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How Much Topline Growth is Out There?

As we enter earnings season, the big question is, how much topline growth is there? I probably read more analyst notes and commentary than almost anyone at CNBC. Here's the headlines of three notes in the last few days:

  • Topline decline wipes out cost savings
  • Topline weak, profitability OK
  • More earnings with less topline

There's more, but you get the point. Some are about individual companies, some about sectors, but the overriding concern is lack of topline growth.

Sound familiar? This was the concern three months ago, and when equity markets turned in a strong bottomline performance, but not a great topline performance, the markets rallied big because everyone shrugged and agreed topline growth was a second half story.

This quarter is a little different--it's harder to be indifferent about topline. There will be at best modest topline growth in the third quarter. The issue now is Christmas and the fourth quarter.

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That's why retail sales this September (out Thursday) is important for some insight into Christmas. My hunch is that most companies will say absolutely nothing about Christmas because they don't know. The evidence is that consumers are showing up around big events (back to school) and doing nothing in between. Retail sales comps are getting better year over year because the fourth quarter was such a disaster.

But don't underestimate the resiliency of the market. Traders were shorting the daylights out of retail stocks at the end of the week in anticipation of poor guidance, but there's been no follow-through on that today.



Questions? Comments? tradertalk@cnbc.com

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