No.  I don’t suggest it.

Mythical Helen may have been an exceptionally beautiful woman but HELE is not a beautiful stock.  In fact, some might even call it a dog.   

But that’s not why we’re discussing HELE in today’s blog.   No, we’re discussing HELE because the company released quarterly earnings a few days ago, and when speaking on the earnings call the CEO made some very interesting comments about the American consumer.   Very interesting.   You’ll want to see this. 

Welcome to this week’s Steak House Index update.

If you are new to my blog, or you need a refresher on the SHI10, or its objective and methodology, I suggest you open and read the original BLOG: https://www.steakhouseindex.com/move-over-big-mac-index-here-comes-the-steak-house-index/

Why You Should Care:   The US economy and US dollar are the bedrock of the world’s economy.   But is the US economy expanding or contracting? Expanding ….  By the end 2023, in ‘current-dollar‘ terms, US annual economic output rose to an annualized rate of $27.94 trillion.   After enduring the fastest FED rate hike in over 40 years, America’s current-dollar GDP still increased at an annualized rate of 4.8% during the fourth quarter of 2023.  Even the ‘real’ GDP growth rate was strong … clocking in at the annual rate of 3.3% during Q4.

According to the IMF, the world’s annual GDP  expanded  to over $105 trillion in 2022.   Further, IMF expects global GDP to reach almost $135 trillion by 2028 — an increase of more than 28% in just 5 years.

America’s GDP remains around 25% of all global GDP.  Collectively, the US, the European Common Market, and China generate about 70% of the global economic output.  These are the 3 big, global players.   They bear close scrutiny.

The objective of this blog is singular.

It attempts to predict the direction of our GDP ahead of official economic releases.  Historically, ‘personal consumption expenditures,’ or PCE, has been the largest component of US GDP growth — typically about 2/3 of all GDP growth.  In fact, the majority of all GDP increases (or declines) usually results from (increases or decreases in) consumer spending.  Consumer spending is clearly a critical financial metric.  In all likelihood, the most important financial metric. The Steak House Index focuses right here … on the “consumer spending” metric.  I intend the SHI10 is to be predictive, anticipating where the economy is going – not where it’s been.

Taking action:  Keep up with this weekly BLOG update.  Not only will we cover the SHI and SHI10, but we’ll explore “fun” items of economic importance.   Hopefully you find the discussion fun, too.

If the SHI10 index moves appreciably -– either showing massive improvement or significant declines –- indicating growing economic strength or a potential recession, we’ll discuss possible actions at that time.

The Blog:

The SHI, as you know, is intended as an alternative economic indicator, designed to help us directionally evaluate the US economy.   For that purpose, it’s a pretty good tool.  In my humble opinion.    Last week, you may recall that I commented,

“The US economy is slowly slowing.   The FED will have to begin reducing rates, in small but incremental steps, very soon.”

That was a bold statement, right?   But that’s what I believed the SHI and other economic indicators were telling us.  

And then, earlier this week, FED chairman Jerome Powell said essentially the same thing in his testimony to Congress on the state of the American economy.  During that testimony, Powell said the “job market has cooled considerably” and that “inflation has eased notably.”

Apparently the CEO of HELE agrees with Powell.  In the company’s press release, Noel Georoy, the CEO, commented:  “We are disappointed with the start to our fiscal year.  We battled an unusual number of internal and external challenges in the quarter, which resulted in net sales and adjusted EPS below our outlook.  Many of these challenges became more pronounced toward the end of the first quarter and some continue to evolve.  We now see this year as a time to take action to reset and revitalize our business.  As a result, we are lowering our annual outlook ….”  Ouch.

The share price promptly plunged about 30% after these results and comments. 

What does HELE do?   They sell products like Revlon, Drybar, and OXO, to name a few.  They have quite a few brands and divisions, but essentially, they manufacture and sell what I would call ‘non-essential’  home nick-nacks — the kind you’d find at ‘Bed, Bath & Beyond — and “Beauty and Wellness” products.  In the B&W category, net sales declined over 15% last quarter, due to what the company called “softer consumer demand, shifts in consumer spending, and increased competition….”

Interesting.   “Softer consumer demand” they say.   Hmmm ….    “Shifts in consumer spending.”   Hmmm….   There’s your economic slowdown, folks.   The consumer is buying less non-essential “stuff” than they were in prior months or quarters.  HELE most assuredly has their finger on on the pulse of the American consumer — albeit the ‘non-essential’ products pulse — and sales are slowing.

To the steakhouses?

As you see above and below, we saw a small improvement in the SHI10 this week, but nothing meaningful.   Demand for expensive eatery reservations is  clearly  lower.   This week’s negative 59 reading is generally consistent with prior weeks.   Reservation demand improved slightly in the OC, San Francisco, and ‘Vegas, but not much change elsewhere. 

Here’s the longer-term chart. 

Our opulent steak houses have a lot more open tables than in prior months or quarters.   The SHI results are definitely aligned with Powell’s comments to Congress and Noel’s comments to the HELE shareholders.   Things are slowly slowing out there. 

But, again, keep these comments in context.   Powell added that the FEDs opinion is that “.. the labor market appears to be fully back in balance.”   Essentially, he’s saying this is moment is a Golidlocks moment:   Not too hot … not too cool.  Just right.  🙂

Which suggests, I believe, the case for interest rate cuts by the FED is becoming stronger.   Because holding the FED funds rate at 5.5% for too much longer is increasingly risky.   Fingers crossed — but I’m expecting a 25 basis point cut in September.   We’ll see. 

BTW:   No blog for the next two weeks, folks.   Sorry … but I’ll be traveling.    🙂

<:>  Terry Liebman