This from Marketwatch:

Sales were quite weak across a broad swath of the retail sector in October, an indication that the fourth quarter could be worse than the just completed third quarter, when inflation-adjusted consumer spending fell at the fastest pace in 28 years. Retail sales account for about half of consumer spending and about one-third of domestic demand. Retail sales are down 4.1% in the past year. Sales fell a downwardly revised 1.3% in September. Sales in August were also revised lower to a 0.7% decline. The dismal report confirms what the business sector has been saying: Consumer spending is falling rapidly.

This from Today’s Financial News:

It is tough for many investors to admit, but marketers rule Wall Street. On most days, it is not true fundamentals that rule the Dow. It is the change in the way we perceive a company’s valuation that makes a stock go up or do.

If marketers do their job, share price rises. If they fail, shareholders feel the pain.

Investors rarely weigh a company’s marketing talent in their decision-making process. It is a flaw that could cost them dearly. In many cases, a firm’s marketing team has more to do with moves in its valuation than do changes on its income statement.

A perfect example is Under Armour (NYSE:UA). The company has one of the best marketing strategies in all of business, but even the most talented salesman cannot sell something to a person with no money.

Blinded by the facts

Look around Wall Street. Best Buy (NYSE:BBY) told us yesterday it has witnessed a “seismic” shift in consumer spending. Macy’s (NYSE:M) posted a horrid third-quarter earnings report. And Linens ‘n Things is headed to the history books.

On the other hand, Goodwill Industries reports sales are up by 7%. Ultra-discount stores like 99 Cents Only (NYSE:NDN) and Family Dollar (NYSE:FDO) are seeing their share price soar. Wal-Mart (NYSE:WMT) is the only major retailer with even a semblance of good news.

The only places Americans are spending their money is at the cheapest store they can find.

So what in the world continues to make investors believe Under Armour and its expensive discretionary clothing lineup will maintain historic sales levels?

Let’s face it. The American economy is in a deep recession. The folks that were buying Under Armour’s over-priced and trendy gear are now the ones that have lost their jobs and cannot afford their homes.

The last time I recommended betting against the company, we raked in gains of over 70% in just five days. With share price above $21 today, it is time to do it again.

Here are some facts to prove my point:

-    U.S. retailers recorded their worst October ever, with overall same-store sales dropping by 0.9%.
-    Consumer confidence is at its lowest levels ever.
-    Under Armour continues to operate with negative cash flow.
-    Maverick Capital, which owned over 7% of Under Armour, just unloaded its entire position.
-    The number of shares short has grown to 36.5%.

With figures like those, it is hard to believe investors are willing to maintain the company’s price-to-earnings ratio of 23. It is foolish to think the company will maintain a sales pace anywhere close to levels it has enjoyed lately.

Even the company’s executives know a rough road is ahead. They just lowered their operating income estimates to a range of $97.5 million to $104.5 million. They previously announced expectations of $104.5 million to $105.5 million.

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With consumers basically locking their wallets and throwing away the key, even the new estimates are far too high. With consumer spending at the retail level dropping by nearly one percent, investors should not believe Under Armour will grow its sales by 24%.

Under Armour’s brand is one of the strongest in the industry, but a brand can only take you so far. Once a company matures and enters its slow-growth phase, fundamentals take over and investors take a dramatic hit.

Under Armour’s overly loyal investors have had a tough time realizing this time-tested fact. They will suffer as share price drops towards $15 after the next earnings release.

Unless you take a short position, steer clear of this falling star.

Source: Under Armour (NYSE:UA) Cannot Hide From A Recession

This from Smart Profits Report:

Here in the U.S., the mess continues unabated. The government had to reshape its bailout for AIG, including forking over an extra $40 billion. But despite the floundering company’s fourth consecutive negative quarterly report, the markets reacted positively to the story.

That didn’t help avert the crisis other areas, as Detroit’s automakers repeated their increasingly desperate pleas for some financial muscle and Circuit City (NYSE:CC) filing for Chapter 11 bankruptcy in order to seek protection from its creditors.

This came just a week after the electronics giant announced that it will close 155 of its 1500 stores. No wonder investors aren’t showing any confidence in the markets.

The fact that a mismanaged institution like Circuit City would declare bankruptcy wouldn’t be all that disconcerting at most times of the year. But when it’s right before Christmas…

However, this news might not be as bad as it seems. Smart investors know that Circuit City is an anomaly rather than a harbinger of the retail sector’s future…

Black Friday Or Red?

Black Friday – the traditional post-Thanksgiving excuse to shop until you drop – is only a couple of weeks away. Retailers like Circuit City, which depend on the holiday season for the bulk of its annual revenues, typically capitalize on the bargain-buying hordes in a number of ways. First, it opens the doors before the birds have started their early morning wake-up call and offers free prizes for the first few customers.

Even mismanaged companies can breathe a sigh of relief during holiday season, as they know exactly what to expect: Customers and cash.

But Christmas isn’t coming early for Circuit City. Not when Hewlett-Packard (NYSE: HPQ) and Samsung reduced or canceled its lines of credit at the very time when the retailer needed it the most. Sony (NYSE: SNE) even went as far as stopping delivery trucks in transit.

Why Circuit City Can’t Compete With The Big Boys

Take a look at the chart of the three-month LIBOR trend below. It indicates that the credit markets are beginning to loosen. The cost of inter-bank lending appears to have peaked on October 8 at just under 5.4% and has trended downward since.

As far as Circuit City is concerned, its pressing need for cash unfortunately happened to coincide with the credit crisis, and peaked shortly after LIBOR began to fall.

The threat of liabilities off the balance sheet has haunted both the company and its creditors for some time now. Circuit City is tied into multi-year leases that resulted in $116 million worth of termination cost liabilities as of August 31. And last week’s announcement of 155 store closures will probably account for $183 million more.

Even if the company were able to liquidate everything, the liability related to closing stores would be devastating, as the firm’s 1,500 locations are reduced. How many other companies can say they share those same sad stats?

In A Changing World, Circuit City Lacks Foresight

To top it all off, Circuit City showed a fatal inability to evolve with its industry.

Over the past few years, the Apple (Nasdaq:AAPL) database has emerged as the central point for music purchasing, edging out the previously popular CD. And folks who still like CDs usually rely on Wal-Mart (NYSE:WMT) and Internet retailers such as Tigerdirect and Buy.com, which offer lower prices compared to, say… Circuit City.

Cast the financial aspect aside for a second and chief competitor, Best Buy (NYSE:BBY) offers enviable customer service in its Geek Squad and personal shoppers. By contrast, Circuit City didn’t have the capital to capture the high-end of the market and, with pricing pressured at the low-end, the firm has quite simply languished until its cash reserves have disappeared.

Sure, the credit crisis didn’t help. But Circuit City can only blame it as a catalyst and not as a primary reason, since it’s been losing ground to Internet companies ever since iTunes made its debut.

Circuit City Had It Coming… But Its Main Rival Should Benefit

So at the risk of sounding blunt, Circuit City had this Chapter 11 coming. It’s simply a logical conclusion to six months of trouble, in which the company had to cut its dividend, lost an opportunity to be acquired due to lack of disclosure, and put plans for a new distribution facility on hold.

In this gloomy economic environment, most onlookers may see Circuit City as a prime example of what is going to happen to the rest of the retail sector, as we slide further into a recession. And with the critical holiday season around the corner, who can blame them?

A closer look, however, shows that while those fears are understandable, they’re not well-grounded. For some retailers like Best Buy, which will undoubtedly benefit from consumers not wanting to buy gift cards and extended warranties from Circuit City, this may actually be the end of the beginning rather than the beginning of the end.

Source: Circuit City Blows A Fuse… But Here’s Why Its Bankruptcy Doesn’t Spell Holiday Doom For Retailers