Post 237

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Summary

News

Victoria’s Secret

  • Also owns the brand Pink

Victoria’s Secret latest results

  • Comparable sales were down 6%.
    • Down 8% in their stores.
  • Two years of comparable store sales declines.
    • By quarter:
      • 4Q/21: +12%
      • 1Q/22: -3%
      • 2Q/22: -7%
      • 3Q/22: -10%
      • 4Q/22: -7%
      • 1Q/23: -14%
      • 2Q/23: -14%
      • 3Q/23: -11%
      • 4Q/23: -6%

PM: Are fewer people wearing underwear?

Foot Locker

Foot Locker is a New York-based footwear and apparel retailer.

  • Stores: around 2,600
  • Countries: 26
  • Brands:
    • Foot Locker
    • Kids Foot Locker
    • Champs Sports
    • Atmos
    • WSS

A bit of history.

  • 1974: Started as a shoe retail chain of Woolworths under its Kinney Shoes division.
    • “Woolies” was founded in 1879 in Utica, NY.
      • In 1962 they opened their first discount chain Woolco.
        • Woolco closed in the US in 1983 and 1994 in Canada.
  • 1997: Woolworths closes all of its department stores and changes its name to Venator (Latin word for Sportsman).
  • 2001: Venator changed its name to Foot Locker.
  • The historical share price of Foot Locker includes that of Woolworths.
    • In the ten-year period before Woolworth’s changed its name to Foot Locker, its share price had fallen 47%.
    • Foot Locker share price:
      • 2001: $15.10
      • 2024: $24.20
        • Up 60% (2.2% per year).
        • Down 8% when adjusting for inflation.

4Q/2023 Results

  • Comparable sales: -0.7%
    • By region:
      • North America: -0.7%
      • Europe, Middle East, Africa: -1.0%
      • Asia Pacific: -0.2%
    • By brand:
      • Foot Locker: +4.8%
        • Previous quarter: -4.9%
      • Champs Sports: -10.4%
        • Previous quarter: -20.9%
      • Kids Foot Locker: +6.9%
        • Previous quarter: +5.0%
      • WSS: -6.1%
        • Previous quarter: -9.4%
  • Profitability fell as the company cut prices to move inventory.

Off Target

Target has 1,956 stores.

A brief history:

  • 1962: Opened as a discount brand in Minneapolis by The Dayton Company which owned higher end department store Dayton’s.
    • Dayton’s opened the first mall in the US in Minnesota in 1956.
  • 1975: Started offering employees a 10% discount, which continues to this day.
    • PM: That doesn’t seem like much.
  • 1995: The first Super Target Stores were introduced with groceries.
  • Share price performance:
    • Since 1984: +6,582%
      • +11% per year.
    • From peak in Aug 2022: Down 35%

4Q/2023 Results

  • Comparable sales: -4.4%
    • Store sales: -5.4%
    • Digital sales: -0.7%
      • 21% of their sales are in digital form.
  • In terms of transactions:
    • They fell 1.7%.
  • And the average transaction amount fell 2.8%.
  • On shrinkage the company noted “continued increases in store loss rates” i.e. theft.
  • The company has a loyalty program called Target Circle.
    • In April they are offering a new program called Target Circle 360 which offers same-day delivery service that comes with an annual fee.
    • Minimum order of $35.
    • I’m not sure what the annual fee will be but right now there is a special time limited offer of $49 for the first year.

China Exports Improving

The FT reports that exports from China:

  • 2023: -5%
  • Jan-Feb 2024: +7.1%
    • Southeast Asia: +4.8%
    • European Union: -4.1%
    • US: +0.7%
    • Russia: +12.5%
    • India: +15.8%
    • Brazil: +33.3%

US Jobs Numbers (BLS)

  • Oct: 105,000
  • Nov: 182,000
  • Dec: 290,000
  • Jan: 229,000
    • Note that January’s original number was revised down by a whopping 124,000 jobs.
  • Feb: 275,000
    • Categories with the largest gains:
      • Healthcare: 67,000
      • Government: 52,000
        • PM: And so it continues.

Job numbers by source:

  • BLS Establishment Survey: 275,000
  • BLS Household Survey: -184,000
    • Note that this survey shows job losses over the last three months of almost 900,000.
  • ADP: 140,000

Jobs created/(lost) over the last five months:

  • BLS Establishment Survey: +1,081,000
  • BLS Household Survey: -499,000

Unemployment rate:

  • Feb: 3.9%
  • Average hourly earnings: $34.57 (CAD$46.72)
    • For private sector production and nonsupervisory: $29.71

JOLTS stand for Job Openings and Labor Turnover Survey

  • Job openings:
    • Jan: 8.863 million
  • The number of unemployed people per job opening:
    • Pre-COVID: 0.8
    • COVID peak: 5.0
    • Low in 2022: 0.5
    • Jan/2024: 0.7

The real-time job posting data index from hiringlab.org.

US:

  • Pre-COVID: 99.4
  • Dec 2021Peak: 164
  • Feb 2024: 119.2

Canada:

  • Pre-COVID: 101.5
  • Apr 2022 Peak: 173.4
  • Feb 2024: 111.6

Canada Jobs Numbers

  • Oct: 18,000
  • Nov: 25,000
  • Dec: 100
  • Jan: 37,000
  • Feb: 41,000
    • Employment growth: 0.2%
    • Population growth: 0.3%
    • Unemployment rate up 0.1% to 5.8%.

Wage growth:

  • Jan: 5.3%
  • Feb: 5.0%
    • $34.82 per hour.

For the twelve months Feb/23 to Feb/24:

  • Public sector jobs: 197,000
  • Private sector jobs: 160,000
  • Self-employed jobs: 11,000

I looked at the twelve-month period from Feb 2013 to Feb 2014

  • Total jobs: 95,000
    • Public sector jobs: -41,300
    • Private sector jobs: +128,500
    • Self-employed jobs: 7,500

Note that jobs in the public sector were down over that twelve-month period.

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

Interest Rates: Normal For Longer?

In a Globe and Mail opinion piece John Rapley discusses the prospect of interest rates not falling as quickly as many hope.

  • He cites Jim Bianco who says that the forecasts from Wall Street that expect interest rates to fall are more of a reflection of what they “hope” will happen.
  • I would add that these Wall Street forecasts may even be a tactic to “force” the Fed to lower interest rates.
    • If so many market participants are expecting rate cuts and the Fed doesn’t follow through then markets could crash and we all know how much the Fed hates falling stock markets.
  • I would also add that it doesn’t make sense that rates should be lowered, just because inflation eventually returns to the Fed’s 2% theft target.
    • If the economy is still growing why should rates be lowered?
    • As Alex J Pollock says, current interest rates should be labeled “normal” for longer rather than “higher” for longer.
    • Normal interest rates, or at least those dictated by market forces, are what lead to the most efficient allocation of scarce resources (capital).
    • Lowering them to protect stock prices or to drive a wealth effect by making housing unaffordable for the next generation leads to lower productivity growth, greater wealth inequality and a divided society.

A Bad Idea

In another Globe and Mail opinion piece, Keith Ambachtsheer and Sebastien Betermier comment on an open letter to the Canadian government by Canadian business leaders which asks the government to force Canadian pension plans to drive their company share prices higher  tilt “the table a bit toward domestic investment…”

  • Michel Leduc of the Canada Pension Plan Investment Board cautioned that the government should not make a “premature jump” and that “There could be some very, very serious unintended consequences without doing that homework.”
    • PM: Why change now?
  • PM: Ambachtsheer and Betermier both rightly point out that this would be a very bad idea. And that:
    • Canadian pension funds already suffer from a “home-bias” and over-allocate to Canadian equities; at least from the perspective of their equity allocation i.e. 20% of their equities vs. the Canadian market’s 3% share of global market index.
    • As the Canadian market has a relatively higher concentration in resources, allocating even more to Canadian stocks would make pension portfolios less diversified.
      • They point out that if pension funds lost money due to this lack of diversification that the government would have to bailout the funds.
      • PM: With taxpayer money.
    • They do point out that investing locally does effectively hedge local interest rate and inflation risks.
    • If capital is not coming to Canada then perhaps there are structural issues related to uncertain government policy.
    • PM: I would add that it’s essential that companies “compete” for capital by most efficiently investing that capital and running long-term sustainable business models in which all the constituents benefit:
      • Customers
      • Employees
      • Suppliers
      • Owners
      • Executive
      • Society at large.
    • PM: And note that the most important constituent in the above list is the customer as they are the only constituent that “pays.”
  • PM: Unfortunately, things could get significantly worse in this regard if government debt continues to explode higher.
    • In an attempt to keep interest rates from rising, pension plans and other investors could be forced to have a significant portion of their clients’ assets in government bonds that others don’t want to buy.

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

Submit your email to get notifications about new Paulitical Economy™ posts and updates: