Retailers, consumers and prices
What makes jeans sit on the shelf instead of flying off the shelves? That’s up to the whims of American Eagle’s 15- to 25-year old target customer. The retailer’s summer offerings didn’t quite meet the expectations of its core audience, and sales suffered.
“We had a number of styles that just did not perform. And that hurt us very, very much,” American Eagle’s Chief Executive Jim O’Donnell said on a call with analysts.
“We’ve identified those (styles). We’ve taken appropriate action, both from a mark down point of view and also from a repositioning of holiday for ’08,” O’Donnell continued.
While O’Donnell declined to identify the worst selling styles, the retailer says it’s changing things up for the holiday season and next spring, bringing in at least four new styles for women and a few new lines for men “that we think are going to be very brand appropriate,” O’Donnell said.
In a bid to stretch shrinking grocery dollars, U.S. consumers are shunning restaurants for home-cooked meals, clipping coupons, scouring grocery store flyers for deals and consolidating trips to save gas.The U.S. Agriculture Department has warned that 2008 could bring the biggest increase in food prices in nearly 20 years. If shoppers’ words match their actions, it seems that frugal will become the new fashion.
Roughly 80 percent of respondents to a recent survey said they planned to continue those penny-pinching ways even after the economy turns up and they have more coins jingling in their pockets, according to retail consulting firm Precima, which commissioned the online survey that polled more than 2,000 U.S. consumers.
Check out how bad retail sales can actually mean good earnings.
It all comes down to inventory management. Retailers have aggressively cut inventory levels in order to cope with the slumping economy.
The bad news resulting from that strategy came last week when many retailers posted disappointing sales, in part because they had less goods on hand to sell.
“Our inventory levels in … clearance and transitional categories were significantly lower than last year, affecting sales results, but leading to improved gross margins,” Kohl’s Chief Executive Larry Montgomery said in a statement.
But the good news could come over the next several weeks, when retailers report second-quarter earnings. Those slashed inventories should have helped them preserve margins, which help profits.
So it’s not like the U.S. consumer is buying that much. But at least retailers didn’t get left with shelves of unwanted inventory.
Also in the basket:
Giant retailers look to sun for energy savings (N.Y. Times)
InBev seen posting modest profit growth in Q2
Check out the strong sales at McDonald’s in the … United States?
The world’s biggest restaurant chain posted its largest monthly U.S. same-store sales gain since February, when Leap year added an extra selling day. Barring the Leap year, July was the best month in 11 months.
It seems like only a few months ago people were worried that cash-strapped U.S. consumers would start shunning restaurants altogether, even the less expensive ones like McDonald’s.
In fact, it was. The company posted a drop in U.S. same-store sales in March, the first such decline in five years.
But the U.S. rebounded and strength in U.S. sales in July is a sign that the company is benefiting as consumers trade down from casual-dining restaurants like Red Lobster and Applebee’s, and that the value message of McDonald’s is attracting customers, analysts said.
Growth in high-margin items like drinks could also help the company offset rising hamburger commodity prices, UBS restaurant analyst David Palmer said in a research note.
Also in the basket:
Hormel gives lower 3rd-qtr view; cuts ’08 outlook
Rising grain costs hit consumers (Wall Street Journal, subscription required)
(Due to a tabulation error in the research, STORES Magazine has issued a corrected list. This is being corrected to remove Coldwater Creek from the Top 10 list and replace it with Citi Trends at No. 10)
Though the retail industry cooled last year to its slowest growth since 2002, a number of retail companies experienced fiery growth, according to the National Retail Federation. The hottest retailers, in general, grew through acquisitions, according to the trade group’s STORES Magazine.
Check out what we learned this week.
After a busy week of earnings, it is time to step back and see what we learned about the state of the U.S. consumer and the companies that serve them.
They are still buying food and for the most part swallowing the price increases food companies are pushing through in order to mitigate rising commodity costs.
Kraft Foods soundly beat analysts estimates, while Kellogg Co was a penny ahead of Wall Street’s expectations and raised is forecast for the year.
Consumers are balking at expensive coffee drinks. Starbucks posted its first quarterly loss as a public company and said the chain would shrink in the coming year. It also had yet another management shake-up.
Consumers are not buying clothes for the fall yet in earnest, but some are buying shoes and handbags. Jones Apparel said revenue fell in the quarter on flat apparel sales at stores open at least a year. Comparable store sales rose 5.8 percent at its shoe stores.
The economy looks better from Paris than New York, as Louis Vuitton handbag maker LVMH reported stronger-than-expected profit and said things should not get worse on the economic front. At the same time, U.S. rival Coach met expectations and gave a very cautious outlook, saying the “consumer malaise” would last well in to 2009.
Companies expect commodity costs to continue to rise in the coming year. Clorox, on Friday lowered its forecast for the current fiscal year because of rising costs.
People in the rest of the world are buying cosmetics, which helped Avon overcome slow U.S. sales.
And lastly, if you sell cigarettes outside the United States, especially in emerging markets, your business might be doing better than if you sell them in the United States.
Also in the basket:
July jobless rate highest in four years
Crisis in Credit: One year on, what’s next?
An offer for Jil Sander (WWD, subscription required)
(additional reporting by Martinne Geller)
Second-quarter profit at cosmetics firm Avon Products Inc more than doubled, as demand in Latin America and other overseas markets more than made up for sagging U. S. results.
Under Armour, which uses technical fabrics and materials to wick sweat away from athlete’s bodies, reported a smaller drop in net profit than analysts had expected and raised its outlook for income from operations for the year.
In other “no-sweat” news, Italy’s Geox, whose shoes are made with breathable soles, reported a 13 percent rise in first half net profit, sending its shares higher. The company is projecting 20 percent annual sales growth over the next three years, helped by new stores.
Results from the shoe and apparel makers joined several other consumer companies whose results beat Wall Street expectations, from Pilgrim’s Pride to Jarden and Masco.
Supervalu, whose chains include Albertsons and Save-A-Lot, didn’t see any increase in its total quarterly sales. Its food sales were actually down 0.7 percent, but the company saved itself in part with lower expenses, and reported a higher quarterly profit.
Check out more woe for the office supply sector, specifically Office Depot
The retailer warned that same-store sales in North America fell nearly 10 percent during the second quarter and said operating margins would fall more than expected as business conditions worsened. The news sparked a sharp sell-off in the stock as well as those of rivals Staples and OfficeMax.
Recent months have been tough for Office Depot, which earlier this year faced a proxy challenge from a shareholder group seeking to oust Chief Executive Steve Odland from the board. With the weaker second quarter results in view, one analyst raised the possibility that management changes could be in the offing.