Equity Investing & Market Satire
Off-price retailers TJX and Ross Stores have almost everything going for them except broad consumer weakness, and even there they probably benefit from trade-down, or are far less hurt than many consumer categories. Ross is crushing it, while TJX gets too much hate: relatively weaker, but its business is not falling apart, and the two are not just in a knife fight for share. x.com x.comÂ
TJX looks overpunished for its reporting difficulties given its solid balance sheet. It is one of the safest companies in the S&P 500; the last call's Sierra versus combined TJ Maxx and Marshalls reporting drew a harsh reaction. x.comÂ
Discount retailers are a built-in recession hedge because consumers trade down rather than stop spending. Walmart, Costco, TJX, and Dollar General should benefit as worsening economic conditions send more shoppers through their doors. x.comÂ
TJX Companies remains off the list because of its dividend cut, which still counts against it. x.comÂ
Altria, Johnson & Johnson, Waste Management, TJX, Linde, Costco and Quest Diagnostics add defense to a portfolio, scoring highest among S&P 500 stocks on an antifragility screen of low volatility, strong free cash flow, minimal debt and stable earnings. All are also trending up this year, with momentum scores above 75; Altria scores 100 on antifragility and J&J 99. x.comÂ
Target looks appealing after fixing its inventory problems and returning to sales growth, while remaining far cheaper than its rival. It spent about four years on the inventory repair and cut prices on more than 10,000 products. x.comÂ
US consumer discretionary stocks may bounce, but a likely economic downturn next year means any rally is unlikely to last. Given the issues facing the consumer and where the economy is in the cycle, the consumer is not where the focus should be, though there is no specific downside target. x.com x.comÂ
Dollar Tree and Kohl's are catching a strong defensive value trade as mid- and low-tier consumers aggressively chase discounts. Both delivered blowout profit metrics, and their shares jumped 15% and 21% respectively. x.comÂ
Rising gasoline prices are short-term bearish for Lululemon, e.l.f. Beauty, Celsius, Nike, Ulta Beauty, Target and Deckers. Consumers squeezed at the pump spend less on discretionary items, while businesses face higher freight and logistics costs that pressure margins. Long term, the weakness should offer a chance to accumulate great brands at cheaper prices. x.comÂ
Ollie's Bargain Outlet is among the companies reporting this week, with thoughts on its earnings shared alongside Campbell's, Duluth and Lululemon. x.comÂ
Lululemon is probably going lower because sales and margins are imploding while inventory grows, and a new unproven CEO is coming in. Q3 guidance calls for revenue down 10-11%, North America down mid-teens and inventory up low single digits; full-year revenue should fall 5-7% with inventory up mid single digits. Even granting $6 of annualized EPS versus a ~$4 run rate, 12x for an off-trend retailer implies about $70, versus $100 after an 18% drop. x.com x.comÂ
