DSW 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Omni and base are one and the same

“Our omni-channel endeavor is really much more than just a project or an initiative. It’s a fundamental change in how DSW conducts business. It’s causing us to view everything we do through the lens of the customer and that is causing us to expand our traditional definitions of our brand cornerstones of assortment and value and convenience. I tell you this because it’s becoming increasingly difficult to isolate the costs and the benefits of omni from our base business.”

Stores are billboards for online

“And I think what we’re learning is we really have to take a holistic view and definition of the sales that are being generated by those new stores because what we see, and that doesn’t even include the impact that our new store in a new market can have on dotcom business, but is generated from those geographies. What we find is it’s a pretty good billboard for the DSW brand and it increases awareness and it typically creates a lift in our dotcom business from customers who live in that vicinity.”

We do well in chase mode

“I think we’ve demonstrated in past quarters that when we’re in a chase mode, we actually do very well. So we’re going to plan our inventories conservatively and we’re going to play the chase game. That’s when we deliver sales at stronger margins.”

Shoe vendors are stressing comfort

“So as we saw at the last two shoe shows, I think comfort has infiltrated every single category. The vendors, smart-fully so, are putting it into dress, sandals, casual shoes. It is pervasive across the industry and frankly that’s what gets me really excited because customers have been asking for it for a long time and I think they’re doing it in a smart way and there are a couple of brands that actually I think are doing it in an exceptional way. “

Best Buy 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Consumers increasingly buying online

“Consumers are increasingly researching and buying online. As a result traffic to our brick and mortar stores continue to decline and yet our in-store conversion and online traffic continue to increase”

Top reason for missed sales is that item out of stock

“In our consumer surveys one of the top reasons customers say that they do not buy when they are in a Best Buy store is that the product they are looking for is not in stock in that store at that time.”

Expecting continued decline in comps–ongoing softness in mobile phone category

“Now looking forward to the back half, as Hubert remarked earlier, industry wide sales are continuing to decline in many of the consumer electronics categories in which we compete. We’re also seeing ongoing softness in the mobile phone category ahead of highly anticipated new product launches. Therefore absent any changes in these declining industry trends and with limited visibility to new product launch quantities. We continue to expect comparable sales to decline in the low single digits in both the third and fourth quarter.’

We think the consumer is fragile

“We have a backdrop of a consumer environment that’s a bit fragile.”

We have to be agnostic to online vs. in store

“The mindset of the company as we see no reason why our online market share, or market share online should be lower than in the stores and we are determined to be agnostic from a channel standpoint and a profitability standpoint so as to be able to serve the customers the way they want to buy it.”

Mobile is highly penetrated

“in mobile, everybody is talking and accepting new products in the back half but the penetration of smartphones in the country has really reached very high level”

Back to school has been good

“I would say that back-to-school so far is in-line with our expectations. There is potentially I think in retail in general, a more positive environment but we’re not just going to take a couple or three weeks as a source of excitement. This is an economy in general in a sector where there is lot of volatility week to week and month to month depending on this, this and that. So but yes in general there is a sense that the retail environment in the last few weeks have been better and certainly the beginning of the quarter has been in-line with our expectations.”

Excited about UltraHD TVs

“What’s very exciting about Ultra-High Definition TV compared to 3D a few years ago is that the customer benefits is immediately tangible and meaningful in the form of improved image quality”

2000 at 2000

If you count March 6, 2009, when we rallied from an intraday low of 666, as the first day of the bull market, yesterday marked the 2000th calendar day of our current bull.  How fitting then that yesterday was the day that the S&P 500 closed above 2000 for the first time.

At 2000 days old our current bull market is now the fourth longest bull market since 1928.  Since then, the only bull markets that have lasted longer were in 1974-1980 (2,248 days), 1949-1956 (2,607 days) and 1987-2000 (4,494 days).  Adding those bull markets together, the market has existed in a more extended bull market than this one on 3,349 calendar days–a little more than 10% of the time.

We’ve come a long way since March 6, 2009.  Back then we were talking about nationalizing the banking system.  Nobody on that day would have dreamed that we’d be here 2000 days later.

For a stroll down memory lane, here are some of my favorite financial catchphrases that encapsulate what we’ve been through in the last 5.5 years: “Too big to fail”, “green shoots”, “quantitative easing”, “V-shaped recovery”, “next shoe to drop”, “the new normal”, “flash crash”, “PIIGS”, “double dip”, “QE2”, “arab spring”, “debt ceiling”, “operation twist”, “sequestration”, “QE3”, “fiscal cliff”, “taper”, “government shutdown”, “polar vortex”, “geopolitical tensions”, and of course  “great recession”.

2000 at 2000

Could Stocks Trade for 40x Earnings?

One of the few rational arguments left that stock multiples should continue to expand is that bond yields are at such low levels that equities still look cheap by comparison.  In order to further illustrate this argument, below is a chart that makes bond valuation more comparable to stock valuation by expressing the yield of a long term treasury bond as a multiple of “earnings” (bond “earnings” taken as yield or coupon).

Today’s 2.39% yield on the 10 year treasury bond equates to a multiple of 41.8x “earnings” (100/2.39) compared to the S&P 500 trading at 18.9x trailing as reported earnings.  If those two multiples were to converge, as they did from ~1960-2006, stocks could clearly see a lot more multiple expansion.

It’s a possibility, but I wouldn’t bet on it happening.  In order for stocks to match bonds at a 40x multiple, it would depend on interest rates staying where they are.  That would probably take an environment with slow economic growth and low inflation, but strong and stable earnings growth.  One would expect that those are contradictory scenarios, but then again, it’s the scenario that financial markets appear to have been pricing in all year.

Bond Multiples

Source: Shiller Data

How Do Stocks Finish the Year When Positive Through August?

I usually think of the end of August as the beginning of the home stretch for a market year.  The finish line is in sight, and from here on out, market professionals will be especially focused on their performance because track records get locked in at the end of the calendar year.  In a year that stocks have risen, underperforming managers will often feel pressured to chase a rising market, which means that when stocks are positive through August they tend to continue to rise through year end.

Since 1950, the S&P 500 has been positive through August 42 times.  The market has continued to rise in all but eight of those years.  The average increase between September and year end has been 3.9%.  The best year was in 1954 when stocks rose 21% in the final four months of the year.  Last year stocks rose 13% in the final four months, which was the fourth best close of the year since 1950.

Of the eight times that stocks have been negative, four of them happened when the market was only up slightly through August.  The worst final four months of the year came when the market was up the most though.  Thanks to the crash, in 1987 the S&P 500 was down 25% between September and year end.

Positive through August

 

Source: Yahoo data, Avondale

Company Notes Digest 8.22.14

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

The Macro Outlook

Home Depot was upbeat about the consumer

“customers clearly feel better about investing in their homes.” ($HD)

The company sees housing as a modest tailwind

“We believe the housing market remains a modest tailwind for our business. We had growth in transactions and ticket for both the quarter and the half. Both our Consumer and Pro businesses grew” ($HD)

It’s particularly encouraging that big ticket did well

“we saw an acceleration of big ticket transactions. These results support the view of a continuing recovery in the U.S. home improvement market.’ ($HD)

Gap thinks consumers are doing slightly better too

“I think the consumers feeling slightly better, which now we think it’s good for the overall industry.” ($GPS)

Many retailers are still complaining about the promotional environment though

“reflecting a retail environment in which a broad set of competitors are leaning heavily on promotions and a consumer environment in which shoppers are still cautious and focused on deals.’ ($TGT)

“I think the environment, I would say, like in the second quarter it felt a little more promotional, I think, than last year. And I think the business environment is a little mixed out there” ($TJX)

Some retailers are trying to take a stand against being promotional

“The final initiative was the back away from what had become incessant promotional activity and stand for brand integrity and authenticity.” ($URBN)

Target implies that the promotions may be easing with back to school

“while it’s still early, we have been pleased with the results so far in the back-to-school and back-to-college season in which we have seen improved sales trends from guests focused on the occasion rather than promotions.’ ($TGT)

The low to moderate income consumer is still struggling

“On the consumer piece, no, we haven’t really seen any major shifts from Q1 to Q2, but I think, it’s pretty apparent that the low to moderate income customer is struggling. I think, you’re seeing that in the – in some of the results that are being posted by the [ph] moderate apparel (25:17) retailers. So, I don’t think we have anything to add to that other than I think that that customer is challenged economically and finding this environment difficult.’ ($ROST)

“As you’ve likely heard from many retailers, the consumer continues to be under pressure…It’s really this long and stubborn pressure on the middle-income customers and especially the lowest income customers, and it’s been several years now and there is somewhat – it’s going to get better. I’m optimistic, but there’s not much light at the end of the tunnel and customers continue to look at for values.” ($DLTR)

Yellen still sees a lot of slack in the labor markets

“the Committee judged that underutilization of labor resources still remains significant.” ($FED)

But Dollar Tree sees a shortage of truck drivers

“we anticipate our freight cost will continue to be a meaningful headwind to gross margin, primarily as a result of driver shortages and related wage increases” ($DLTR)

You can’t like these comments from Bank of China about the state of Chinese credit markets:

Small business is having trouble getting financing

“our nation is very concerned about, the Bank is also very concerned about this. Right now we face some downward pressure and we are at a turning point in making our adjustments. We understand that financing is difficult and costly for SMEs” ($BankofChina)

Bank of China argues that part of the reason that credit is tight is that banks’ cost of capital has increased and they are getting disintermediated by wealth management and non bank lenders

“capital cost for banks has gone up, so everything has become more exclusive, because what is flowing in has become more expensive. People are talking about wealth management and not so much focusing on primary deposits…So the asset flowing into the banks has become more expensive, and therefore that naturally affects things that are going out. Secondly, the whole loan cycle has been extended. There are many more channels available in the market such as trust channels.” ($BankofChina)

Nonperforming loans have increased, reflecting the slowing of the Chinese economy

“Towards the end of June, NPL volume reached RMB85.9 billion, which is an increase of RMB12.6 billion, NPL ratio 1.02% which represents an increase of 0.06 percentage points…We believe such changes are reflecting the situation of slowing down of the Chinese as well as overseas economies and also because of the restructuring of the banking system.” ($BankofChina)

Financials

Medtronic argues that tax inversion will level the playing field with foreign competitors and that they’ll still pay plenty of US taxes

“Medtronic will continue to pay significant U.S. taxes and increase our investments in the U.S. On taxes, we will continue to pay federal, state, and local income taxes on all U.S. earnings as well as Social Security taxes, property taxes, and the medical device tax. Cumulatively, these taxes represent more than 45% of U.S. income and we expect to pay a similar rate post-close. In addition, this transaction will put us on an even playing field with foreign companies regarding use of internationally-generated profits’ ($MDT)

Retail money flowed out of loan funds last quarter. Eaton Vance thinks the flows are an over-reaction

“our retail bank loan flows turned negative in the third quarter, consistent with overall industry trends…we struggle to understand the accelerated redemptions being seen today in the loan category. Loan prices are stable. Credit conditions are benign and yields remain quite attractive in relation to other floating rate instruments.” ($EV)

Institutional investors are moving to fixed income funds with a more flexible mandate

“income investors have migrated from Core Fixed Income to Core Plus to increasingly we’re seeing interest in Multi-Sector, which is moving out a little further on the risk spectrum, which is broadly where Kathleen Gaffney’s Multi-Sector Income Strategy operates ($EV)

Consumer

Companies’ ecommerce customers tend to be their most loyal customers

“The guest that shops Target online is absolutely our best guest. They shop both online and in stores. It’s really all about what’s convenient for them, and sometimes it’s just easier to knock an item off your list by buying it on your mobile device” ($TGT)

TJX doesn’t think a lot of people are making much money in ecommerce

“there aren’t a lot of e-commerce businesses out there that are making a ton of money and I think we’re very happy with Sierra. We are learning. We do want to make money with our e-com business. But more importantly, I keep coming back to we want to balance, pushing the customer to brick-and-mortar and back.’ ($TJX)

Everyone is talking about their “omni-channel” strategy

“Final thing and probably the one that I’m most excited about and our team is most excited about, and most importantly our customers are most excited about is the omni plan. Customers are changing the way that they shop retail stores and online. They want the benefits of both. We know that customers who shop both are far more valuable customers and happier customers that if they were to shop at either of the two channels.” ($SPLS)

“We need to build capabilities focused on satisfying the wants and the needs of our guests and ensuring that our digital and store operations operate seamlessly to provide a single superior experience.” ($TGT)

Staples agrees that the office supplies industry is clearly over stored

“It’s obvious to me that the office superstore industry is over stored in the United States and that is driven by the shift to online as well as the decline of paper-based office supplies. That’s why we’re closing 225 stores and that’s why we’re downsizing a lot more than that and that’s also why Office Depot and OfficeMax merged and why they’re closing 400 plus stores as well.’ ($SPLS)

Staples doesn’t think brick and mortar goes away though

“Having said all that, I don’t believe that retail goes away. I think retail is important to customers. I think customers like retail for convenience, they like it for immediacy, products services, face-to-face customer service.’ ($SPLS)

There are plenty of goods out there waiting to be sold

“I can say it 100 times and I will say it again. We could be $40 billion, we could be $50 billion, and there is more goods than we could ever take. Every day, we’re having that conversation. The availability is vast and the quality of it is terrific, and we don’t see that changing in the back half at all.” ($TJX)

“in terms of the supply, we’re seeing plentiful supply, amount of merchandise in the market.” ($ROST)

So TJX is running its inventories lean

“we are very clean in the stores. In fact, our inventory, well, it’s been lean off season and, given the second quarter with sales picking up, our clearance levels are very under control. No real liabilities there.” ($TJX)

Retailers make their plans months in advance

“the plans for the back half of the year have been put in place months ago. We always would tweak and make adjustments, but the heart of what we’ve got planned was committed many moons ago…I mean our holiday buy was made last year.” ($HD)

There’s a lot more money floating around on the first day of a month

“First of the month, there are a lot of payroll checks out there. A lot of people get paid at the first of the month, a lot of the government checks go out in the first of the month. There are a lot of things, there’s a lot more spendable income around the first of the month. And many of our customers, especially the lower income customers, wait until the first of the month because they just really don’t have the ability other times” ($DLTR)

Someone is still increasing their ad spend on television

“we are increasing our total marketing spend in TV impressions and our commercials will be on TV even more weeks than last year” ($TJX)

Technology

The PC sales boost from Windows XP expiration is probably over

“The windows XP expiration has contributed to our growth, although we believe we’re now through much of that benefit.’ ($HPQ)

HP thinks the PC business is still flat to declining

“The PC business is flat to declining slightly and we think that that will continue.’ ($HPQ)

PC sales were strong all over the world though in both commercial and consumer markets

“Commercial sales grew 14% year-over-year, with consumer sales up 8%…with regard to PC strength regionally this was broad based across all regions, Americas and EMEA in particular had good quarters” ($HPQ)

There may be a similar catalyst to the XP upgrade in the server market

“We think the windows Server 2003 upgrade is an opportunity for us. There’s a significant number of Servers in the install base and they are going to have to upgrade. So there is some similarity between the XP upgrade and the server upgrade” ($HPQ)

Staples confirms that we’ll see “multiple” product releases from Apple in the fall?

“Apple in our stores is a very important component. It’s been in our stores less than a year. We started selling iPhones recently. We haven’t yet had a new Apple product release and we’re excited about multiple product releases this fall.” ($SPLS)

Miscellaneous Nuggets of Wisdom

When your competition gets aggressive keep yourself tight and keep yourself liquid

“As it pertains to promotions in the market, Q2 was a highly promotional quarter, particularly in the mid-tier, and we really don’t see any reason for that to change in the back half of the year. In terms of how we got our margins, really what we did was plan very conservatively, left ourselves liquid, had plenty of open to buy, and we chased most of our business. We also had very tight inventory controls in this promotional environment, which is key so that you’re always liquid and fluid and you have constant open to buy.” ($ROST)

Transcripts via Factset and www.seekingalpha.com

The Gap 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Trying to get more contemporary fashion at Banana Republic

” Last week at Banana Republic we launched a new marketing campaign called The New Look. It’s the beginning of enhancements in product and marketing, digital content from now right till the end of the year and beyond, and I think it was a nice start for the team. I think they really made a change in terms of this path that Banana Republic has been on from too conservative to more of a contemporary product appeal. I’m speaking mostly here about women’s product. I think our men’s business has been strong”

Today is the 45th anniversary of Gap Inc.

“Today is the 45th anniversary of Gap Inc. And this was the day in 1969 that Doris and Don Fisher both spent $21,000 each of their own money to start this incredible company. What I’d like to say is on behalf of the 140,000 employees and the millions of people who have worked in this company, a big, big thank you to the Fishers, this incredible couple who founded this business, who make us proud every single day. And I think that it’s a testimony to the strength of our brands, of our people, of our creativity, of our commitment to the customer, that this business has been around for 45 years, and continues to move forward and to blaze trails and be a formidable force in the apparel business.”

Consumer is feeling better

“I think the consumers feeling slightly better, which now we think it’s good for the overall industry.”

3200 stores

“Year-to-date we opened 36 company-operated stores on a net basis and ended the quarter with 3,200 stores.”

A strong relationship between outlet and core business

“I think that it’s a business that when the core brands are strong, they do very well. I mean, there’s just this incredible relationship between the specialty business and our outlet business. And our outlet business did very well in 2012 and 2013 because our core business was stronger at that time. So, if certain malls around the country, mostly B malls, maybe the odd C malls start to act promotionally like an outlet mall that’s 10 miles away, it’s more difficult to drive traffic to the outlet mall.”

About 500 stores come up for lease renewal each year

“I think the best math to apply is we have 2,500 odd stores in the U.S., so about 500 leases come up every single year. So that phenomenon plus the recession is what allowed us to do the work we did in the last four or five years.”

Dollar Tree 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

4.5% Comp

“This morning we announced Dollar Tree’s results for the second quarter 2014. Comp-store sales on a constant currency basis increased 4.5% in the quarter, driven by both increases in traffic and average ticket.”

Perishables about driving traffic

“We now offer frozen and refrigerated product in 3,410 stores, with plans to continue growing. While this category is lower margin, the product serves the needs of our customer. It’s faster turning, more frequently purchased, and the increase in shopping frequency provides the opportunity to drive sales across all categories, including higher-margin discretionary product.”

freight cost will be headwind as result of driver shortages

“we anticipate our freight cost will continue to be a meaningful headwind to gross margin, primarily as a result of driver shortages and related wage increases”

Consumer continues to be under pressure

“As you’ve likely heard from many retailers, the consumer continues to be under pressure, our sales initiatives are aimed at responding to those customers needs by being a part of the solution and their efforts to balance the household budget”

Be the solution, not the cause of your customer’s problems

“when the customers were under pressure and traffic was stubborn and everyone was complaining about it, really starting back last year and during the fourth quarter, we responded by being the solution to their problems and not part of the problem. So, we have invested in produc”

big hit that will continue is freight cost

“nd frankly, the big issue that hit second quarter and probably is going to continue to hit us in the rest of the year was the freight. As I’ve always said, when we see an issue, we’re always able to respond accordingly. And if we see cost pressures in one area, if we see it coming and we can make plans for it, we can always make allowances and find other ways to save. And we can do the same thing with our freight costs. But this freight driver shortage issue came upon everyone pretty suddenly. We’ve been expecting something, but we weren’t really seeing it until recently.”

Environment is challenging across the board

“Frankly, it’s across the board. We really don’t see anything that you could point to, that’s a stark demarcation line between the higher income and the lower income. There are always markets where in some of the lower income markets and the urban markets, it’s always been more highly consumable. But across the board, if you start looking at the higher incomes versus the middle American suburban, everybody’s looking for value and everybody likes shopping at Dollar Tree.”

Customers shop with us because they enjoy the experience

“One of the things that we always pound the table about is, it’s not just shopping at Dollar Tree, because you’re looking for something you need. People do that and it’s only $1 and it’s great value. But our customers also shop us, because they enjoy the shopping experience, it’s fun, you come in, you walk into the seasonal product, you walk into fun, colorful product, an ever-changing mix, there’s always something that you’re buying that you didn’t expect to find as a customer.”

We have to make good choices from a merchandising perspective in order to keep our $1 price point

” the pressure is not on the initial markup of product, it’s on our choices. It’s still about what we choose to sell. It’s still about understanding the value that we need to offer the customer to drive their purchase decision. At the $1 price point is not the issue at hand here. It’s really this long and stubborn pressure on the middle-income customers and especially the lowest income customers, and it’s been several years now and there is somewhat – it’s going to get better. I’m optimistic, but there’s not much light at the end of the tunnel and customers continue to look at for values.’

Invest in your customer

“We can drive higher margins, but we have chosen to instead of sitting back and resting on whatever the 11% or whatever it was operating margin the previous year. We’ve chosen to invest in the customer. We’ve chosen to invest in more value, more traffic, higher average ticket. We want our customers to think of us as, if money is short, go to Dollar Tree. If you want to have a fun shop experience, go to Dollar Tree. If you want party supplies, go to Dollar Tree. It’s all a $1. And it’s all great value. So, it’s a matter of choices, it’s not pressure on the cost from an inflationary standpoint. We can still – we’ve turned down more product than we sell”

It’s like flying an airplane

” I will tell you that we think about this as flying an airplane. It’s a little stick and a little rudder. We’re flexible. We have a flexible model. And when times are tough and we need more traffic, we’ll err a little more towards the consumer products. And when times are a little better or costs are going down sometimes, we may invest in more customers or we may invest in margin. So it really is all about the current environment and how you feel about that future environment.”

It’s going to remain tough for the rest of the year

“I think it’s going to remain tough for the rest of this year. We’re not planning on any – in the second half any macro news that says that things are going to be a lot better. So we’re planning on continued pressure, and we’re planning also on continued pressure on our gross margin from freight. It’s in our guidance, so it’s baked in there. And of course, we’re always working to offset that in other ways. But we’re in control of it.”

Tempt the customer to buy one more item

“what it’s doing is it’s tempting that customer to buy one more item which they would buy. One more item would be a big comp. But when they’re in the store, we want them to come for what are the things they need. While they’re in there, we want to sell them on trend and on style and on fashion and on Wow. Look at this, this is a great item”

The first of the month is a big day

“First of the month, there are a lot of payroll checks out there. A lot of people get paid at the first of the month, a lot of the government checks go out in the first of the month. There are a lot of things, there’s a lot more spendable income around the first of the month. And many of our customers, especially the lower income customers, wait until the first of the month because they just really don’t have the ability other times…Our entire organization is focused on the first-of-the-month sales, whether it’s the stores and the store managers, the buyers, the replenishment people, the logistics people. We all plan our business to a large degree around those first-of-the-month, especially in the basic categories.”

The first of the month is like having another season

“as I said, it’s sort of like having another season. It’s when you set Easter and you first roll it out and you put it all on the sales floor and you build the end caps and you put the signing in place. And the night before you’re walking around and you’re patting it down and looking to make sure and checking it off.”

Janet Yellen Jackson Hole Speech 2014 Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Pragmatic monetary policy. No single indicator

“monetary policy ultimately must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.’

Pent up wage deflation

“the sluggish pace of nominal and real wage growth in recent years may reflect the phenomenon of “pent-up wage deflation.”15 The evidence suggests that many firms faced significant constraints in lowering compensation during the recession and the earlier part of the recovery because of “downward nominal wage rigidity”–namely, an inability or unwillingness on the part of firms to cut nominal wages. To the extent that firms faced limits in reducing real and nominal wages when the labor market was exceptionally weak, they may find that now they do not need to raise wages to attract qualified workers. As a result, wages might rise relatively slowly as the labor market strengthens. If pent-up wage deflation is holding down wage growth, the current very moderate wage growth could be a misleading signal of the degree of remaining slack”

No simple policy to meet these challenges

“These complexities in evaluating the relationship between slack and inflation pressures in the current recovery are illustrative of a host of issues that the FOMC will be grappling with as the recovery continues. There is no simple recipe for appropriate policy in this context, and the FOMC is particularly attentive to the need to clearly describe the policy framework we are using to meet these challenges”

The gist. Unchanged

“”labor market conditions improved.”20 Indeed, as I noted earlier, they have improved more rapidly than the Committee had anticipated. Nevertheless, the Committee judged that underutilization of labor resources still remains significant. Given this assessment and the Committee’s expectation that inflation will gradually move up toward its longer-run objective, the Committee reaffirmed its view “that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after our current asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.”21 But if progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target could come sooner than the Committee currently expects and could be more rapid thereafter. Of course, if economic performance turns out to be disappointing and progress toward our goals proceeds more slowly than we expect, then the future path of interest rates likely would be more accommodative than we currently anticipate. As I have noted many times, monetary policy is not on a preset path. The Committee will be closely monitoring incoming information on the labor market and inflation in determining the appropriate stance of monetary policy.”

Ross Stores 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Difficult macro backdrop continues to pressure our customers

“We also achieved these gains in a very challenging climate for apparel retail, especially given the ongoing difficult macroeconomic backdrop that continues to pressure our customers discretionary spending.”

Haven’t seen much change, our consumer still struggling

“On the consumer piece, no, we haven’t really seen any major shifts from Q1 to Q2, but I think, it’s pretty apparent that the low to moderate income customer is struggling. I think, you’re seeing that in the – in some of the results that are being posted by the [ph] moderate apparel (25:17) retailers. So, I don’t think we have anything to add to that other than I think that that customer is challenged economically and finding this environment difficult.”

Plenty of off price merchandise around

” in terms of the supply, we’re seeing plentiful supply, amount of merchandise in the market.”

Kept ourselves tight and liquid in the promotional environment

“As it pertains to promotions in the market, Q2 was a highly promotional quarter, particularly in the mid-tier, and we really don’t see any reason for that to change in the back half of the year. In terms of how we got our margins, really what we did was plan very conservatively, left ourselves liquid, had plenty of open to buy, and we chased most of our business. We also had very tight inventory controls in this promotional environment, which is key so that you’re always liquid and fluid and you have constant open to buy.”