Trust Your Bullshit Detector

• Posted by kid dynamite
• on January 26th, 2013

disclosure: I use the word bullshit in this post.   It’s in the title.  It’s in the post body.  If this offends you, click away.

 

On Friday we got two great examples of companies spewing utter nonsense as excuses for why their numbers were subpar.

First, look at what Select Comfort ($SCSS: no positions) said on their earnings call, emphasis mine:

“Our voice of customers suggest these sales shortfall was related to the uncertainty around the fiscal cliff. This is a great example of our unique ability to hear directly from frontline employees and customers. This real-time insight allows us to remain steady in our execution and focus on the longer term.”

Let’s go to the angry Ravens crowd at M&T Bank Stadium in Baltimore to see what they think of that explanation (fast forward to the 35 second mark):

 

That’s right.   BULLSHIT.   Am I really expected to believe that there were all sorts of husband and wife couples who had the following discussion in front of “frontline” employees:

“Yeah, Honey, we really do need a new mattress, but all of this uncertainty around the fiscal cliff makes me think now is not the time.”

“You’re right, Schnookums – we should wait until Congress gets this whole debt ceiling thing settled before we buy a new mattress.”

No. Friggin’. Way.   Aside: the stock was down more than 17% on the day.

Later on Friday, we got another great example of bullshit from Jos. A. Bank ($JOSB: no positions) who went with the sneaky “we’ll release the earnings warning at 8pm on Friday and hope that no one sees it” technique which just draws MORE attention to your filings (emphasis mine):

“Commenting on the earnings update, R. Neal Black, President and CEO of JoS. A. Bank Clothiers, Inc. stated: “Total company sales for the year will be up, but not enough to offset higher marketing expenses and lower gross margin. We are disappointed that we were not able to drive the sales gains we had expected. The fourth quarter started out slowly, as the first two weeks of fiscal November were negatively impacted by the aftermath of Hurricane Sandy, the distractions created by the presidential election and the uncertainty of the fiscal cliff.”

I’m not going to beat a dead horse by embedding the angry Baltimore Ravens fans screaming “Bullshit” again, because you get the point.

I am willing to bet that there were precisely ZERO Jos. A Bank customer who went through this thought process:

“I really need a new suit, but this intense presidential election is just so distracting – I can’t drag myself away from the drama and get to Jos. A. Bank to buy one.   Also, I’m so confused by the uncertainty about this crazy trillion dollar platinum coin idea – I think I’ll just wait to buy a suit.”

Of course, they also blamed the fiscal cliff and Hurricane Sandy, as if the “presidential election uncertainty” wasn’t spurious enough.  And course, JOSB didn’t stop there – they also blamed the weather!

“Going into the critical holiday selling season, starting on Black Friday, we believed we had a strong marketing and promotional strategy for the period. However, many of the promotional items and a large part of our holiday assortment were items that sell best in cold weather and the weather was unseasonably warm. Historically, we have had strength with these types of items, but our customers (specifically at our stores) didn’t respond as well to our promotional offers as they had in the past. Our customers responded well to our suit promotions during this period, but our non-suit customers responded poorly to our holiday season offerings, even at very low prices on products such as sweaters, outerwear, hats, gloves, scarves, and jackets made of heavier fabrics such as camel’s hair and cashmere.”

Does warmer than usual weather potentially affect customers’ shopping habits?  Sure – but that’s something that can be verified by industry-wide patterns.   If someone wants to show me the data, I’m listening, but until then, $JOSB is guilty until proven innocent, and I’m going with “The reason your non-suit customers responded poorly to your holiday season offerings is because your holiday season offerings sucked.”   Or, you can just blame the weather…  Oh but wait – I was able to grab this quick chart of departure from normal temps, courtesy of the High Plains Regional Climate Center:

 

So was it warmer than normal?  Yes indeed – by a few degrees in most places.   If you are convinced that the reason $JOSB didn’t sell more cashmere crap is because it was 38 degrees instead of 34 degrees, well, good luck to you.

Sometimes companies do you a favor by trying to shovel bullshit all over you as excuses for why they missed their numbers.   I say “favor” because these are great red flags – warning signs that all is not right in the State of Denmark, and that you should be extra wary of investing.

If readers have other examples of great bullshit from company earnings releases, please do share them in the comments.

-KD

disclosure: no positions in $JOSB or $SCSS.  and the entire point of this post is that you’d have to be especially convincing in order to get me involved on the long side of either of these companies, as management has shown a propensity for bullshit, and thus makes me much less likely to trust anything they say.

 

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