TWO CANARIES IN THE CONSUMER COAL MINE

First we have good old Darden Restaurants, purveyor of processed slop to the obese endless bread stick addicted middle class. They pre-announced that they will lose $20 million this quarter. It seems the problem was not just their recently shit canned Red Lobster division. If there really has been excellent job growth as we have been told by Obama and the MSM, why does traffic continue to plunge at the formerly popular Olive Garden and Longhorn Steakhouse? All those great jobs must translate into wage increases and disposable income. Right? The results of this middle class dining chain, along with the continued decline in McDonalds sales are a canary in the coal mine. The middle class has run out of disposable income and is no longer disposing of something it doesn’t have.

Look at the numbers in those charts. Look at how much lower the traffic is than total sales, particularly for Longhorn. Do you know what that means? Longhorn is a steakhouse. Beef prices are at all-time highs. These restaurants are jacking up prices big time. So not only has the middle class run out of disposable income, but real inflation in the real world is raging.

I had never heard of Conn’s until this morning. They are evidently a Texas based retailer with 86 stores selling appliances, furniture and electronics. They have been growing rapidly and opening stores at a healthy clip. They grew their sales by an amazing 29% over last year, with an 11% increase in same store sales. Wow!!! They must be a real sales juggernaut. Well not quite. Their stock dropped 29% this morning.

You see they are another canary in the coal mine of how hard goods retailers and car companies have generated fantastic sales in the last couple years. Subprime and 0% interest debt peddled at prodigious rates to anyone that can breath and scratch an X on a loan document can really juice the top line for awhile. But guess what? The ignorant masses with no jobs actually have to make the payments for it to work out in the end.

It seems Conn’s has generated all of their fabulous sales with 0% deferred plans made to questionable credit worthy customers. Their portfolio of credit receivables grew by 40% while sales grew by 29%. It seems when you make loans to people incapable of paying you back, they eventually default. The delinquency rate is soaring on their $1.2 billion portfolio. Bye Bye profits.

This is the same sale strategy used by the big automakers over the last two years. Those fantastic sales have been a fraud. The bad debt avalanche has just begun. You need income to eat out and you need income to make the debt payments on those 52 inch HDTVs. The middle class is tapped out and more debt will not cure what ails them. The canary is dead.

 

Darden Announces Expected Fiscal First Quarter Results

ORLANDO, Fla., Sept. 2, 2014 /PRNewswire/ — Darden Restaurants, Inc. DRI, +1.61% today reported that it expects diluted net loss per share from continuing operations for its fiscal first quarter ended August 24, 2014 to be approximately 13 to 15 cents.

Darden also reported that preliminary U.S. same-restaurant sales for the fiscal first quarter by month for Olive Garden and LongHorn Steakhouse were as follows:

Olive Garden June July August
Same-Restaurant Sales -1.0% -4.2% 0.8%
Same-Restaurant Traffic -0.9% -4.3% -2.3%

 

LongHorn Steakhouse June July August
Same-Restaurant Sales 3.3% 1.5% 3.2%
Same-Restaurant Traffic -1.1% -1.6% 0.2%

 

Conn’s, Inc. Reports Second-Quarter Fiscal 2015 Financial Results

THE WOODLANDS, Texas, Sep 02, 2014 (BUSINESS WIRE) — Conn’s, Inc. CONN, -28.62% a specialty retailer of furniture, mattresses, home appliances, consumer electronics and provider of consumer credit, today announced its financial results for the second quarter ended July 31, 2014.

Credit segment operating income declined $7.7 million to an operating loss of $0.2 million;
• The percentage of the customer portfolio balance 60+ days delinquent increased 70 basis points sequentially to 8.7% as of July 31, 2014;
• Credit segment provision for bad debts on an annualized basis was 13.9% of the average outstanding portfolio balance in the current quarter and 11.1% on an annualized basis for the first six months of fiscal 2015;
• Diluted earnings was $0.48 per share, compared to $0.52 per share in the prior year;
• Adjusted diluted earnings was $0.50 per share, compared to $0.52 per share a year ago; and
• Full-year fiscal 2015 guidance was updated to a range of $2.80 to $3.00 adjusted earnings per diluted share. The new full-year guidance reflects primarily the impact of higher expected provision for bad debts and the issuance of $250 million in 7.25% senior unsecured notes in July 2014.

“Overall results were not satisfactory. Our credit operations ran into unexpected headwinds, resulting in portfolio performance deterioration. Despite tighter underwriting, lower early-stage delinquency and improved collections staffing and execution, delinquency unexpectedly deteriorated across all credit quality levels, customer groups, product categories, geographic regions and years of origination. Tighter underwriting and better collections execution did not offset deterioration in our customer’s ability to resolve delinquency.

“Delinquency rates improved through May and increased modestly in June, consistent with typical seasonal trends. However, over sixty-day delinquency rates unexpectedly deteriorated a combined 90 basis points in July and August. We now expect future 60-plus day delinquency to increase to levels above our historical highs in the third and fourth quarter of fiscal 2015. Early stage delinquency remains lower than historical averages through August.

“We have made additional minor changes to tighten underwriting in August. Over time, more of the total portfolio will have been originated under the tighter underwriting policies implemented in late fiscal 2014 and early fiscal 2015. Declining sales of electronics as a percentage of total sales, slower expected originations growth and an expected reduction in the percentage of originations to new customers should also benefit future portfolio performance. Longer term, we believe the changes necessary to optimize portfolio performance are in place, although we may not return to credit loss rates of prior years.

“In response to higher delinquency, we are reducing the level of no-interest programs and raising the interest rates in some markets to increase portfolio yield.

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Mark
Mark

However, it must be noted that by issuing credit . It increases sales irrespective of defaults which company’s anticipate.

Debt is a form of price discrimination. Sorta like kids fly 1/2 price. Senior citizen discounts anyone?

The fact is what they teach you in economics class at the university is wrong. Da supply y axis intersects Da demand x axis. Dare for the price is Z.

Perhaps, debt issuing by private companies should be illegal?

bb

That’s why I still have my 1998 Toyota Tacoma .Got it brand new and now it has 438000 +miles on it.Dealer told me if I continue to take care of it I might get 800000 miles.As far as eating out that’s not to bad.The IRS lets me take 59 dollars a day off my taxes for meals per day.I usually eat at one of the established hamburger places. These hamburgers joints seem to be doing ok .They have customers. Diesel fuel is about 3.80 per gallon outside of Nashville this morning.Regular fuel is 3.30 to 3.40 depending on where you buy.Traffic is flowing on I24 .Life is ok.

card802
card802

I wonder if the middle class will riot like the FSA has been? My guess is yes, they wont have a clue as to why they will riot, but they will.

Wee needs President Dwayne Elizondo Mountain Dew Herbert Camacho to lays down ‘is tee point plan fo fixin da nation.

BUCKHED
BUCKHED

Yah know I wondered what the hell is up when I see Room To Go offering 5 years no interest on their cheap Chinese made furniture. We purchased a new mattress set a year ago. They were offering no credit check financing . I asked the guy what we needed to qualify ? He said two check stubs, a electric bill and we’re good to go . WTF ? We paid cash.

Maddie's Mom
Maddie's Mom

Admin wrote:

” These restaurants are jacking up prices big time. So not only has the middle class run out of disposable income, but real inflation in the real world is raging.”

Nah….could’ve had lobster at Golden Corral this weekend for $4.99!!! Heard it on the teevee.

lol

Maddie's Mom
Maddie's Mom

Hubby and I are Boomers and we have a fav restaurant where we spend some serious change. Now and then. Mostly we get a kick out of making nice meals at home and then estimating how much we saved by doing so.

I haven’t been to an Olive Garden or Longhorn Steakhouse in years. They’re right up there with the mall and Wal-Mart.

TE
TE

Well, why do you think we HAVE to increase minimum wage? It’s for the chillrens, and CEOS. /sarc

Meanwhile, Tim Hortons has built TWO new locations less than 2 miles from each other on the same road.

AND, the hospital, flush with federal tax dollars and grants (and massive profits), are building yet another “medical office complex” on the same road even as hundreds of thousands of square feet of office/commercial sits dark and empty.

Meanwhile the new cost of our new crappier healthcare plan is going up over 65%, so, our employees are receiving their “raises” through that. So sad that also means a take home pay cut, at least that isn’t reported by the BLS, so it doesn’t count. And, *bonus!* the increased cost of the insurance IS counted as “employee wages,” so reporting will show increased income (while actual decreased).

So, it occurs to me after talking to a neighbor, whom is coming off an auto lease, she was whining that her new payment is going to be around $100 more a month than the lease because when she turns in this car, they have to “roll over” $10,000 in charges (that mileage thing is a bitch) and put it on the new lease. I asked her what she thinks is going to happen when this lease is up in three years. Blank look and walked away.

There is NOTHING in this country that is *booming* without the hand of gubment funding it. When our currency goes to shit it will be scary to see all these wheels coming off all the buses all at the same time.

Meanwhile, enjoy the sales as the big guys cut their own throats to attempt to stay solvent while they wait for the customers (they offshored) to come back.

Too bad I don’t like basketball, the Pistons have announced a 10 game package deal for $99. Cheaper than nose-bleed seats in ’92/’93.

Yeah, the economy is doing great.

Stucky

Olive Garden’s decline started right after CLAMMY quit.

Connect the dots, people!

Dutchman
Dutchman

Best Buy, Sears, JC Penny, Radio Shack – all shit stores – all keep losing money. They are trying to compete against Amazon.com.

Amazon.com – a company with miniscule earnings, and a P/E ratio of over 500 – the value of the stock keeps appreciating cause these morons think some day it’s going to make money – well it hasn’t made money since it’s inception. Just speculation.

There are many internet companies like LinkedIn – that have a infinite P/E ration – cause they never had any earnings.

It’s gonna happen – and it’s gonna be painful.

Stucky

Dear Darden Restaurants,

I highly recommend that you purse The Burger King strategy of avoiding taxes ….. move to Canada!

Sincerely,
Stucky Management Consultants

P.S. To ALL our other American based clients (suckas !!), we recommend doing likewise.

Dutchman
Dutchman

And the other two shit stores: Target & Walmart – their sales are flat or slightly down.

Now they blame the “Dollar Stores” – It’s getting so bad that the shit at Walmart is too expensive – people are tapped out.

Can’t blame the weather anymore.

TE
TE

@Dutch, funny thing that is, the “dollar” stores aren’t doing so hot either.

The blamed party always changes, but the hits just keep on coming.

Anonymous
Anonymous

10 games for $99. Not a good deal you would have to venture into Detroit.

TE
TE

@Anon, no you wouldn’t.

The Pistons have played at The Palace of Auburn Hills for decades. They haven’t actually been in Detroit since 1978.

Auburn Hills is a city built for mega-corporations – mainly auto – and their executives. Huge hqs and mega-mansions.

Of course, in today’s world, you probably have a better chance of being mugged in the Palace’s parking lot than walking to Ford Field to see a Lion’s game in Detroit.

For Detroit games the cops are everywhere, Auburn Hills is a “rich” suburb, so they don’t use as much security.

Go figure.

TE
TE

@Admin, Toll Brothers has 50% more revenue on 6% fewer units, I’m sure that is freaking sustainable. Ah, the beauty of the ‘net, it seems they paid over $1 billion for a California builder – and his 5200 empty lots – in 1Q 2014. They planned on dumping a bunch of that land, I bet their grand results this quarter include that. Which also explains the increased profits. Anyway, I tried to find unit sales going back to 2007, but have given up as it is too buried to spend the time to find it. What is apparent, though, is that our financial reporting is a bunch of shit packaged up as something meaningful.

News releases abound with things like, “10% increase,” “profits doubled,” and even after reading the article you never do find out where the base number came from. A 10% increase means NOTHING if you don’t know what/where it came from. Prediction over prediction? Month over month? Quarter over quarter? Year over year? Including the merger and its sales, or not? Increases including the merged companies previous results, or not? Faulty comparisons create faulty knowledge which guarantees bad results.

Our financial info in ‘murica is nothing more than propaganda and marketing. It floors me how many people – like my hub – walk around feeling so informed and smart when the reality is they are nothing of the kind. SISO, shit in, shit out.

Beyond messed up. Way beyond. How can we hope to “fix” a system where people are satisfied with fake information and have no need to look behind the curtains?

And I’m mocked when I call the stock market legalized gambling with worse odds than Vegas. Go figure.

As for canaries in the coalmine, here’s one for you.

It dawned on me this morning, that out of five families at the bus stop, mine is the ONLY one paying out of pocket for their health insurance. Which means I am paying mine, and theirs!

Fire fighter, I pay with the exception of their ridiculously small co-pays. Subsidized construction company owner (four kids, on the dole all over the place while demonizing the FSA, I really love that), whom pays less than $100 a month for a family of 6, with co-pays only. FSA brats (doubled from one family to two over the summer, must be the city gifted another house to a minority or Section 8), two families, they pay absolutely nothing too. I’ve met both moms (though neither can make the 8:30 bus stop), and they are both under the influence of some pharmaceuticals and constantly talking about their docs, meds, tests. Oh yeah, and a “business consultant” that works from home for some multi-national that is actively moving production of sourced components for the auto industry to Asia, he has great insurance (for now) with little out of pocket cost. From selling insurance I know that that means WE are subsidizing him too as the major insurance buyers are sold to below cost/at a loss and the difference is shoved onto the backs of the small business buyers.

Oh I know, for now, things look rosy. Consumer sales ARE struggling, but if you undervalue inflation, they aren’t that really that bad. Until you peel the curtain back.

I wonder how many billions of the retail sales came from people that have received free health care and are using it at Walgreens? It apparently almost makes up for all the people – like us – that have seen our costs double (or worse) without actually being able to USE it, thus allowing us less money to spend at places like Walgreens. This also explains how the Helen of Troy results make sense.

We, the productive, are actively being siphoned to support all the others that aren’t paying their own way. And those that don’t pay outnumber us by so many multitude that there is NO way it continue indefinitely. No way. I can’t afford my own health care but somehow I am paying for four other families? How much longer can this last?

How many chains will fold while these reported consumer spending numbers continue to grow? Think about it, now free healthcare is increasing “sales” at drug stores, free food is increasing “sales” at grocery stores, free money increasing “sales” at car companies. ALL of it coming from the gubment, or gubment mandates/support.

On paper it is going to look likes things/our living standards have barely changed. Meanwhile, on the ground, it is just going to be bleaker and bleaker as more of the productive give the hell up and move over to the dole, more business goes dark, more people decide if you can’t beat them, join them.

This is the same way the PTB were able to hide the fact that millions and millions of family supporting jobs and small businesses were destroyed over the past 16 years. Between inflation and gubment meddling/cash, it never showed up in the numbers the “smart money” uses to make investment “decisions,” nor in the consciousness of the people are that being made to pay.

Freak. I’m really in a dark fucking spot this week. The beginning of the school year with its insane bureaucracy and rules, squandered assets, and continuous hand out for more of my cash always pisses me off. Exact same way I feel the week I am forced to get all our financial crap together for taxes. Exact same way I feel when I see LEOs out and about and harassing people.

Our entire way of life appears to be predicated on the sustainability of crumbling and corrupted systems. That this doesn’t scare the living hell out of even the most dense is beyond me.

Canary indeed.

Aquapura
Aquapura

Don’t worry about Darden. Had lunch with a contractor that informed me those guys own the Yard House brand. Line was out the door last weekend to drink $7 pints of craft beer. Olive Garden needs to drop the “family” angle and push the booze.

spinolator
spinolator

Get over it admin, Maf is overrated. I don’t need it to expertly use my iphone. I just took a selfie…see?

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