Shop Talk

Check Out Line: Saving money, beating estimates

Check out retailers beating earnings expectations.

Today it is Family Dollar and Costco — both being places where people usually shop to save money.

Family Dollar saw sales rise in the quarter, though sales at stores open at least a year were less than expected as the company has been reorganizing its stores to stock more food and other items that shoppers want as they stick to necessities.

Costco sales fell and so did its profits, in part due to a stronger dollar, higher labor costs and also because of the weak economy.

But its earnings still beat Wall Street’s expectations and Costco’s stock rose in the morning.

Retailers will be heard from a lot this week as many report September sales.

Also in the basket:

Check Out Line: Bringing back discretionary spending

Check out analysts’ calls on middle and upper income shoppers.

Thursday’s sales reports showed that some consumers have started to buy their little luxuries again, a trend retail industry experts say is crucial for sales to rebound this fall and winter.

Michael Koskuba, Portfolio Manager for Victory Capital Management‘s Victory Large Gap Growth Fund, recommended that investors look into discount names with a discretionary bent, such as Target, which he owns in his fund.

“We thought, well, if things do start to improve they’ll be a beneficiary of that, and clearly we’ve seen the outperformance in the stocks,” Koskuba said of Target shares compared with those of Wal-Mart Stores Inc so far this year.

“The discounters in general, especially the ones that do have the discretionary component to them, I think are the one that will continue to do well,” he said, citing companies such as Target and off-price retailer TJX.  “I think those are sort of the areas that investors should be focusing on.”

Still, low-income consumers alone cannot ensure a retail recovery.

“While we believe market share gains for the discounters are likely to persist as the consumer remains focused on value and as the savings rate remains elevated relative to recent years, we are more positively disposed toward retailers in our coverage addressing the middle-to-upper-income consumer,” said William Blair analyst Mark Miller.

Latest back-to-school outlook brings little cheer

Citigroup retail analysts held a call with the media to discuss their outlook for this year’s back-to-school season and, as we’ve been hearing, there are few bright spots on the horizon.

Deborah Weinswig, who covers retailers including Costco, Wal-Mart and Nordstrom, said Citi expects back-to-school same-store sales for those retailers to fall 3 percent to 4 percent.

That compares with a gain of 0.9 percent last year.

“This is the first year since at least 1995 that we are projecting a decline in back to school same store sales,” she said. “In addition, if back-to-school sales don’t materialize early we believe that retailers could become very promotional in an attempt to drive traffic and sales.”

She said Citi’s proprietary back-to-school survey found that 45 percent of consumers plan to spend less for this year’s new school season than they did a year ago. The survey found that most consumers plan to buy apparel (75% vs. 79% last year), while the second most common purchase is expected to be a personal computer (15% vs. 19% last year) –although, as you can see, the percent planning to buy in both categories is down year-over-year.

J.C. Penney is one of Weinswig’s top picks for back to school – helped mainly by the fact that they have very easy comparisons to a year ago when sales fell.

Kimberly Greenberger, another analyst, said she is cautiously optimistic for improving sales and profit trends for the back to school season for softline retailers, or chains like Aeropostale and Pacific Sunwear. Greenberger said she was bullish on the outlook for American Eagle Outfitters and Urban Outfitters.

Check Out Line: Buying basics buoys big chains

Check out the ten largest U.S. retailers.

The National Retail Federation’s STORES magazine is out with its annual ranking of the top 100 retailers.

The list shows that U.S. consumers have been focused on bargains and basic necessities, such as food and medicine.  Wal-Mart tops the lineup, followed by Kroger and Costco.  Home Depot fell from No. 2 in 2007 to the fourth spot in 2008 as many shoppers decided to cut back on costly home-improvement projects.

Home Depot, Lowe’s and Sears Holdings were the only members of the top 10 to see their revenue fall in 2008.

Some other rankings that may interest you: Amazon.com is the 19th largest retailer, ranking higher than well-known chains such as J.C. Penney, 7-Eleven and Gap.  Apple’s stores and iTunes combined hold the 40th spot, topping chains such as Nordstrom, Whole Foods and Barnes & Noble.

The companies were listed by annual revenue, which may include estimates for private or closely-held companies.  Revenue from major non-retail operations were excluded when possible.

Also in the basket:

Check Out Line: The hurt is spreading

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.

He’s not alone.

Big boxers such as Target and BJ’s Wholesale reported steeper than expected drops in same-store sales, suggesting that the recession may have depended further than the luxury market.

Speaking of which, upscale department stores, such as Nordstrom and Neiman Marcus, saw sales slip while Macy’s fared slightly better than analysts had expected.  Abercrombie & Fitch, known for their strong hold on the younger markets saw same-store sales slide 28 percent, worse than the decline analysts had expected.  And teen/tween sensation Hot Topic, saw same-store sales fall 6.4 percent which were, again, steeper than analysts had predicted.

There were some bright spots, though: if you ignore gasoline sales, Costco Wholesale saw same-store sales rise one percent, and BJ’s Wholesale rose 4 percent.  And for apparel, Buckle Inc’s more casual teen market shopped the company’s same-store sales up 13.4 percent.

Even TJX, owner of TJ Maxx and Marshall’s among others, saw higher customer traffic translate into company gains even in the face of fluctuating international exchange rates.

Check Out Line: Value in Vogue

Check out mixed news from discount retailers.Warehouse clubs turned in a diverging earnings performance on Wednesday but overall results still showed the strength of this business model as consumers search for bargains.No. 1 U.S. warehouse club operator Costco Wholesale reported a lower profit as non-food sales weakened, but smaller rival BJ’s Wholesale eked out an earnings gain.As both retailers look to preserve and grow their business, that could bode even better for cost-conscious customers.Costco has said it will cut prices to keep shoppers, while BJ’s said one of its top priorities this year is to gain market share.Close-out chain Big Lots also posted profit that topped Wall Street forecasts – and investors eagerly snapped up its shares.Also in the basket:Liz Claiborne outlook weak More mortgage borrowers are ‘underwater’Kindle access from iPhone(Photo: Reuters)

Check Out Line: Food vs foreign currency

Check Out Sara Lee and Kraft Foods joining the “stronger dollar” bandwagon.

Both food makers cut their profit forecasts for the current year, citing the pain they expect from the stronger U.S. dollar decreasing the value of sales from international markets.

But currency alone is not to blame for oversease woes.

Sara Lee said it is seeing pressure in certain overseas markets due to worsening economic conditions.

“In our international business we are adjusting our plans and refocusing our resources to help offset significant economic downturns in many of our key markets, most notably Spain, France and the United Kingdom,” sad Brenda Barnes, the company’s chief executive officer.

Meanwhile, Kraft’s CEO said the company is seeing a slowdown in sales growth in the EU and developing markets.

Sara Lee, which makes Jimmy Dean breakfast sausages and its namesake bakery products, and Kraft, which sells Oreo cookies and its namesake cheese, have also faced increased competition from private label manufacturers as shoppers seek to save every dollar they can amid a deepening global recession.

2 for the price of 1: Works for sweaters, why not TVs?

It wasn’t too long ago that flat screen TVs were a novelty, costing thousands of dollars and hung only on the walls of high-income consumers.

How quickly thing change, especially in the world of electronics. 

This year, as TV makers confront excess supply and shoppers show a reluctance to splurge on big-ticket items, Costco is selling bundles of two flat screen TVs, pricing two for basically the price of one.

Right now on Costco.com, consumers can buy a 52-inch Sharp LCD TV bundled with a 32-inch Sharp LCD TV for $1,799.99.  Or shoppers can get two 42-inch LCD Sharp TVS for $1,499.99.

It appears the same Sharp 52-inch LCD TV is listed for $1,699.99 on bestbuy.com.

CFO Richard Galanti said on Thursday that while shoppers are shunning splurges, in November its unit sales of TVs soared 50 percent. But that translated into only a 3 percent increase in total dollar sales.

Check Out Line: Costco’s profit secret is a gas

Check out the basically flat profits at Costco.   Well, at least they are not falling, like many other retailers. But one of the reasons is something that is kind of hard to emulate at, say a Neiman Marcus or J Crew — selling gasoline.   Many of Costco’s warehouse clubs sell gas and the way the company operates that business gives it an advantage when fuel prices fall.   Costco replenishes its supplies on a daily basis, unlike traditional gas stations that bring in new fuel weekly. That means that when fuel prices fall, it is selling gas purchased at a more current, cheaper price, which helps margins, while competitors are selling gas they paid more for.   Okay, it probably doesn’t fit the business model of Macy’s. But if it needs the help, maybe Diesel could start selling diesel.   Also in the basket:   Recession to worsen, deflation a risk: report   P&G keeps profit forecast, says sales may fall short   Lululemon posts higher profit, cuts 2008 outlook

(Reuters photo)

Expect more promos, less help this holiday

The financial crisis of the past two months has rocked retailers, and many are now planning to hire fewer seasonal workers and roll out promotions earlier than planned to try to salvage holiday sales, according to a recent survey by the Hay Group.   The human resources consulting firm conducted an informal survey in September with 20 of the top American retailers, including Best Buy, JC Penney, Costco, and Macy’s to get a glimpse into their plans for the holiday season.

The group then ran the survey again this month to find out how those plans may have changed given the recent financial crisis. Here is what the they found:    Holiday Sales  

• In September, 60% of participants were planning on an increase in sales  
• In November, 38% are expecting a decrease of 5-15% and 29% are expecting the same level of sales

Store Promotions   

• In September, 45% indicated they would run the most store promotions on Black Friday, 45% indicated they would run consistent promotions from mid-December to January, and 13% indicated they would run the most after Christmas.  
• In November, 33% indicated they’d run the most store promotions on Black Friday, and 57% indicated they’d run consistent promotions from now until New Year’s   

Staffing 

• In September, 75% were planning to hire the same number of seasonal workers 
• In November, 53% are planning to hire the same number of seasonal workers, and 26% are planning to hire 5-15% fewer workers.