Interview: MCN Capital Management
>> morgan stanley lost another senior banker today. making it the fifth departure from the firm in the past two weeks. vikram gandhi will be joining credit suisse first boston. he has held his position at morgan stanley since 2003. phil purcell has lost bankers recently as he battles calls by former executives for his ouster. also making news today, sales at u.s. retailers rose in march. demand for easter goods offsetting record gas prices. the shift of the easter holiday this year to march from april helped retailers. u.s. retail sales climbed as much as 4.5% according to an estimate by the international council of shopping centers. gas prices as high as $2.15 a gallon and the coldest march in four years limited sales gains. larry jones, portfolio manager at m.c.n. capital management, joins us for a closer look at the retail industry. he helps manage $2.2 billion in retail shares, including wal-mart shares. what’s your take on the data today?
>> it’s really interesting. we have changes in the calendar to look at, anniversary of strong versus weak numbers depending on which retailer you want to look at and we have the impact of high gasoline prices. all in all, it was a reasonably good period for teen apparel retailers, with the discounters having more difficulty. and the department stores were spotty, depending on which name you want to talk about.
>> and among the discounters specifically, you have target coming in stronger. but wal-mart saying the first quarter will be at the low end of its profit forecast. is it the low-income consumer that is slowing down the most?
>> well, we were surprised that sam’s didn’t come in with a better number. wal-mart was ok. perhaps people were looking for something closer to 5% rather than the 4.3% they released. but it’s a reasonable job and we are to see how―have to see how well april comes in so you can look at the entire easter and spring break holiday season too see how the two years compare against each other this year versus last. we expect a 3% or 4% secular rate of comp store sales growth is what we should see in the next several months.
>> wal-mart shares are at a two-year low. what are you doing with your holdings?
>> in the portfolios that we manage that compete against the s&p 500, we’re about at the benchmark weight in our growth portfolios with a growth style benchmark, we’re at that benchmark rate, as well, or slightly higher. wal-mart has very low expectations built in it, to it right now. unlike the successful teen retailers, where they’ve sustained very strong price action and very strong comp sales, wal-mart may be washing out in here and beginning in june, they have very easy comparisons year over year. that’s not true of some of the other retailers that have had strong performance.
>> larry, when it comes to wal-mart, can you really call it a growth stock at this point?
>> well, yes. i think most people would agree that the long-term growth rate for wal-mart should be around 14% to 15% so that’s clearly a growth stock, especially when you consider in the first quarter mostly s&p 500 companies in the aggregate will be reporting a 7% or 8% gain. if you can sustain almost two times the growth of the s&p 500, that’s clearly a growth stock.
>> now, in terms of problems we’re seeing for retailers, how much of the problem is about oil?
>> i think quite a bit. i was talking to someone on the west coast yesterday and they paid $2.79 for their gasoline. i just paid $2.33 for mine here on the east coast. and so this does put a hole in your wallet and takes some discretionary spending out of your budget. so retailers are indeed feeling that impact and you might not get in the car and go to the mall on the weekend as often as you did previously. so there’s a dual impact of higher energy prices.
>> who is most at risk for the april sales?
>> well, a number of the retailers have reported disappointing results―gap’s number was especially weak and limited was weak. may department stores was weak. obviously, the merger with federated may improve that going forward. and sam’s stores reported relatively weak numbers with a 2% gain.
>> thanks so much, larry jones, we appreciate it.
>> thank you. larry is with m.c.n. capital management. we are spanning the globe for our world’s biggest mover today. it may mean higher prices at the pump. that’s next.
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Listen Market briefing --- Ellen (fast)
FDA's unit on new drugs --- John (slow)
despite the fact that the markets opened lower. the dow gaining 60’s points of the you had a stronger-than-expected earnings forecast from alcoa, the biggest contributor to the dow’s gains. in terms of the seven-point advance for the s&p, looking broadly at the 10 economic groups that make up the s&p, only energy shares traded lower at the end of the close. in terms of the nasdaq, bed bath and beyond, microsoft and apple shares giving the biggest contribution there. pfizer is suspending sales of the bextra painkiller at the request of the food and drug administration.% the f.d.a. went against advice from a panel of doctors and scientists at a february hearing , when they said bextra’s benefits outweighed risks and should remain on the market . pfizer said it disagreed with the findings that bextra should be withdrawn. joining me is dr. john jenkin, director of the f.d.a.’s unit on new drugs. thank you for your time.
>> thank you.
>> it’s considered unusual for the f.d.a. to go against an advisory panel’s advice. what is different in this particular case with bextra?
>> we don’t really view this as going against the panel’s advice. the panel vote was close on bextra and many of the panel members voiced concerns about the same issues that we’ve raised in reaching our decision about the overall benefit versus risk profile for bextra. we don’t view this as necessarily going against the panel’s advice, but we think it’s incorporating their advice into the decision.
>> i heard an interview earlier today with one of the advisory panel members who said if they perhaps had known as much about a rash problem related to bextra, he might have voted differently. what new information has come out in the interim?%
>> no new information but the panel focused primarily on the cardiovascular risk of the cox-2 agent, including bextra. they did not really focus on the other risks, including the skin reactions, which are one of the reasons we felt that the product should be removed from the market .
>> in terms of celebrex, what can we learn from this, if anything? what are the chances celebrex might be taken off of the market ?
>> our best interpretation of the available data right now is that all the products in this class have a cardiovascular risk, or at least a potential for increased cardiovascular risk. we don’t feel we can rank order the drugs in the class against one another as being better or worse. right now we don’t think we can conclude that celebrex is better or worse than the other drugs in the class for cardiovascular risk. that’s all subject to change, of course, as we get new information from additional studies.
>> given that, then, why ask them to take bextra off the market , not celebrex?
>> again, we consider the cardiovascular risks to be a class effect for the entire class of non-steroidal agents, including the cox-2 selective agent. bextra had a unique risk, which was a higher risk of serious skin reactions that the other members of the class did not have and bextra had no unique benefit so we felt like there was nothing to justify the increased risk of skin reactions for bextra given that there’s no unique benefit.
>> what, then, does all of this mean for the cox-2 drugs that await approval? glaxosmithkline, for example, is developing one of these drugs.
>> that’s a very good question. we clearly will be expecting more data for approval of drugs in this class than would have been acceptable in the past. we will be working with those individual companies to discuss the data they have for their drug and whether or not they have enough data to come for approval. it’s likely that any of those drugs that come to f.d.a. will also be discussed at an advisory committee meeting before a final decision is made.
>> in terms of today’s action, is this a signal that the f.d.a. is taking a tougher stance on drug safety?
>> i think it’s a signal that once we have new data about drug safety issues, we evaluate that carefully and reach what we think are the responsible public health decisions. we think we’ve done that here. we’ve tried to take a very confusing set of data and reach what we think is the most responsible public health decision on the drug safety issue.
>> what would it take for pfizer to be able to convince you that bextra should be allowed back on the market ?
>> it’s speculative at this point to say what it might require. clearly, you’re always talking about a benefit versus risk ratio for any drug. so they could either show its unique benefit that the other products in the class don’t have or they could try to prove to us that either the skin risk is less than we currently think it is or that the cardiovascular risk for bextra is lower than other members of the class.
>> dr. jenkins, we did have a headline cross that canadian regulators are asking pfizer to suspend bextra sales. we knew this morning pfizer said it was taking bextra off the market in europe. any increased role you’re having in terms of conversations with overseas regulators as you deal with these issues?
>> we did not specifically discuss our decisions with the regulators in other countries before we reached the decision. we did share with them yesterday what our decision was going to be under a confidentiality agreement we have with certain countries. we did share the information yesterday with canada, but we did not specifically discuss with them the decision before we made that decision. i would say, though, that the canadians and other regulators attended our advisory committee meeting back in february.
>> dr. jenkins, thank you very much for joining us.
>> thank you.
>> dr. john jenkins of the food and drug administration. switching gears, shoppers reined in spending last month as higher prices at the gas pump and poor weather crimped retailers’ march sales. we’ll look at what’s in store for the group.
