Retailers, consumers and prices
Check out Wall Street analysts having mixed views about different areas of retail.
Eric Beder of Brean Murray, Carret & Co raised his rating on long-suffering Abercrombie & Fitch to Hold from Sell, noting that the stock is currently trading 2 percent below his previous price target. With investors now assuming weak same-store sales and inventory overhang, and with international growth somewhat lower than expected, Beder said the risk/reward potential has improved enough for him to raise his rating.
“That said, we do not see the potential for a turn in (the second quarter),” Beder said in a research note.
Meanwhile UBS analyst Roxanne Meyer said her latest store check at Abercrombie revealed a big year-over-year uptick in the breadth of promotions. She said about 60 percent of the men’s merchandise and about 75 percent of women’s merchandise was on promotion, up from 30 to 35 percent a year earlier.
Check out the latest raft of earnings and outlooks kicking off the holiday-shortened week in the consumer world.
Kraft Foods, which makes Oreo cookies and Velveeta cheese, posted quarterly revenue that fell short of expectations, but said its recent acquisition of British chocolatier Cadbury would accelerate long-term growth.
As retailers tried to attract consumers for some post-Labor Day shopping, apparel retailers Aeropostale and Charlotte Russe beat Gap Inc’s Old Navy chain in the pricing war this month, according to Eric Beder, associate director of research for Brean Murray Carret & Co.
While Aeropostale has “never looked better” with its combination of good merchandise and prices, Arden B owner Wet Seal remains the “low price leader,” Beder said.
Penney reported a net loss of $1 million, or nil per share, compared with a year-earlier profit of $117 million, or 52 cents per share. Analysts on average expected a loss of 1 cent per share, according to Reuters Estimates.
Check out what’s happening in apparel retail, according to UBS analyst Roxanne Meyer.
There were lower promotional levels last week as fall items hit stores, Meyer said in a research note.
Retailers are focusing on plaid woven tops, scarves, skinny and boyfriend denim, leggings, artsy graphic tees, flutter sleeves, boyfriend blazers, ruffles and chunky necklaces. Oh, and skirts are making a comeback.
Meyer said she is starting to see some “more reasonable” price points at Abercrombie & Fitch, which has tried to avoid aggressive promotions that other retailers have used for months to clear excess inventory during the recession.
But she also said demand for $180 blazers, $80 super skinny jeans, $98 boyfriend jeans and $80 beaded silk tank tops at the store will be limited.
Also in the basket:
CIT Group on cusp of $3 billion rescue
Hasbro profit beats, Discovery deal to hurt less
Jarden sees profit, sales meeting or topping view
RVC buys Ellen Tracy collections (WWD, subscription required)
Barnes & Noble consolidates publishing (Wall Street Journal)
Check out the latest sales reports, which show that consumers are still cutting back on discretionary spending as they shift to discounters for the basics. Granted, that’s not exactly news anymore, but some of this morning’s sales tell us that even the discounters are starting to feel the heat.
“Sales for the month of May were somewhat below our expectations,” chief executive officer of Target, Greg Steinhafel, said in a statement.
By Nicole Maestri
Check out the ongoing struggle to sell clothes to recession weary Americans.
J.C. Penney and Abercrombie & Fitch both reported quarterly results that show consumers are still cutting back on non-essential items, with Penney also warning profit for the year would be worse than analysts expected.
Consumers have been hammered by the recession, mounting job losses and credit worries, and it appears they are sticking to shopping lists for groceries and other essentials, rejecting unnecessary purchases and seeking deep discounts.
While the conviction to buy only what they need has hit sales for department stores like Penney, consumers’ desire for bargains has battered Abercrombie, which has stubbornly kept prices higher than rivals, other than discounting clearance items.
“With a challenging economic environment, the consumer continues to show a reluctance to spend on premium brands; a price consciousness dictating shopping habits unlike anything I have ever seen,” said Abercrombie Chief Executive Mike Jeffries, a retail industry veteran. The teen clothing retailer posted a first-quarter loss wider than Wall Street’s expectations, and in an abrupt change, said it is conducting a strategic review of its struggling Ruehl chain. Meanwhile, Penney posted an in-line quarterly profit, but forecast second-quarter and full year results below analysts’ expectations. “We expect consumer spending and mall traffic to remain weak, which will be particularly evident against tough comparisons in the second quarter,” CEO Mike Ullman said. Also in the basket: Kohl’s, Nordstrom beat forecasts, raise 2009 views H&M April sales rebound boosts recovery hopes Target pilot pays employees to monitor health (Photo: Reuters)
There are very few things to laugh about in the retail world at the moment, but JP Morgan analyst Brian Tunick did a great job of adding some humor to what was a difficult week, especially for Gymboree.
Gymboree gave a bleak forecast for its first quarter, saying regulatory changes related the Consumer Product Safety Improvement Act passed by the Congress in August 2008 will impact sales and gross margins in the first half of 2009. The act required the Consumer Product Safety Commission to begin enforcement of new lead and phthalate standards for children’s products on Feb. 10, 2009.
Check out Abercrombie & Fitch’s falling profits.
The company played a remix of “Cold as Ice” as hold music for its conference call with analysts. It’s hard to tell if it is supposed to be ironic, or if the company is just tone deaf.
The latter could be possible, as Abercrombie has decided to tune out consumer’s expectations that retailers will offer discounts to try to get them in the door.
In November, CEO Mike Jeffries said the short-term relief provided by promotions would have the affect of damaging the brand in the long term. He defended the strategy again on Friday, though the company has cut some prices at its Hollister and abercrombie chains.
But if people stop going to your store, do they eventually forget about your brand?
Abercrombie’s same-store sales fell 25 percent in the key fourth quarter. Of course, refusing to discount (other than on clearance items) protects profits. Or maybe not. Net income fell 68 percent, though some of the decline was related to a new employment agreement for the CEO.
Also in the basket:
PepsiCo Q4 profit falls, but matches Wall St view
Sears launching online service to connect clients, contractors (Chicago Tribune)
Starbucks to sell instant coffee
Microsoft to open own stores, take on Apple