RESTAURANT/RETAIL UPDATE – BEST HOLIDAY SEASON SINCE 2007 BUT BETTER PROFITS COULD BE ELUSIVE!

I remember Christmas of 2007 very well. I had been very cautious (bearish) in my partnership’s portfolio early in 2007, but got more fully invested in mid-year as the general stock market acted well while restaurants and retail stocks came down to historically attractive prices. By the fall, I was “long and wrong”,  probably 85-90% invested, and my holdings were getting even cheaper.  I figured, however, that Santa Claus always comes, the holiday season would generate retail optimism, and I could lighten up on my holdings either just before or just after December 25th.  Within days just after Christmas, I realized that “something had changed” and enthusiastic holiday spending had not materialized. I spent the next month liquidating my portfolio (even with the losses) and by March 1st I was “net short”. I could tell you that I saw the financial crisis of ’08 coming, and my genius allowed me to make money in ’08 while most money managers lost 30-50%, but it was really the absence of holiday spending in ’07 that got me out of the market and put me in a position to watch the financial carnage of ’08 unfold.

The bottom line is that there hasn’t been a robust holiday season since 2006. Every year since then has been very reserved, up a bit, invariably driven by promotional offers, longer hours open at retail locations, and the increasing influence of on-line spending (also at bargain promotional levels). Some years in the last decade have been better than others, for earnings, depending on inventory levels (for retailers) and cost controls (for restaurants). Sales and traffic trends, especially for brick and mortar retailers, and dine-in restaurants, have been continuously lackluster over the last decade.