by Scott Krisiloff, CIO, Avondale Asset Management
It was another very light week for corporate comments. The consumer is probably holding steady, but there were a couple of data-points to suggest that Q1 growth might have been a little bit soft. Ā Earnings season will pick up in a few weeks and then the pace should increase by quite a bit. Iāll be careful what I wish for.
The Macro Outlook:
The consumer is pretty steady
āWhen I think about the consumer, I think the consumer has been pretty steady. We know the consumer is looking for everyday value. The consumer is not reacting to promotional value constructs, the way they did a few years ago and I think that when you give the consumer what it is that they want, theyāre visiting restaurants.ā āDarden CEO Gene Lee (Restaurants)
Some first quarter numbers may be soft, but mostly for transitory reasons
āU.S. consumer purchases for center-of-store food were soft in the first quarter, especially in February. This is based on retail consumption reports for the period which showed a measurable year-on-year deceleration across many categoriesā¦We believe that this short-term slowdown can be attributed to a confluence of factors, including unseasonable weather, a late Easter and the timing of income tax refund payments, which are likely temporary. In fact, a few weeks into our second quarter we have seen an uptick in our sales of U.S. consumer productsā¦we donāt see anything in our data going into March to suggest the slowness that we saw in January and February as continuing.ā āMcCormick & Co CEO Lawrence Kurzius (Spices)
āThe slowing sales trend early Q1 has most acutely impacted eCommerce. We have clearly identified the issues, an assortment lacking depth and color for spring compounded with visual merchandising that did not powerfully translate our design vision.ā āLululemon CEO Laurent Potdevin (Apparel)
Wage inflation could moderate a bit, but is still a pressure point
āwe expect wage rates to moderate a little bit, we were near 5% this year for the full year, California, New York, are the two states that we expect to have less pressure in, because weāre not seeing the same kind of minimum wage increase. New York had a 50% increase last year and California right about half as much as last year. So weāre getting a little bit of moderation on the wage rate in our view. But we still think itās going to be a pressure point above what weāve seen in the history of this companyā āDave and Busterās CFO Brian Jenkins (Restaurant)
Electronic component costs are rising
āthere is a rising component cost environment right now. On the Client side we see it in memory, we see it in glass and LCD panels. On the server side and storage side, we are seeing it in SSD drives and memory.ā āDell Technologies CFO Tom Sweet (Enterprise Tech)
International:
Cuba is opening up slowly but surely
āat this point in time obviously there are number of ships going for the first timeā¦So we are sending larger ships, Paradise probably the largest ship from the U.S. to Cuba going. And so you know, it will happen over time, theyāve got pace and take their time but again there is a lot of change already occurring thereā¦things are increasing and weāll just have to continue to work with them and go at the pace they want to go.ā āCarnival Cruise CEO Arnold Donald (Cruises)
Financials:
The trend towards indexation is more pronounced in the Americas
āI would say that what we are observing is that trend is more pronounced in the Americas than we are seeing in the EMEA and Asia-Pac regionā āFactset CEO Phil Snow (Fintech)
Miscellaneous Nuggets of Wisdom:
Strive for simplicity
āif you try to take a complexity and you then try to solve it with a complex system, you have created a double complexity and that usually doesnāt work very well. All the companies I have ever been involved with and studied, most of the time when they are launching a big system or they are opening a new facility, if something drastically goes wrong and thatās because they havenāt first simplified it.ā āRestoration Hardware CEO Gary Friedman (Retail)
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