Low price retailers appear to be in. The top performing stock in the first quarter among components of the Dow Jones Industrial Average, through Friday, was Wal-Mart, with a 9.66 percent gain — one of only five stocks up in the index.

And in a much wider group, Big Lots is the big winner in the S&P 500 with a 40.25 percent gain in through Friday. The shares of the company, which specializes in  the sale of excess inventory, posted a 33 percent increase in March alone.

As the U.S. economy struggles, lower-priced retailers like Wal-Mart and Big Lots have benefited from consumers trading down.

Warehouse clubs like Costco and BJ’s have also been helped by customers looking for bargains on food and fuel.

So as the economy worsens, Wal-Mart shareholders gain. Through Friday, Wal-Mart investors are collectively $18.4 billion richer this quarter, the biggest quarterly increase in Wal-Mart’s market cap in four years.

(Additional reporting by Dan Burns)

Also in the basket:

Pernod wins Absolut vodka in 5.6 bln euro deal

Philip Morris International shares rise in market debut

Wal-Mart savings ads assailed (NYTimes)

Consumers with a taste for luxury are not only scaling down their purchases at Saks Fifth Avenue and Nordstrom, but are also cutting back on furnishings and decor.

Morgan Keegan cut profit estimates for Ethan Allen Interiors  this week, saying it could be the next victim as a spending pullback takes hold at upscale furnishings companies.

“Home related spending is weak and we are now seeing signs that the typically resilient high-end consumer is pulling back on discretionary spending on furnishings,” analyst Laura Champine said in a research note.

Already, bedding maker Tempur-Pedic has warned that U.S. sales are weak, while Williams-Sonoma noted noted one of the most challenging macro-economic environments in 30 years, Champine added.

Ethan Allen has generally fared better than its furniture peers but rising costs for raw materials, energy and freight are weighing on the sector, Champine said. She cut her third quarter profit estimate for the company by three cents a share to 49 cents, and lowered her full-year estimate by six cents. The company’s fiscal year ends in June.

(Photo: Ethan Allen Website)

JC Penney surprised the retail sector on Friday with its warning that first-quarter earnings could be as much as 38 percent below its initial forecasts, and it said it expects the difficult environment to persist throughout 2008.

The warning came the same day that the Reuters/University of Michigan Surveys of Consumers showed that U.S. consumers’ confidence weakened to the lowest in 16 years in March, pointing to recession. 

The news battered retail shares as investors’ hope faded that business would improve in the second half of the year. Here is a collection of comments on Penney’s warning:   

KIMBERLY PICCIOLA, ANALYST AT MORNINGSTAR :

“It seems as though the macro environment is really creating a much more challenging retail environment then maybe what was anticipated.” 

She said J.C Penney’s product line is made up of items consumers can hold off on buying in a weak economy. 

“The first half of the year is definitely going to be rocky for most retailers that have a very discretionary assortment. Consumers are very cautious right now in terms of their discretionary  spending.” 

CRAIG JOHNSON, PRESIDENT OF CUSTOMER GROWTH PARTNERS:

“J.C. Penney operates in a very challenged part of the retail sector.”

“The mid-tier mall-based department stores are the center of the retail sector difficulties. … They are the bull’s eye of it.”

ADRIANNE SHAPIRA, RETAIL ANALYST AT GOLDMAN SACHS:

“The direction of today’s revision was not a surprise, given our already below consensus and management guidance view on the quarter. That said, the magnitude of comp declines was worse and does imply that department store top-lines could be facing more near-term ‘core’ sales pressure than initially thought.”

“Importantly, we would remind investors that 1Q contributes the lowest amount of sales to the full year making it more susceptible to deleverage if top-line falls short making extrapolation to the full year incorrect.”

“Importantly, our thesis concerning 1H as being the trough of this down cycle remains unchanged, especially with stimulus checks on the way in 2 months time. As sales recover, we continue to believe that stocks will follow.”

MARSHAL COHEN, CHIEF INDUSTRY ANALYST AT NPD GROUP 

He said the bad Easter season was due to three factors: “It’s early. It’s cold. And the consumer is throttling back.” 

“So you’ve got these three things converging to create the perfect storm.”

He said Penney was being wise, preparing the market to expect less-than-stellar earnings results.  

“We’ve entered into an interesting time at retail. It’s called ‘create lower expectations and exceed them and your stock will jump’. We’ve seen several big retailers do this now over the last couple reporting periods. It’s good. They’re being fiscally responsible.”  

(Photo: Reuters)

Check out the warning from J.C. Penney.
 
The retailer slashed its first-quarter earnings forecast and said Easter sales were well below expectations.
 
That may be a pretty good snapshot of where the American economy is right now. J.C. Penney says half of American families are its customers and those families are under pressure from higher energy costs, a deteriorating job market, the housing downturn and the credit crunch.
 
Not much news there. But according to J.C. Penny’s forecast, things are much worse than the company thought.
 
The warning comes the same week Williams-Sonoma Chief Executive Howard Lester said the economic environment was probably the worst he’s seen in the 30 years he has been in the business.
 
Oh, and Lester added this cheery note:
 
“We believe there are circumstances under which it could get progressively worse, particularly if we find ourselves in a protracted recession.”
 
Also in the basket:
 
Cash-rich retailers stand to gain in credit crunch
 
Li & Fung’s 3-Year Plan: Sourcing Giant Aiming For $20 Billion in Sales (WWD)
 
Office Depot Holder Group files proxy statement 
 

(Photo: Reuters)

Check out Williams-Sonoma predicting that this fiscal year, it ”will be operating in one of the most challenging macro-economic environments we have seen in many years.”

The upscale home goods retailer, which operates the Williams-Sonoma, Pottery Barn and West Elm chains, reported higher-than-expected fourth quarter profit on Thursday, helped by an extra week of sales in the quarter compared with last year.

But the deteriorating U.S. housing market has not been a friend to retailers that make a living selling furniture and home decorations, and Williams-Sonoma, not very surprisingly, gave an earnings forecast for its current fiscal year that is below Wall Street expectations.

Acknowleging that it cannot turn around the macro environment, it is choosing to focus on a micro-enviroment — its own business.

It said it will be ”focused on the things we can control,” like reducing discretionary costs, keeping a close eye on inventory and cutting the number of catalogs it mails.

Also in the basket:

ConAgra to sell trading busines; quarterly net up

Movado quarterly net up

McCormick profit tops view; ups ‘08 sales outlook

A restaurant in Manhattan’s Wall Street area is reacting to the financial sector’s agony by slashing prices to lure bankers and traders who have been reining in their spending after steep losses.

Marcus Olson, chef and manager of the “Bull Run” which serves contemporary American cuisine in New York’s financial district, says in the last week and a half the restaurant has cut the price of a steak by $2 to $7.

“This restaurant goes up and down like the stock market,” said Olson. “And especially with this Bear Stearns news last week, we’re really feeling it.”

Since the financial market’s woes began last year, sales are down about 30 percent, he said.

Apart from cutting prices Olson said he has introduced a happy hour, since financiers in the current environment need all the happiness they can get.

Check out the latest thing at the local drug store: at-home paternity tests.
 
Drug stores have long sold condoms and pregnancy tests. The next natural step may well be the Identigene DNA Paternity Test Collection Kit, which is now being sold in Rite Aid’s 4,363 drug stores in 30 states and the District of Columbia. (The kits are not available in New York because New York State requires a court order for paternity test, a Rite Aid spokeswoman said.)
 
“Over-the-counter sales offer a completely new marketing channel for DNA testing,” Identigene Chief Operating Officer Doug Fogg said in a press release. “It makes the process more convenient and affordable while ensuring reliability and confidentiality.”
 
The press release also offered this account from an actual user:
 
“Because of my personal circumstances, the day I left the hospital after my son was born I turned in case papers for a paternity test,” said Natalie Maynes of Vancouver, Wash. “Two months went by with no word, so I called. They told me with their waiting list, test results could be up to six months away. That night on the news, I learned I could buy an Identigene DNA Paternity Test Collection Kit at Rite Aid. Taking samples was easy, and it was nice to be able to do it ourselves. Five days later, we had our results.”
 
The suggested price for the test kit is $29.99 and the laboratory processing fee is $119. Test subjects collect a DNA sample by rubbing a swab inside their mouths. The samples are then sent to Identigene for processing.
 
Paternity tests may seem more the province of tabloid television staples like “The Maury Show” but for Rite Aid, offering the tests is a way to be competitive in the drug store business.
 
“Our goal is to be first to market with innovative health care products,” Rite Aid spokeswoman Cheryl Slavinsky said.
 
For Identigene, it’s about meeting a need, as found when the company test-marketed the kits in three states beginning in November.
 
“We learned that people are extremely receptive to the idea of purchasing a DNA paternity test kit while shopping at one of the nation’s leading drug store chains,” Fogg said.
 
Also in the basket:
 
Walgreens rolls out casual gear (WWD, subscription required)
 
Charlotte Russe sees Q3 profit below Street estimates

Equity analysts at Citigroup Global Markets decided to conduct a survey to figure out how consumers are making their grocery shopping choices in the current environment. 

Not very surprisingly, it found that consumers are becoming more value conscious and will likely favor retailers with sharp pricing.

So who is the sharpest of them all?

“An overwhelming 72 percent of customers surveyed said that Wal-Mart had the lowest prices. Among the top three traditional supermarkets, Kroger was perceived by more consumers to be the lowest priced,” the Citi note stated. 

Citi conducted its online survey in two markets, Texas and Washington, because it said those are two states are where Kroger, Safeway, Supervalu, Target and Wal-Mart – the  five grocery retailers in its coverage universe – compete. 

The survey found that Kroger had the next best pricing message behind Wal-Mart, with 6.9 percent of customers saying that grocery chain had the lowest prices.

Meanwhile, 26.5 percent of consumers found Safeway to be the most expensive, while 24.5 percent of consumers found Supervalu to have the highest prices, it said.

To offset the tough economy, Citi said consumers are reining in their discretionary food purchases, and it has started to see signs of consumers trading down in terms of where they shop (like moving from Target to Wal-Mart), in terms of what items they buy (switching from steak to chicken), and in terms of choosing between branded and private label (buying more private label).

“We believe that consumers will continue to adjust the way they shop if food inflation remains high,” the report said.

(Photo: Reuters)

Check out an extra early Easter meaning extra difficulty for retailers who are already struggling.

Easter fell on March 23 this year — compared with April 8 last year — making it the earliest Easter since 1913, according to the National Retail Federation.

Retailers count on the Easter holiday to boost traffic in their stores and spur early sales of spring clothes, open-toed shoes and, of course, candy.

But this year, the extra early Easter meant it was too frigid in many parts of the country for consumers to think about wearing light-weight dresses or sandals.

Weather Trends International reported that national temperatures last week were 6.1 degrees colder than last year, according to the ICSC. That made it the 4th coldest and 2nd wettest middle March week in 16-plus years, and it was also the 3rd snowiest middle March week in 16 years.

So, with money already tight, it looks like many shoppers skipped buying an Easter outfit this year.

The ICSC-UBS retail chain store sales index declined by 0.4 percent for week ending March 22,  reversing the prior week’s rise.

“Customer traffic improved due to Easter, but sales were subdued–in part–because of cool weather and soft apparel demand and accounting for the Easter shift,” the ICSC said in its report.

For the month of March, ICSC continues to expect a weak comparable-store sales performance around 1 percent on a year-over-year basis.   

Also in the basket:

Phillips-Van Heusen profit rises

Adidas forms Brazilian venture, ups Reebok forecast

Casual Male posts Q4 profit below market view

Kraft’s China union says relocation violates law

(Photo: Reuters)

Check out business overseas contributing a much-needed boost to Tiffany’s fourth quarter.

The jewelry chain reported a 16 percent drop in quarterly net income on Monday, posting net income of $118.3 million, or 89 cents a share. But excluding special items, earnings were $1.27 a share — 6 cents higher than the analysts’ average forecast compiled by Reuters Estimates.

Increased sales overseas and at new stores helped offset the effects of a weak U.S. economy that has put a strain on consumer spending. Its sales rose 10 percent, or 7 percent on a constant-currency basis, to $1.05 billion.

For the current fiscal year, the New York-based jeweler said it expected net earnings per share to rise by 11 percent to 15 percent to a range of $2.75 to $2.85. 

“In 2008, we expect to see robust growth in our non-U.S. markets other than Japan and are experiencing such performance in the quarter-to-date,” said Michael J. Kowalski, chairman and chief executive officer, in a statement.

“We remain cautious about the U.S., although comparable store sales are currently increasing slightly. We still expect a slight decline in comparable U.S. store sales in the first half of the year.” 

The company forecast low-single-digit growth in U.S. same-store sales and mid-single-digit growth internationally. 

Also in the basket:

Sherwin-Williams cuts earnings outlook

Walgreen profit rises on cost-cutting, extra day

(Photo: Reuters)