Practical analysis for investment professionals
20 November 2015

The C-Suite Speaks: Black Friday Forebodings?

Posted In: Weekend Reads

The C-Suite Speaks: Black Friday Forebodings?

Each week our team at Avondale Asset Management reads dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts.

Retailers Report (Week II): Does Weakness Extend Beyond Apparel?

Last week the first batch of retailers reported weak earnings, but the group was primarily composed of apparel and department stores, which may just be fighting industry headwinds. This week we heard from retailers in other categories and the commentary was better, though still mixed. Overall the consumer looks healthy on paper but doesn’t seem too excited about spending money.

Also this week: The US Federal Reserve looks likely to raise rates in December, but some segments of fixed-income markets look shaky, according to KKR. Wearable technology is proving to be a hot consumer item. And Microsoft’s CFO acknowledges that she’s not too proud to beg, borrow, or steal winning tactics from other companies.

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The Macro Outlook:

Last quarter was clearly a tough one for apparel retailers.

“Last quarter was a very challenging period for the apparel and retail segments. Business(es) are facing tremendous headwinds that resulted in lower sales for the early fall, September, October months for many of our retail partners.” — Perry Ellis chairman and CEO George Feldenkreis (Apparel)

But it looks like that was primarily category-specific.

“Clearly the consumer isn’t doing as badly as what . . . our industry is doing, because of some of the shifting in spending patterns of the customer.” — Macys CFO Karen Hoguet (Retail)

Urban Outfitters said that fashion trends are just tired.

“I think that from our analysis the primary thing driving is a lack of newness in fashion. I think the current fashion look is getting a little long in the tooth, and I wouldn’t be surprised that we start to see some signs of it changing a little bit more radically than it has, let’s say, over the last four or five years.” — Urban Outfitters CEO Richard Hayne (Apparel)

And that it doesn’t look like this is a harbinger of a recession.

“What we have seen outside of the apparel and accessory areas, and why I don’t believe that it is the lack of traffic is, let’s say, a precursor of a recessionary environment, is we see real strengthen a number of our categories.” — Urban Outfitters CEO Richard Hayne (Apparel)

Home improvement spending is definitely strong.

“We continue to see strength across our store. All of our merchandising departments posted positive comps and we saw [a] healthy balance of growth among both our Pro and DIY categories.” — Home Depot chairman, CEO, and president Craig Menear (Home Improvement)

“When you look at what’s happening with home prices, it once again speaks for the fact that consumers are re-engaging in discretionary spending around the home.” — Loews chairman, president, and CEO Robert Niblock (Home Improvement)

But other retailers’ commentary was mixed:

Target is confident, but consumers are cautious.

“While consumers continue to spend cautiously, we feel confident as we enter the holiday season . . . Certainly the growth in traffic for us is really encouraging.” — Target chairman and CEO Brian Cornell (Retail)

Best Buy saw weakness in October but a stronger start to November.

“We believe there was another dynamic in October, which is pent-up demand, with people waiting to anticipate Black Friday deals. Because Black Friday, as we all know, has turned into Black November and we believe that has a particularly stronger impact on the consumer electronics category than other categories . . . We actually saw a significant improvement from the last weeks of October and the first week of November.” — Best Buy CAO and CFO Sharon McCollam (Retail)

Staples said corporate spending hasn’t changed, but saw weakness in all categories

“Early in the quarter, the markets softened across all categories relative to the trends we had seen during the first half of 2015 . . . From my perspective, I don’t know if there’s been a lot of change or differences in corporate spending behavior.” — Staples chairman and CEO Ron Sargent (Office Supply)

El Pollo Loco saw less traffic from its more price-conscious customers.

“It was reduced, the visits from some of our more price-conscious consumers.” — El Pollo Loco CEO Steve Sather (Restaurants)

The commentary is probably mixed because overall spending is flat, but consumers are shifting dollars to different categories.

“As we survey our customers and what they tell us for their intentions with respect to spending, and we look at overall their level of spending is not increasing. But the amount that they’re allocating to home improvement, they are indicating that they’re spending more in home improvement.” — Loews CEO Robert Niblock (Home Improvement)

Consumer balance sheets have been repaired though. They have plenty of purchasing power if they decide to use it.

“The consumer has delevered. they’ve done deleveraging. So . . . they’re now in the saving cycle and I think they were in the “I want it, but I’m not quite sure I can have it yet.” But they now have the means to have it.” — US Bank CEO Richard Davis (Bank)


Currency headwinds will continue to impact 4Q earnings.

“Since our third-quarter earnings call, the US dollar has continued to strengthen . . . We now expect a greater headwind from currency . . . We now expect a seven-point headwind on net revenue and an 11-point headwind on income before taxes for the quarter. Now, this is four percentage points worse than the guidance that we provided.” — Coca-Cola CFO Kathy Waller (Beverages)

Latin American economies have slowed along with other developing markets.

“Latin America continues to be affected by slower economic growth and weaker currencies . . . We are expecting currencies to be stable, to stabilize, but we’re not building in a dramatic improvement to the economies.” — Copa Holdings CEO and director Pedro Heilbron (Airline)

Chinese property markets will continue to face headwinds next year.

“Overall, we don’t think next year’s real estate market will be very different from this year’s. The main theme is still efforts encouraged by the government to reduce the overall level of inventory. And we continue to believe the Tier 1 and Tier 2 market overall will be healthier relative to the Tier 3 and Tier 4 business, which will continue to experience difficulties.” — E-House co-chairman and CEO Xin Zhou (Chinese Real Estate Broker)

Asian apparel manufacturers are investing heavily in Vietnam to take advantage of potential benefits from the Trans-Pacific Partnership (TPP).

“There is a large influx of investments from Chinese, Taiwanese, and Korean companies going actually, going — very large projects, even from Chinese factories going vertical into Vietnam to be able to use the benefits of duty-free from Vietnam.” — Perry Ellis chairman and CEO George Feldenkreis (Apparel)

The apparel supply chain is also starting to extend to Africa.

“Another development is there is now more sourcing going on in Africa. We have been in, in the short run, Kenya for a couple of years now, and there are more movements into Kenya and Ethiopia. Going forward, there are very large investments by the Chinese government in Ethiopia, and they are building a lot of infrastructure highways which are very important.” — Perry Ellis chairman and CEO George Feldenkreis (Apparel)


Investors are wondering if it’s prudent to be aggressive at this stage of the cycle.

“I am now asked, ‘Well, Jeeze, now you’re growing. Should you be growing when we are entering in to somewhere around the fourth or fifth longest recovery in history?'” — Bank of America chairman and CEO Brian Moynihan (Bank)

KKR is seeing volatility affect deals for small- and middle-market companies.

“Where we are seeing it impact behaviors is at the smaller- and middle-size end of the market so the mid market. Deals are getting to be more expensive. The flex terms in financings have gone up significantly. And our pipeline in private credit — so mezzanine, direct lending, and special situations opportunity — are up significantly as a result of some of the dislocation we’re starting to see.” — KKR head of global capital and asset management Scott Nuttall (Investment Management)

Liquid parts of leverage loan markets are becoming less liquid.

“What has become interesting more recently is what’s happening within the liquid part of the leverage credit markets. So the bank loan, leverage loan market, the high-yield market . . . there is a significant reduction in liquidity . . . If you see a screen price, it doesn’t necessarily mean that that’s achievable on any volume whatsoever, and that is creating quite a bit of interesting tension in the markets.” — KKR head of global capital and asset management Scott Nuttall (Investment Management)

Despite these concerns, the Fed is very likely to raise rates in December.

“I just left another hotel having run a panel for three of the [Federal Reserve Bank] presidents [William] Dudley, [Loretta] Mester, and [Dennis] Lockhart, and let’s just say they were on record and seem quite positive about the possibility in December.” — US Bank CEO Richard Davis (Bank)

Ultimately it could be good for the economy. The Fed needs to “pierce the veil.”

“[Clients are] looking for an opportunity, the permission to move forward, and I think that will be with the movement of interest rates . . . Whether it’s 25 basis points and it’s another six months till the next 25 is quite less important than that they pierce the veil.” — US Bank CEO Richard Davis (Bank)

Next year is going to be dominated by politics. But between the end of the zero interest rate policy (ZIRP) and a new US president, business may finally be able to move forward.

“This next year is going to be entirely political not economic . . . If interest rates start to move in the next 12 months consistent with the view that there will be a change in the White House . . . those are both two positive elements of distinction that help the American people feel a little bit more confident.” — US Bank CEO Richard Davis (Bank)

It was hard to foresee the current mergers and acquisitions boom back in 2009, 2010, and 2011.

“It doesn’t seem surprising to people that we are in an M&A boom, but if you were talking in 2009 and 2010, and 2011, we might have not seen that formulating. I think, looking back, it is surprising.” — Goldman Sachs CFO Harvey Schwartz (Investment Bank)

But companies have to grow somehow . . .

“The M&A process is still very healthy and will continue to be so in the sense that companies will — the S&P earnings growth this year is zero when you look at the valuation. So you would argue that companies need to demonstrate some growth. At this level of growth, in the United States, for the economy, there will have to be a bit more inorganic than organic. So therefore the M&A will continue as long as funding and capital is available.” — JP Morgan corporate and investment bank CEO Daniel Pinto (Bank)

The investment management industry measures performance in a bizarre way.

“This is the only industry I can think of where you can actually show up in a meeting and actually have lost the client money and say, ‘Good news! We outperformed.’ Right, it’s just a bizarre way, if you think about it, that we’ve grown to serve our clients over the years.” — State Street Global Advisors CEO Ronald O’Hanley (Investment Management)


Walmart is trying to get aggressive in omni-channel e-commerce.

“We will be the first to deliver a seamless shopping experience at scale. No matter how you choose to shop with us — through your mobile device, online, in a store, or a combination — it will be fast and easy.” — Walmart CEO Doug McMillon (Retail)

TJ Maxx views e-commerce primarily as a tool to drive greater customer engagement.

“E-commerce doesn’t produce the kind of operating income that Marmaxx does. You are looking at 14% almost operating income. So what it does do is build traffic. It is bringing in new customers and it’s doing exactly what we want it to do, and it’s giving the convenience of shopping . . . Lifetime value of a customer that shops online and in brick-and-mortar is really what it’s driving for.” — TJX Companies Companies president and CEO Carol Meyrowitz (Retail)

Target is pleased with the economics of shipping from stores.

“The labor model . . . actually, it’s quite efficient because we have dedicated teams in those stores who do the packing, and we are just able to . . . utilize them more efficiently. So, while there is more store labor that we are using, the offset clearly comes in our shipping expense because we are much closer to the guest we are shipping to . . . It’s an outstanding trade for us.” — Target COO John Mulligan (Retail)

Retail shelves have become cluttered.

“A number of the retail chains . . . have increased assortment on their shelves by as much as two times in the last five years . . . The amount of consumer confusion that’s associated with that complex assortment is inhibiting purchase. You literally — when I am in stores, you will watch a consumer trying to make sense of the shelf and walking away. They just — they literally give up.” — Procter and Gamble CFO Jon Moeller (Consumer Packaged Goods)

The housing stock is aging, which could be a boon for home improvement retailers.

“Homes that are older than 45 years tend have higher repairs. And in fact, the amount of money spent on repairs on those older homes is 5.6% higher than the amount of money paid to repair a home that’s about 20, 24 years old. There are 40 million homes in the United States that are older than 40 years. As the housing stock ages, it just bodes very well for big-box home improvement retailers to sell to those customers who need to make repairs in their homes.” — Home Depot CFO Carol Tomé (Retail)

The auto industry will witness more transformation in the next decade or so than it has seen in the last half century.

“I believe that we’ll see more change in this industry in the next five to 10 years than we’ve seen in the last 50, but we are not waiting to follow. We are not waiting to be disrupted. We are disrupting ourselves because with all these changes and challenges, there is also opportunity.” — General Motors CEO Mary Barra (Automobiles)


CEOs don’t want to talk about IT. They want to talk about customers.

“I want to tell you, I met with hundreds of CEOs around the world. And I’ll tell you, when we’re meeting with CEOs, honestly, they are not that interested in talking about the cloud or about social or mobile. They want to talk about their customers and they want to talk about their topline.” — Salesforce CEO Marc Benioff (Enterprise Tech)

All companies are worried about being Uberized into extinction.

“There is a transformational force that is wafting its way through all of these companies and every company is afraid that they’re going to be Uberized out of the world.” — Salesforce CEO Marc Benioff (Enterprise Tech)

Older Americans are adopting technologies with an 18 to 24 month lag.

“With the mobile technology — and you should be asking all your presenters and things like that — the change is wild because what 55- and 60- and 65-year-old people are doing now is what 18 to 24 year old people did 24 months ago. So they are adopting this at a pace.” — Bank of America chairman and CEO Brian Moynihan (Bank)

A shift to installment plans has led to disappointing sales of smartphones at Walmart.

“A slow adoption of new technology in televisions and the shift from post-paid to installment wireless plans contributed to disappointing sales results.” — Walmart US president and CEO Greg Foran (Retail)

Wearables have become a hot category.

“In terms of the confidence in the size of the category, I think the first is we’re seeing the market develop, where it’s increasingly clear to us that wearable technology is and will be a large growing category . . . Wrist devices are selling.” — Fossil executive vice president Greg McKelvey (Apparel)

“One standout in electronics was wearable devices, part of the signature Wellness category, where we saw nearly 100% growth in comparable sales.” — Target chairman and CEO Brian Cornell (Retail)

“There’s a lot of excitement in both — in wearables, connected devices.” — Best Buy chairman and CEO Hubert Joly (Retail)

Health Care:

The whole health care industry is going to see reimbursement pressure.

“I think specialty, like other parts of the market, will continue to come under reimbursement pressures. I don’t think there is any part of the market that’s going to escape. And this is just the way of our industry. The health care expenditure here in the United States is still a high proportion of GDP versus perhaps what you might see in Europe where I come from. And I believe that what we are going to see in our market is continued pressure on growth in health care expenditure. We will see pressures in various reimbursements, and then what we have got to do is continue to drive efficiency, drive the front-end profitability.” — Walgreens Boots Alliance CFO George Fairweather (Pharmacy)

Hospitals want vendor standardization as they expand their distribution networks.

“As particularly [integrated delivery networks] IDNs are buying these physician offices — they’re buying surgery centers, they’re buying long-term care facilities — one of the first things they want to do is manage the most expensive part of those facilities, i.e., the drug consumption in those locations and administration. They want to manage that in the same way they’ve been managing the drugs in the central hospital.” — Becton Dickinson executive vice president and BD Medical president Tom Polen (Medical Device)

Materials, Industrials, Energy:

There’s nearly blood in the streets in dry-bulk shipping markets.

“We need to see a bit of blood in the streets so that people don’t order and people scrap. And we’re not extremely far away from things turning around, because in 2017, for example, our calculation is that net supply is going to be about 1.5%. And in 2018 it’s going to be about 1%. So if you ask me, I believe that we’ll get to the point that you ask, somewhere in 2017 onwards.” — Star Bulk CEO Petros Pappas (Dry Bulk Shipping)

Miscellaneous Nuggets of Wisdom:

Treat your employees as partners.

“I think the first one and perhaps the most important one is winning with our partners. So again, our employees — we call them partners, because the vast majority of them are eligible to participate in a stock compensation program for Starbucks.” — Starbucks CFO Scott Maw (Coffee)

Always be curious.

“I think the question is culture, one of keeping your company always pressing and learning and being curious frankly.” — Bank of America chairman and CEO Brian Moynihan (Bank)

Data should complement instincts.

“A lot of things that we do are from pure instinct. The good news is we have a lot of instinctive knowledge here. But what I’ve learned in retail is instinct that ties with data is very powerful. And we have instinct without data, and we’re building data to leverage the instinct.” — JC Penney president and CEO Marvin Ellison (Retail)

Strive to be better every year.

“Every year we look and we say, ‘What did we do wrong and what could we do better?’ We never look at it as, ‘Let’s just repeat exactly what we did.’ We always try and improve and that’s the part of innovation. It’s part of learning. It’s part of our secret sauce. It’s part of our sourcing. So we strive to be better every year. That’s what keeps our comps going.” — TJX Companies president and CEO Carol Meyrowitz (Retail)

“As a leader, if you’re not thinking you can do something better, do something different, try it again, take a different approach, then you’re probably too proud or too clueless.” — Microsoft CFO Amy Hood (Technology)

Adopt winning methods even if they’re not your own.

“I have to tell you, I’m not afraid to beg, borrow, steal, learn and that’s a sort of culture we normally have to have. If somebody does something better then us, let’s learn how they did it and do better. And I think that’s a cultural thing that people have to appreciate it different.” Microsoft CFO Amy Hood (Technology)

Full transcripts can be found at

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©

About the Author(s)
Scott Krisiloff, CFA

Scott Krisiloff, CFA, is the CEO of Avondale Asset Management, an independent investment advisory firm located in Los Angeles. Krisiloff is the author of the firm's blog, Company Notes.

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