E Point Perfect

Making sense of the markets this week: January 15, 2023


Retail struggles continue 

The last set of quarterly earnings reports before the big holiday season showed that, while many large retailers were setting sales records, they were also struggling to move massive amounts of excess inventory. Lululemon Athletica (LLL/TSX) decided to give an updated earnings forecast on Monday, and it looks like retail worries will continue. (All numbers below are in U.S. currency.)

The athleisure-wear giant saw its stock price fall more than 9% on Tuesday after it announced that good sales numbers during the holiday season were due in part to massive discounts. Lulu further expects profit margins to decline as the quarter progresses, given the pressures exerted by the inventory glut. That said, the 9% share price drop seems fairly extreme given fourth-quarter earnings guidance simply went from $4.20-$4.30 to a tighter $4.22-$4.27. The yogi company also nudged its net revenue forecast up from $2.61 billion to $2.66 billion. Market makers just aren’t willing to look on the bright side or cut retailers any slack these days.

Meanwhile, “meme stock darling” Bed Bath & Beyond (BBBY/NASDAQ) reported on Tuesday that it’s in danger of bankruptcy. The decor company is hemorrhaging money. It lost $393 million last quarter. And with cash-on-hand down to $153.3 million, things look to be going down the toilet. 

Paradoxically, while Bed Bath & Beyond looks to go bankrupt, the meme-stock army was back in full force to buy the stock on the vague notion that BBBY could be a “potential acquisition target.” Which company wants to buy a money-losing retailer during a widely-forecasted recession, I have no idea. But it didn’t seem to matter as the stock was up nearly 28% at Tuesday’s close, then it proceeded to rocket up 68% on Wednesday, before adding yet another 50% on Thursday. Share prices are now up 261% over the last five trading days.

Just to give you an idea of what a meme stock continues to mean, $114 million worth of shares of BBBY were traded by mid-day on Tuesday. The entire market capitalization of the company is only $157 million! 

Good luck to the short sellers trying to predict the short-term gyrations of these balance sheet-agnostic speculators. 

Once again, we see a situation where speculators are engaged in a tug-of-war with short sellers, and there is absolutely nothing about the underlying company’s performance that would justify this share price movement. No doubt many everyday investors will be burned by this price action over the long term (as they have been repeatedly with BBBY, and other meme stocks). Here’s a look at the last five years for the stock.

Source: Google Finance

I’m no technical analyst, but nothing about this chart or the words “bankruptcy” tell me that taking part in this buying binge is a good idea.


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