News and Reports

Retail Sector Gears Up for Holiday Season

Fri, 20 Nov 2009 19:40:57 +0000

Will this holiday season secure our economic recovery? Retail companies are anxiously awaiting the end-of-the-year buying spree and hoping for some big numbers to balance out their recessionary losses.

The true test of the economic recovery is fast approaching: The holiday retail season.

Most retailers are offering gloomy outlooks. Abercrombie & Fitch saw same-store retail sales fall 27% this year, with little reason to expect a turnaround.

Macy’s has seen same-store retail sales fall 3.6%, with the more-important revenue numbers decreasing 3.9%. Although Macy’s lost less money this year than last – and even with an expected increase in holiday shoppers – spending remains “fragile.”

Karen Hoguet, Macy’s chief financial officer, recently said on a conference call, “… there are more uncertainties than usual in this environment.”

Even Wal-Mart – one of the supposed winners in the current belt-tightening environment – is hurting. Same-stores sales are down 0.4% at the retail giant, despite an increase in customer traffic.

But the market may be getting mixed signals from the retail sector…

Mixed Messages

The Commerce Department released the October retail sales report Monday morning and, on the surface, the report provided a much-needed boost that the U.S. consumer is returning to pre-recession spending patterns. However, the report warranted concerns once the revised data for September was announced.

The Commerce Department’s report said total retail sales increased 1.4% in October, the largest advance since August when the Cash for Clunkers program was in full production. The government also released the revised data for September, which showed retail sales had decreased 2.3%. Sales were previously reported to have dropped by 1.5%.

Wall Street economists had forecasted a jump of 0.9% for retail sales in October, and a 0.4% increase when excluding autos and parts. The ex-autos report showed a benign 0.2% increase.

October’s retail sales report is providing optimism that the economic recovery is still on track. With 70% of Gross Domestic Product calculated from U.S. consumer spending, increases in retail sales are always applauded rather than ignored. The wild card, though, will be the recovery in the labor market to show sustainability in spending.

“Consumers are looking relatively resilient,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York to Bloomberg News, who projected sales would increase 1.3%. “They are spending a little more freely, which bodes well for the holiday season. Given the backdrop of the labor market, this is actually as good as one can hope for.”

Looking toward the holiday shopping season, this is good news…

U.S. Consumer Holiday Spending

According to RTTNews, a recent Gallop poll shows that Americans plan to spend around the same on holiday gifts this shopping season as they did last year. The poll, which surveyed 1,008 adults, states the average amount Americans expect to spend during the upcoming holiday retail season is $638.

This compares to the $705 average last year.

With only 34 shopping days remaining until Christmas, economists and analysts are projecting a very soft holiday spending season. Considering over one-half of all retail revenue for the year occurs between Thanksgiving and Christmas, any hiccup in spending patterns could have an unprecedented negative effect on retailers quarterly earnings.

The reason for concern isn’t so much that the spending appetite has subsided; it’s because shoppers do not plan on using credit cards this season (or are choosing not to). Cash is king, and if would-be shoppers are limited in that department, there could be many retailers wondering if the Grinch stole Christmas.

According to a survey released by the National Retail Federation (NRF) yesterday, the number of U.S. shoppers planning to use credit cards this holiday season is expected to decline 10% this year, making up 28.3% of shoppers versus 31.5% last year. Cash as a payment method is making up the difference, with a quarter of overall holiday shoppers expecting to only use their dollars, up 9.1% from the 2008 holiday shopping season.

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“With many holiday shoppers focused on spending within their limits, it’s no surprise that fewer people will be relying on credit cards this year,” said Tracy Mullin, chief executive of the NRF, in a statement.

Retailers Fight for Consumers

Poor economic factors are contributing to a push by U.S. retailers to help incite shoppers to their stores. There have already been several pre-black Friday sales events by major retailers to help motivate the public into opening their wallets, and many more are widely expected.

“If the strong promotions and sales we’ve seen the last few weeks are any indication of what retailers are planning, shopping on a budget this year will not be a problem,” added NRF CEO Mullin.

Black Friday is the day after Thanksgiving earmarked as a shopper’s day in paradise.

Black Friday traditionally marks the day U.S. retailers make enough in sales to put them financially in the black for the entire year. You can get a sneak peek at the savings at BlackFriday.info, a Web site that lists sale items from major retailers specifically for Black Friday. The site shows:

$400 Toshiba 16-inch laptop (Intel Core 2 Duo chip, 3GB RAM, 250GB hard drive) from Best Buy
$250 Acer 11.6-inch netbook (Intel Atom Z520, 2GB RAM, 250GB hard drive) from Radio Shack
$380 Acer Aspire 15.6-inch laptop (AMD Athlon X2 Dual-Core L310, 4GB RAM, 320GB hard drive) from Office Depot

The NRF says retailers are offering deals earlier this year in hopes of generating more revenue. According a NRF survey on the U.S. economy, consumers are expected to spend a little less during the 2009 holiday shopping season. Per the survey, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, which is a 3.2% drop from last year's $705.01.

To offset soft sales, retailers are cutting inventories. That in turn means any high-in-demand items will be hard for consumers to get… and could actually cost more money.

The Look Ahead

Poor sentiment readings and a larger-than-expected revision to the downside for September may provide cautionary signs the upcoming holiday shopping season may be more dire than previously expected. Seeing that back-to-school shopping was a complete disappointment does not bode well for seasonal shopping numbers.

If there is hope for the holiday retail season, it’s in the consumer confidence numbers. After falling off a cliff October last year, and hitting all-time lows in March, consumer confidence has recovered somewhat. The current level – just below 50 – is still on the low side historically, and has actually taken a dip over the past month after a strong six-month recovery.

But there’s no doubt that retail consumers appear more willing to spend now than they did at the start of the year. Still, just as last year, the fear is retail consumers will still buy gifts – but will opt for smaller-ticket items.

Regardless of predictions and expectations, we’ll soon have the facts. Black Friday is a week away – and once the holiday retail season truly takes off, we’ll have a much better idea of how healthy – or unhealthy – it will be. And, consequently, we’ll have a much better idea of what 2010 will bring.

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Female Buying Habits Lift U.S. Retail Sales

Fri, 20 Nov 2009 16:22:30 +0000

Flaunting one’s self at cocktail parties and red carpet events may be taboo during the current U.S. economic crisis, but one thing will always remain constant: the retail buying habits of women.

When AnnTaylor Stores Corp. (ANN:NYSE) released its third-quarter earnings this morning, many analysts and investors were not terribly surprised by the lack of revenue considering how consumers have cut back on discretionary spending. What did surprise, though, were the same-store retail sales volumes for the quarter compared to the rest of the year.

Same-store sales for AnnTaylor did decline 13.7% in the second quarter, but that was much improved from declines of 22.5% in the second quarter and 30.7% in the first. The biggest jump in revenue for the retailer was from the company’s LOFT offerings. President and Chief Executive Kay Krill said LOFT “resonates with our clients and that casual apparel performed particularly well.” LOFT’s same-store sales open more than a year fell only 9.7% for the quarter.

Wall Street analysts are expecting a more positive trend to develop after the holiday shopping season as women shoppers, otherwise known as the “Missy,” begin to return to a new power chic. An FBR Capital Markets analyst noted in a recent report that the company is improving merchandise and cost controls are boosting profit margins. The push to close underperforming stores should help drive better productivity going forward.

Reuters also noted:

Like Chico’s FAS Inc (CHS:NYSE), Talbot Inc (TLB:NYSE) and other chains that target mature women, AnnTaylor has suffered in the recession as some customers reduced spending on themselves before cutting back on purchases for their families.

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The biggest drive for additional revenue at AnnTaylor and other women’s retailers can’t be found in sales of bisto jackets or tie-neck blouses; but in sales of children’s clothing. In addition to having the job as mom and wife, the “Missy” is also considered the household accountant. And, after she buys little Johnny the Gymboree (GYMB:NASDAQ) outfit for the class picture, she will spend what is left in the discretionary budget for herself.

This theory is evident in data supplied by SpendingPulse, which reported sales of women’s clothing were down 9.5% in July, but only 6.6% in August. Children’s clothing experienced a 5% drop in July, but only a decline of 4.1% in August. As for men, clothing sales for this group actually declined 1.1% in August, but were completely flat in July.

Looking forward, the women’s retail space is certain to be challenged considering consumer sentiment is currently scored at a six-month low of 66 and unemployment is in double-digit territory. AnnTaylor foresees fourth-quarter sales coming in slightly below its third-quarter figures. Analysts are calling for revenue of $458 million compared to the $462 million received in the third quarter.

“Sales guidance is slightly below our fourth-quarter sales estimates…While gross margin is expected [to be up] significantly, the bar on the Street is already high,” UBS Roxanne Meyer wrote in a note.

The first quarter of 2010 should prove the turning point for female retail shops, as women begin shopping again for themselves. Following a recovery in the children’s retail space, retailers like AnnTaylor, Chico’s and Dress Barn (DBRN:NASDAQ) are expected to turn the corner to renewed profitability.

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Technology Companies Hit by Poor Retail Sales

Thu, 19 Nov 2009 19:37:22 +0000

Poor retail conditions have hit technology companies, slashing profits and outlooks for the full year of 2009.

Companies like Sony Corp. (SNE:NYSE), Intel Corp. (INTC:NASDAQ), and Dell, Inc. (DELL:NASDAQ) are all dealing with lower sales and lower profits.

In fact, Sony just announced this morning that the company was pushing back its profitability goals for the next two years, and that the company is expecting a second year of annual losses – “the first back-to-back annual losses in half a century,” reports Bloomberg.

Mariko Yasu for Bloomberg writes, “Sony aims for a 10 percent return on equity by March 2013 from its previous target of March 2011.”

The company hasn’t had a 10% annual return since its fiscal year for March 2008, when it posted record profit.

Sony wants to boost sales in the 3D television market, electronic reading devices, Blu-ray players and game consoles… But the company is also going through a massive cost-cutting program in order to save 330 billion yen, or $3.72 billion, this year through March 2010.

While the company may have already carried out about 80% of those cost reductions, it’s still got some hurdles, and high expectations.

But Sony isn’t the only technology company having retail problems.

Intel Corp. has just been downgraded by Merrill Lynch from “buy” to “neutral.”

Steve Goldstein for MarketWatch London reports, “Intel was downgraded to neutral from buy at Bank of America Merrill Lynch, which cited caution around sector fundamentals and potential risk to estimates from weaker trends in the PC supply chain.”

Merrill Lynch said, “We note that the correlation between Intel’s CPU shipments and PC builds out of Taiwan has stayed relatively high through 2009, in turn suggesting that the current ‘gap’ is cause for concern.”

The broker slashed Intel’s price target from $27 a share to $21.50.

But what about computer supplies?

Forbes’ Oliver Chiang reported yesterday, “Worldwide personal computer shipments are finally up this quarter after six months of decline.”

It may just be the new Windows 7 upgrade from Vista that’s attracting new PC computer buyers. Businesses who hadn’t upgraded their systems to Vista may now be looking to upgrade to Windows 7 operating system, says Richard Kugele with Needham & Co.

But some PC computer companies might not be benefiting from this boost.

In fact, Dell, Inc. has fallen from the top PC maker to No. 3. The company is expecting to see earnings of 28 cents per share versus 37 cents per share a year ago. That’s a $2 billion difference in revenue for the third quarter.

Editor Michael Robinson of BreakAway Investor told his subscribers, “Analysts predict strong sales for the Windows 7 operating system going into the important Christmas selling season for personal computers.”

This might help some PC computer makers next year.

“To boost productivity on a smaller employment base,” says Michael, “corporations will invest in Windows-based technology.”

Large PC computer sales will also help boost chipmakers… And Michael reminds investors that “semiconductor sales have risen for seven straight months and were up 20% in the third quarter.”

If you’d like to learn more about investment opportunities in the technology sector, download Michael’s Special Report on the new undervalued tech leaders.

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Will Black Friday Shopping Jump-Start U.S. Retail Sales?

sfranks@email.com (Sandy Franks, Executive Publisher, Taipan Publishing Group) — Thu, 19 Nov 2009 15:08:57 +0000

Black Friday, the day after Thanksgiving earmarked as a shopper’s day in paradise, is just nine days away.

$400 Toshiba 16-inch laptop (Intel Core 2 Duo chip, 3GB RAM, 250GB hard drive) from Best Buy
$250 Acer 11.6-inch netbook (Intel Atom Z520, 2GB RAM, 250GB hard drive) from Radio Shack
$380 Acer Aspire 15.6-inch laptop (AMD Athlon X2 Dual-Core L310, 4GB RAM, 320GB hard drive) from Office Depot

The National Retail Federation says retailers are offering deals earlier this year in hopes of generating more revenue. According a National Retail Federation survey on the U.S. economy, consumers are expected to spend less during the 2009 holiday shopping season. Per the survey, U.S. consumers plan to spend an average of $682.74 on holiday-related shopping, which is a 3.2% drop from last year's $705.01.

To offset soft sales, retailers are cutting inventories. That in turn means any high-in-demand items will be hard for consumers to get… and could actually cost more money.

Washington is betting holiday retail sales will be better than anticipated. Already auto sales rebounded better than expected and manufacturing showed expansion. Retail sales were projected to rise 0.9% after an originally reported 1.5% decline in September. Sales climbed at clothing, department, health and personal care stores, along with Internet retailers and restaurants.

Some retailers have already reported better-than-expected earnings reports. For example, Famous Footwear operator and Dr. Scholls owner Brown Shoe’s reported revenue slipped 1% to $625.6 million as compared with analysts' estimate of $600 million.

Target (TGT:NYSE) said it remains cautious about demand after reporting profits that beat analysts' estimates. Target forecasts a holiday quarter profit that could fall short of Wall Street estimates, saying early sales results showed tepid consumer demand for November, and shares fell 4%.

Meanwhile, the market rose on early retail sales forecasts. However, Adam Lass of WaveStrength Options Weekly (WOW) says, “The stock market is hitting 52-week highs because of the recovery in retail sales. Mind you, that ‘recovery’ was entirely due to Washington’s bribing folks to buy cars and houses they couldn’t afford. And it’s already fading out.”

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Holiday Consumers Turn to Cash Instead of Credit Cards

Wed, 18 Nov 2009 20:25:38 +0000

With only 37 shopping days remaining until Christmas, economists and analysts are projecting a very soft holiday spending season. Considering over one-half of all retail revenue for the year occurs between Thanksgiving and Christmas, any hiccup in spending patterns could have an unprecedented negative effect on retailers quarterly earnings.

According to a survey released by the National Retail Federation (NRF) yesterday, the number of U.S. shoppers planning to use credit cards this holiday season is expected to decline 10% this year, making up 28.3% of shoppers versus 31.5% last year. Cash as a payment method is making up the difference, with a quarter of overall shoppers expecting to only use their dollars, up 9.1% from the 2008 holiday shopping season.

In addition to a curb in spending habits, shoppers and retailers have to deal with other ancillary factors that will turn sentiment negative: a 10.2% unemployment rate and a jobless recovery are not helping to stimulate a jolly mood for the public.

Poor economic factors are contributing to a push by retailers to help incite shoppers to their stores. There have already been several pre-black Friday sales events by major retailers to help motivate the public into opening their wallets, and many more are widely expected.

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“If the strong promotions and sales we’ve seen the last few weeks are any indication of what retailers are planning, shopping on a budget this year will not be a problem,” added NRF CEO Mullin.

The survey also discovered that 42.5% of holiday shoppers plan to use primarily debit or check cards, which is a 2.5% increase from last year. It also noted that 52.4% of consumers had yet to begin their holiday shopping.

The changes for shoppers aren’t completely isolated to the poor economy; a key factor is the ability to obtain credit. As banks tighten lending standards, consumers will find it challenging to access lines of credit for gifts; thus resulting in potential difficult times for retailers.

As CNNMoney reports:

Federal Reserve statistics show that revolving credit, which includes U.S.credit card debt, tumbled $9.9 billion to $898.9 billion in September from the previous month. That’s a 10 percent decrease from the previous year. The pullback derives from both card companies reducing customer’s credit lines and from customers seeking to shed their debt amid the weak economy.

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The True Measure of U.S. Retail Health

rcole@taipangroup.com (Ryan Cole, Contributing Editor, Taipan Publishing Group) — Wed, 18 Nov 2009 15:08:50 +0000

The National Retail Foundation (NRF) released a report earlier this week breaking the U.S. retail sector down into some granular numbers.

The headline number is the NRF’s forecast for U.S. retail sales this holiday season: A 1% drop compared with last year, which itself shrank substantially compared with 2007.

October’s year-over-year numbers – used to predict holiday spending for individual companies – are mixed. Leading the laggards are building and gardening materials – down 16.6%. Home furnishings and furniture are also weak, off 7.6% year-over-year.

However, while it is likely that few people will find HDTVs or couches under their tree, there may be a large number of sweaters. Clothing purchases have grown 3.8% since last year.

Indeed, low-priced clothing outlets like TJ Maxx and Ross stores – have actually grown sales since the recession began.

A number of others – like Nordstrom, Aeropostale, and BJ’s Wholesale Club – are holding the line, or reporting small increases.

On the other side of the ledger, The Limited, Macy’s, The Gap, and JC Penney have all seen declines since the recession. Abercrombie & Fitch, meanwhile, started declining even when the economy was healthy.

Businesses that were struggling in the boom years aren’t likely to make it out of a prolonged bust. Still, there are a number of companies that are, perhaps not thriving, but nonetheless remain healthy and growing. This is a helpful reminder that, even in the worst of conditions, the best companies will continue to perform.

It is also helpful to remember that, while beating analyst expectations is the key for short-term stock charges, it’s increasing year-over-year sales that are essential for long-term health.

Keeping such perspective increases insight when examining a company like Nordstrom – which had shares fall on missed estimates, despite increasing profits.

Those profits are likely to continue rising. “Although there is continued uncertainty surrounding consumer spending, [Nordstrom] experienced an improving sales trend in same-store sales in each month of the quarter while effectively managing inventory and expenses,” Nordstrom’s said in a statement.

Contrast that with Abercrombie & Fitch, which received a stock bump on news they’d lost less business than originally feared. Abercrombie has seen declining sales for the past four years.

In a difficult economy – one that will likely claim a few more victims before we return to health – such fundamentals, considered secondary for stock prices, are the truest indicator of viability.

Outside Wall Street, analyst estimates and company guidance are irrelevant. With many retailers struggling to find success on Main Street, we suggest you use Main Street numbers to discover the true health of an organization.

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U.S. Retail Company Stocks Beat Wall Street Estimates

Tue, 17 Nov 2009 19:46:47 +0000

These companies run the gambit from home improvement retailer, Home Depot (HD:NYSE)… to department store company, Dillard’s Inc. (DDS:NYSE) to luxury retailer, Saks (SKS:NYSE)

Even American retailing company Target Corp. (TGT:NYSE) beat Wall Street’s estimates.

MarketWatch’s Andria Cheng reports, “Home Depot Inc., the No. 1 home-improvement retailer, reported Tuesday that its fiscal third-quarter profit fell a less-than-expected 8.9%, after the company controlled expenses to help offset consumers paring back on larger-ticket purchases.”

David Strasser of Janney Montgomery Scott LLC said Home Depot’s cost controls were impressive, according to Bloomberg.

Many analysts expected earning of 36 cents per share, while the actual figure came in at 41 cents.

But retail market shares sunk lower today as concerns that the home improvement retailer wouldn’t be able to meet its estimates for the fourth quarter.

That said, in its earnings release, Home Depot actually raised its full-year outlook.

Other announcements saw earnings for Dillard’s Inc. post profits of 11-cents per share for the third quarter of 2009, pushing share prices up more than 9% today. Target also beat estimates with 58 cents per share as compared to the Wall Street forecast of 50 cents per share.

Third quarter earnings jumped 18%...

TJ Maxx’s parent company, TJX Companies (TJX:NYSE), beat estimates with an 81-cent per share profit. Analysts were expecting a per-share profit of 79 cents for the third quarter.

And interestingly, the luxury department store company, Saks, walloped Wall Street estimates.

The Street had been expecting a loss of 11 cents per share. Instead, the Saks produced a market profit, albeit a mere 1 cent per share.

With that wind of change, even in the face of an 8.5% drop in sales and a 10.1% drop in same-store sales for the third quarter, Saks’ share price jumped 8% on the news.

Adam Lass, editor of WaveStrength Options Weekly, and co-editor of Taipan Daily, writes, “Apparently, within a certain small circle, ostentatious luxury is chic again, as we read of spending rebounds on Prada, Dior and Chanel at places like Paris’ Au Printemps, New York’s Tiffany’s and Dallas’ Neiman Marcus.”

Nordstrom Inc.(JWN:NYSE) missed estimates, and Saks says its fourth-quarter sales could be down in the “high single digits,” according to Reuters.

And a lot of hopes are resting on the holiday retail season, which may or may not meet investor expectations

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Rise in U.S. Retail Sales Lifts Investor Confidence

sfranks@email.com (Sandy Franks, Executive Publisher, Taipan Publishing Group) — Tue, 17 Nov 2009 15:01:48 +0000

The Commerce Department announced that U.S. retail sales rose 1.4% in October. Although analysts had anticipated a 1% jump in retail sales, October’s rise is largely due to the turnaround in auto sales.

The increase in auto sales, of course, came mostly from the cash for clunkers program. It was a sharp rebound following the 2.3% drop in September. Excluding the increase in auto sales, retail sales increased by a much more modest 0.2% in October compared to a 0.4% increase in the previous month.

MSNBC reported that stock indices rose on news of better than expected rise in U.S. retail sales. Earlier this week, the Dow Jones Industrial Average advanced 139 points. Investor have remained positive about the recovery as major retailers, including Abercrombie & Fitch Co. (ANF:NYSE), Kohl's Corp. (KSS:NYSE), Macy's Inc. (M:NYSE), Urban Outfitters Inc. (URBN:NASDAQ) and Wal-Mart Stores Inc. (WMT:NYSE), reported better numbers than expected.

More retailers are forecasted to release earnings this week, including home-improvement retailers Lowe's (L:NYSE) and Home Depot (HD:NYSE). The Kansas City Star says this will provide another gut check on how American consumers are spending their dollars. Other big retailers, including Target (TGT:NYSE) and The Limited (LTD:NYSE), will announce their earnings this week too.

Retail sales are particularly important when assessing the outlook for the global economy. Without the help of U.S. consumer spending, which accounts for around 70% of the U.S. economy, any global economic recovery will be modest. According to AOL Money, broader consumer spending remains under pressure, raising questions about the durability of the recovery.

One big question that will drag down hopes of economic recovery is the unemployment rate. Employers shed another 190,000 jobs from their payrolls over the last month. That brings the total number of jobs lost to 7.3 million since the recession began in December 2007. The Houston Chronicle states that “October marked the 22nd month in a row of job cuts for a total of 15.7 million Americans who sought work last month but were unable to find any.”

However, unemployment remains a lagging indicator. In the face of an unemployment rate not seen in 26 years, the U.S. economy seems to be showing signs of recovery. The American economy last experienced growth in the second quarter of 2008, when it grew 2.4%. And it seems that for now at least, the run of good news for the world’s largest economy continues.

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Mixed Messages In October Retail Sales

Mon, 16 Nov 2009 19:27:02 +0000

Wall Street economists had forecasted a jump of 0.9% for retail sales in October, and a 0.4% increase when excluding autos and parts. The ex-autos report showed a benign 0.2% increase.

Today’s October retail sales report is providing optimism that the economic recovery is still on track. With 70% of Gross Domestic Product calculated from U.S. consumer spending, increases in retail sales are always applauded rather than ignored. The wild card, though, will be the recovery in the labor market to show sustainability in spending.

The surprise jump in the retail sales number was primarily due to sales at automobile dealerships and parts stores, which increased 7.4% in October. Overall, sales climbed to a 10.5 million annual rate from 9.2 million. As Bloomberg News reports, auto demand is stabilizing after plunging to a three-decade low earlier this year. General Motors Co. and Ford Motor Co. (F:NYSE) “had their first combined sales gain in three years” in October, “helping the industry rebound from a plunge in September.”

Auto sales weren’t the only group to show improvement in sales. Clothing, department, and health and personal care stores, along with Internet retailers and restaurants, all showed robust gains in October. Furniture, electronic and building supply stores all showed declines; a sign there are still reasons to be concerned about a recovery in housing.

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Most Wall Street economists are still projecting solid growth figures for the fourth quarter and most of 2010. Today’s report showed “a trend that reflects a consumer holding together rather well,” wrote Lori Helwing, an economist for Bank of America Merrill Lynch.

However, a sustainable economic recovery fueled by the U.S. consumer is not unanimous among financial professionals. Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote: “The latest softening in sentiment suggests [spending by consumers is] not sustainable.”

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Holiday Retail Season Will Signal Economic Recovery

Mon, 16 Nov 2009 15:44:12 +0000

The true test of the economic recovery is fast approaching: The holiday retail season.

Most retailers are offering gloomy outlooks. Abercrombie & Fitch saw same-store retail sales fall 27% this year, with little reason to expect a turnaround.

Karen Hoguet, Macy’s chief financial officer, recently said on a conference call, “… there are more uncertainties than usual in this environment.”

Even Wal-Mart – one of the supposed winners in the current belt-tightening environment – is hurting. Same-stores sales are down 0.4% at the retail giant, despite an increase in customer traffic.

Wal-Mart did report an increase in profits this year, but offered holiday-season guidance below analyst expectations, predicting flat or falling sales.

“They’re managing around their soft sales,” Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates, told the Chicago Tribune. “If they don’t get higher same-store sales, then earnings will not be sustainable.”

Meanwhile, Eduardo Castro-Wright, Wal-Mart’s U.S. operations supervisor, blames falling retail revenue on strong deflation – a trend the company expects to continue at least through the first quarter of 2010.

This possible trend showed up in the 24th Deloitte holiday retail survey, in which respondents say they’ll spend about 15% less this year than last.

Regardless of predictions and expectations, we’ll soon have the facts. Black Friday is less than two weeks away – and once the holiday retail season truly takes off, we’ll have a much better idea of how healthy – or unhealthy – it will be. And, consequently, we’ll have a much better idea of what 2010 will bring.

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