TIF is getting clobbered today, down about 8.5% as the company reported Q1 earnings that missed consensus and lowered its full year guidance. While the reported results and lowered guidance were obviously a big disappointment, the commentary and the causes for the murky outlook do not paint a rosy picture for TIF shareholders for the balance of the year. There is the one / two punch of North American margins weaker on higher costs, and specific mention of deceleration in countries outside of the America’s, including China.
The stock is trading at levels not seen since mid March 2011 following the natural disaster in Japan, but when you extend the chart out a bit back to the 2009 market lows, you start to see the makings of an unwind of a very epic run in the stock that is littered with massive 25 to 45% multi-month swings, 7 of them to be exact in just the last year![caption id="attachment_12350" align="aligncenter" width="300" caption="1 YR TIF chart from Bloomberg"][/caption]
It is very hard to make any sort of case how that sort of volatility is bullish for the stock.
Taking a longer view, the chart shows some fairly important breaches of important technical levels: 1) today broke a huge support level (~$60) that has been intact since late 2010, and only broke that level for short periods in severe times of stress, 2) in the weeks prior to today’s earnings gap, the stock broke a massive uptrend line that had been intact since the market lows of mid 2009, and lastly, 3) the series of lower highs and lower lows since the top made after the more than 50% mid 2011 rally, signals that this stock has most likely found a new trading range below $60.[caption id="attachment_12349" align="aligncenter" width="300" caption="3 yr TIF chart from Bloomberg"][/caption]
One more chart stuck out to me, the 20 year. There have been 2 rapid $40 dollar rallies in TIF in the past 20 years, the first led by the growth of the U.S. consumer in 1999, and the second led by the growth of the Chinese consumer in 2010-2011. After the strong rally in 1999, the stock stalled out as U.S. growth slowed after the tech bubble, and I envision a similar scenario developing today in TIF, as Chinese growth slows after their fixed investment bubble over the next few years.[caption id="attachment_12362" align="aligncenter" width="300" caption="2o yr TIF chart from Bloomberg"][/caption]
Our View: The technical picture obviously sucks, and while the fundamental outlook for the balance of the year looks severely challenged given the backdrop of slowing global growth, bulls will point to a premier high-end global retailer that trades at a low teen PE that is expected to grow in the low teens. Well you know our view on that, we don’t buy stocks solely on cheap valuation. We don’t want to press the short here, but we would be inclined to sell short on any rally above $60.
If the global economy continues to show signs of stress as we head into summer, we will be inclined to take a closer look at other consumer discretionary names like NKE, COH and RL from the short side.