Shop Talk
Retailers, consumers and prices
Check Out Line: NRF says Americans plan to get their pumpkin on
Check out the spending boost planned by Americans for Halloween.
The National Retail Federation said spending by the 148 million Americans who partake in the “spooky” October holiday is expected to surge almost 18 percent this year as revelers look for any reason not to think about high unemployment and a shaky housing market.
“In recent years, Halloween has provided a welcome break from reality, allowing many Americans a chance to escape from the stress the economy has put on their family and incomes,” NRF CEO Matthew Shay said in a statement.
“This year, people are expected to embrace Halloween with even more enthusiasm, and will have an entire weekend to celebrate since the holiday falls on a Sunday,” he added.
Americans will spend an average of $66.28 on costumes, candy and decorations (or a total of $5.8 billion), up from last year’s average of $56.31. However, that is still short of the $66.54 spent in 2008, according to the study conducted by BIGresearch for the NRF. Retailers love Halloween because it comes between the back-to-school and December holidays in luring consumers into stores.
Those selling the latest costumes have reason to be the happiest as four out of 10 people are planning to get dressed up, up from 34 percent last year, according to the survey. And in a related note almost 12 percent will dress their pets too!
A third of those polled will throw or attend a Halloween party, almost three-quarters plan to hand out candy and about half will carve a pumpkin as well as decorate their house or yard, according to the study. In addition, 21 percent will visit a haunted house and 32 percent will take their children trick-or-treating.
Check Out Line: Surprise, surprise, a discount retailer is doing well
Check out the strong quarterly profit at discount retailer Dollar General.
The company, which prices most of its merchandise below $10, posted a stronger-than-expected profit thanks to bargain-seeking consumers who spent more per visit. Company executives talked of building sales momentum during the quarter and sales results in the current three-month period were encouraging.
As a result, Dollar General, which has received a boost from high U.S. unemployment rates, raised its full-year earnings forecast.
U.S. consumer spending rose in July at the strongest pace in four months, offering hope that consumers will be able to keep contributing to a modest economic recovery.
Meanwhile, overseas the message was mixed as Carrefour, Europe’s top retailer, said the summer sales trend was mixed in Europe but demand was holding up in emerging markets. Company executives acknowledged sales trends in Europe in August were slightly disappointing after a satisfactory July.
French luxury goods group Hermes posted a 52-percent rise in first-half operating profit, boosted by leather goods and slightly raised its full-year financial targets, while in Australia retail sales were surprisingly strong in July, suggesting the economy there looks solid.
Also in the basket:
Check Out Line: Warning, slow recovery ahead
Check out signs that a slow recovery is in the offing.
Retail executives see only gray skies ahead as U.S. shoppers are still spending cautiously, giving weight to the notion that a recovery will remain weak beyond 2010.
“The economic backdrop is not optimal,” Ken Perkins, president of retail research firm Retail Metrics, told Reuters. “It’s not catastrophic like it was in 2008 and the first quarter of 2009, but it’s just very sluggish.”
Indeed, Wal-Mart Stores posted its fifth consecutive quarterly drop in U.S. same-store sales (sales at stores that were open for at least a year) and said that trend may not reverse itself in the current quarter, Home Depot cut its full-year sales view and Kohl’s, which caters to middle-income consumers, and BJ’s Wholesale cut their profit forecasts.
“The landscape hasn’t changed, and you can make the case that perhaps it has worsened,” Kohl’s Chief Executive Kevin Mansell told Reuters last week.
Consumer spending accounts for two-thirds of U.S. economic activity and was a key driver in the country’s rebound from its deepest recession since the Great Depression.
But with the housing sector, crucial to U.S. household wealth, still in a rut, and volatile stock markets pinching even those at the upper end of the income scale, the drivers of spending appear dangerously absent.
Check Out Line: More corporate earnings to parse
Check out the latest raft of quarterly earnings.
With investors and denizens of Main Street alike dissecting various government reports and company press releases for hints on the relative strength or weakness of the U.S. economy, the latest slew of quarterly earnings arrived to parse, including better-than-expected results from Wal-Mart Stores and Home Depot.
Wal-Mart posted a better-than-expected profit helped by cost cuts and growth in international markets as sales at U.S. stores open at least a year fell. The world’s largest retailer also raised its full-year profit forecast.
Home Depot, the largest home improvement chain, reported a slightly better-than-expected profit on tighter cost controls, but sales missed analysts’ expectations as consumers curbed purchases in the grim U.S. economy. The results prompted the company to boost its profit outlook and shave its sales forecast for the year.
Apparel retailer Abercrombie & Fitch also posted a profit that topped expectations as the company’s discounts drew customers and lifted sales, while Danish brewer Carlsberg’s higher profit surprised and it raised its 2010 outlook.
Even for those in negative territory, there were silver linings as apparel maker Perry Ellis said it expects to post a narrower-than-expected quarterly loss and earn more than it had previously forecast for fiscal 2011. Department store Saks reported a smaller-than-expected loss due to an uptick in luxury spending and its ability to sell more items at full price.
Also in the basket:
Check Out Line: How Lowe’s can you go?
Check out the weaker-than-expected earnings at Lowe’s.
Giving fuel to pessimists about the U.S. economy, Lowe’s, the No. 2 home improvement chain behind Home Depot, posted a quarterly profit and sales that missed analysts’ expectations, and also forecast lackluster earnings in the current quarter, underscoring “limited visibility into near-term demand.”
Sales at companies like Lowe’s had benefited immensely from the homeowner tax credit and cash for appliances programs, but now more and more uncertainty seems to be the watchword.
Last week, retailer J.C. Penney forecast a full-year profit below Wall Street’s expectations, stoking fears it would need further discounts to clear out inventory. That was a day after department stores Kohl’s and Nordstrom gave conservative profit outlooks.
“We are taking a relatively conservative approach to the economic climate and especially the moderate consumer,” Chief Executive Myron Ullman said.
U.S. retail sales rebounded in July but showed hints of lingering economic softness. However, investors can search for more clues this week with earnings from retail giant Wal-Mart Stores.
Also in the basket:
Check Out Line: Consumers beware! Rising prices even at Wal-Mart
Check out rising prices even at Wal-Mart.
Pressures created by rising costs have caused even the world’s largest retailer, known for its ”rollback” discounts, to boost the prices that consumers pay for groceries. Wal-Mart Stores raised average prices on supermarket items by about 6 percent in a month, according to a recent J.P. Morgan study in Virginia that compared the prices of 31-item goods sold at its supercenters, and at supermarket rivals Kroger, Safeway, Harris Teeter and Whole Foods. Specifically, the study found that prices at a supercenter in Virginia rose 5.8 percent, the most significant sequential increase since JP Morgan started price comparisons in January 2009. While the world’s largest retailer remains the cheapest among supermarkets, rivals such as Kroger and Safeway are gaining ground, according to J.P. Morgan. Rising costs of raw materials and oil are pressuring companies to pass on costs to consumers with higher prices.
Indeed, clothes makers such as Nike, VF Corp and Hanesbrands are facing the same conundrum. And British baker Greggs said soaring wheat prices were set to push up costs, emphasizing a theme that may be repeated for such food makers as General Mills, Kellogg, Kraft and Sara Lee.
However, the timing is not good as the state of the U.S. economy is still uncertain and unemployment remains stubbornly high, leading many consumers to still be wary about spending. U.S. retailers in July posted weaker-than-expected sales despite increased discounting. Also in the basket:
Wendy’s/Arby’s to expand into Russia
Check Out Line: Modest gains expected for U.S. retailers
Check out the modest gains expected for U.S. retailers in July.
U.S. retailers look set to report a small improvement in same-store sales for July as anxious consumers cut back on spending and big chains returned to discounting to lure them into stores.
Analysts are expecting same-store sales growth of 3.1 percent, compared with a decline of 5.1 percent last year, with department stores and discounters showing the biggest gains, according to Thomson Reuters.
July would be the 11th straight month of improving sales, but analysts warn beating last year’s weak results isn’t anything to crow about and new threats are on the horizon as consumer sentiment in July sagged to its lowest level since November.
“The consumer confidence numbers are hideous, and the promotions we’re seeing in the malls are pretty intense,” said Cowen & Co analyst Laura Champine.
Most retailers will report same-store sales on Thursday.
Meanwhile, in the consumer world, Procter & Gamble posted a weaker-than-expected quarterly profit as higher spending on marketing offset sales growth, while leather goods maker Coach reported better-than-expected earnings as demand picked up in North America and China.
Check Out Line: Earnings to quench investors’ thirst
Check out the latest quarterly earnings for signs of a recovery.
Whirlpool and PepsiCo both reported better-than-expected quarterly profits and pointed to improving trends, lending hope to optimists that the economy is slowly improving.
While citing continuing macroeconomic challenges, PepsiCo, which makes Tropicana juice, Frito-Lay snacks and Quaker Oats in addition to its namesake cola, posted stronger-than-expected results and affirmed its earnings per share growth target for the fiscal year.
“We are benefiting from both the acquisition of our anchor bottlers earlier this year and from improving trends across our global business. As planned, we have stepped up incremental investments around the world to capitalize on untapped consumer demand,” Chief Financial Officer Hugh Johnston said in a statement.
Meanwhile, Whirlpool beat profit and sales estimates on strong demand in Asia and Latin America, prompting the world’s largest appliance maker to raise its outlook for the year.
Nevertheless, pessimists have their data points. Unemployment continues to weigh on consumers and U.S. homebuilder confidence fell to a 15-month low in July. Whirlpool rival Electrolux also missed earnings forecasts, sending shares in the Swedish company sliding on fears that recent growth trends have topped out.
Also in the basket:
Check Out Line: Cautious notes hit by top luxury execs
Check out the cautious notes being sounded in the global luxury market.
Industry executives voiced concerns about everything from unemployment to Europe’s brewing economic crisis, but are nonetheless banking on growth from China and a recovering U.S. market.
Leading officials speaking at the Reuters Global Luxury Summit said the debt crisis in Europe is threatening to halt luxury’s rebound, but demand for fine merchandise was picking up in the United States while China’s shoppers were venturing frequently into Tokyo for top brands.
“The euro zone is a sizable market, but today the growth reserve is in the emerging countries, and particularly in China, whose demand is pulling the entire sector,” said Isabelle Ardon, head of Paris-based SG Gestion’s luxury fund.
The debt crisis and depreciation of the euro have raised concerns of a double dip global recession that could knock luxury spending back down after a fragile recovery. Bulgari’s CEO Francesco Trapani (pictured) said Europe would remain a difficult market.
Meanwhile, a top industry consultant warned a U.S. rebound remains fragile due to high unemployment and the specter of higher taxes.
“The aspirants will come back when unemployment comes down to 5 percent,” said Milton Pedraza, chief executive of the Luxury Institute.
Check Out Line: A glimmer from Zale’s
Check out who is paying full price for bling.
More people at Zale Corp, that’s who.
The jeweler still posted a loss in the first quarter, but it was less of a loss than a year earlier.
Merchandise margins also rose, the result of less promotional price cutting.
Zale has also cut expenses, closed stores and trimmed inventories. And it got some relief from its liquidity problems earlier this month, when private equity firm Golden Gate Capital lent it $150 million for five years and took a 19.9 percent stake.
Are Zale’s shares, priced at under $3, starting to dazzle? Well, any stock move today could be exaggerated by traders covering short positions.
As of April 30, about 14 percent of Zale shares were held short by investors betting the price would fall. That is far above the 3.5 percent average for New York Stock Exchange-listed stocks.
-
Resident Shop Talk Expert
-
