Retailers, consumers and prices
Check out the trifecta of profits that topped Wall Street views.
Expectations have been pretty low for the consumer and retail sector given the tough economy, cash-strapped consumers and the overall funk in the market keeping shoppers away.
On Thursday, a few companies managed to beat expectations. Is it a signal that things are finally picking up?
Best Buy‘s quarterly profit plunged 23 percent. Still, adjusted results topped Wall Street estimates as the retailer said it got a boost from stronger-than-expected consumer demand.
“We prepared for reduced consumer spending, and we were pleased when the quarter finished stronger than it began,” Best Buy CEO and Vice Chairman Brad Anderson said in a statement.
Check out the falling profits at Whirlpool and Hasbro.
Whether the ovens you make cook with gas like Whirlpool’s or with a light bulb like Hasbro’s Easy-Bake, it’s hard to make much money when people don’t want to buy anything.
Whirlpool profit fell 76 percent in the fourth quarter as sales in North America dropped 18 percent. The world’s biggest appliance maker also said it expected industrywide shipments of appliances to fall 10 percent in 2009.
Hasbro, which makes littler appliances, as well as G.I. Joes and Transformers, saw a 30 percent drop in quarterly profit as shoppers bought fewer toys for the holidays.
The company plans to focus on cutting costs this year, as are many, if not most companies in the United States.
But wait, is that G.I. Joe coming to the rescue? A G.I. Joe movie this year is expected to help lift sales of the action figures and other toys Hasbro sells under those names.
Perhaps they can work some kitchen scenes into the script and help out Whirlpool. C’mon, at least a trash compactor to deal with the bad guys?
Also in the basket:
McDonald’s same-store sales rise
Saks upends luxury market with strategy to slash prices (WSJ)
(Reuters photo from 2002)
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.
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Recession to worsen, deflation a risk: report
P&G keeps profit forecast, says sales may fall short
Lululemon posts higher profit, cuts 2008 outlook
Macy’s is still finding ways to celebrate in what could be a dark winter for retail this year. Customers entering Macy’s flagship store in New York City’s Herald Square it opened today were met by the pounding beats of the Soul Tigers Marching Band, lots of red balloons and a barrel full of exploding ribbons.
CEO Terry Lundgren was there cutting a ribbon promising another 150 years for the department store, to tack onto its current 150th birthday. A gaggle of employees sang “Happy Birthday Macy’s!”, threw confetti and danced.
Check out Coach opening stores.
The pricey leather handbag maker saw earnings fall in the quarter and also ratcheted down its sales forecast for fiscal 2009. But that sales forecast still calls for a 10 percent increase from a year ago.
And even in what some economists say is already a U.S. recession, the company is moving ahead with dozens of store openings and, in fact, those openings are ahead of the company’s plan, CEO Lew Frankfort said.
Coach plans to open 40 stores in this year in North America, 10 in Japan and five in China.
“Our new store openings are profitable from the first day,” Frankfort said in an interview. “All new stores are opening ahead of plan.”
And that isn’t just because it’s easier to get better terms from landlords as other retailers go bankrupt. Frankfort told Reuters the retail bankruptcies have had no near-term impact on Coach’s leasing arrangements, though the company should be able to get better terms over the midterm.
Like other retailers, Coach is also managing expenses. While there is not a hiring freeze, the company is tightly managing recruitment of new personnel through a “hiring frost,” Frankfort said.
Ahh, the first frost of the season. Can Christmas be far?
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Ferragamo says uncertain on Q4, no IPO hurry
Brinker quarterly profit falls on weak demand
Owners say franchisers are passing on more costs (WSJ)
Fashion trends toward Obama in presidential race (WWD, subscription required)
Walgreen Co. said consumers’ bargain shopping hit profit in the latest quarter. Still, Walgreen and other retailers might actually get a small benefit from the economic downturn and bank fallout. If banks ease up from opening ATMs on every corner, it could get easier for retailers to find attractive space for their stores.
The drugstore’s executives, in response to a question from UBS analyst Neil Currie during Monday’s conference call, said they’ve seen competition easing for good sites. They said banks started pulling back about six months ago and Walgreen now has more negotiating power when it’s looking for space. Still, it’s sticking with its plan to slow down its heavy dose of store openings. It added 561 stores to its lineup in fiscal 2008 and plans to add 495 new stores in fiscal 2009.
Check Out American Greetings saying people are buying more greeting cards that play music or blink lights when you open them.
Those kinds of cards cost more for American Greetings to produce, so the company nets less profit per card compared to a traditional greeting card that might quietly pronounce ”I love you” without an accompanying musical arrangement.
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.
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.
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Giant retailers look to sun for energy savings (N.Y. Times)
InBev seen posting modest profit growth in Q2
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.
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An offer for Jil Sander (WWD, subscription required)
(additional reporting by Martinne Geller)