Shop Talk

Retailers, consumers and prices

Check Out Line: Of incomes, spending and jobs

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clouds.jpgCheck out more signs of consumers being put in a vise.
 
Personal income rose 0.1 percent in June, the Commerce Department said. That was the lowest rise since April 2007.
 
And in fact, if it were not for the economic stimulus checks some consumers received in June, disposable income would have shrunk, the department said.
 
Meanwhile, costs continued to rise. The personal consumption expenditures price index — an inflation gauge — rose at its highest year-over-year pace since May 1991.
 
Consumer spending rose 0.6 percent in June, but actually fell 0.2 percent accounting for inflation. So consumers are spending more to get less.
 
Oh, and one more thing on the gloomy economic front, Challenger, Gray & Christmas Inc said planned layoffs at U.S. companies rose 26 in July from June.
 
Also in the basket:
 
Retailer Boscov’s files bankruptcy, may be sold
 
Walgreen July same-store sales up
 
Burani says investor eyeing bid for 15-18 percent stake
 
Calvin Klein’s latest controversy (WWD)

(Photo: Reuters)

Check Out Line: The earnings week that was

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food.jpgCheck 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)

 (Photo: Reuters)

Check Out Line: International strength pretties up Avon profit

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lips1.jpgCheck out how international sales and the weak dollar continue to lift quarterly results at U.S. companies.

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.

Check Out Line: Dollar Menu dissected

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arches.jpgCheck out the demise of the dollar menu as we know it?
 
McDonald’s, dealing with rising commodity costs in the U.S., said it is looking at changes to its popular Dollar Menu, which accounts for about 14 percent of U.S. sales.
 
“What fits on that menu will look different than now because it has to be profitable,” said McDonald’s Chief Operating Officer Ralph Alvarez on a conference call with analysts.
 
“We’ve got to make sure we’re pricing smart, not just pricing low. We’ll make the move at some point,” Alvarez said.
 
The comments from Alvarez come two months after Chief Executive Jim Skinnner said the company was willing to absorb some rising costs in order to ensure customer loyalty.
 
“This is not the time to be passing that on to consumers. They have long memories,” Skinner said.
 
One analyst said the popular double-cheeseburger could disappear from the Dollar Menu.
 
But pegging an offering, or even a business, to the dollar can prove to be a dicey proposal. The dollar has weakened and costs have gone up. Most “dollar” stores, for example, stopped capping prices at one dollar years ago.
 
But analysts do not see McDonald’s straying too far from the dollar.
 
“We do not expect McDonald’s to abandon the dollar price point, but rather evolve the menu with either new products at a near-dollar price point or adjust the pricing of select products that have seen significant cost pressures,” Goldman Sachs analyst Steven Kron said in a research note.
 
Perhaps calling it the “Mighty close (to a) Dollar Menu” would solve the problem. To long? Well, that could always be shortened to “McDollar Menu.”
 
Also in the basket:
 
RadioShack 2nd-qtr profit tops view, sales rise
 
UST profit dips, premium brands weak
 
And the plot thinned… (N.Y. Times)

(Photo: Reuters)

Check Out Line: How oil prices and consumers influence earnings

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consumer.jpgCheck Out how the spiking price of oil and lifeless consumer spending are affecting more consumer companies.

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 line: School daze

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books.jpgCheck out the back-to-school blues.
 
Nope, it’s not just kids who are likely to find going back to school depressing. Retailers are also likely to find the back-to-school season tough to take.
 
In a new survey by Deloitte, 71 percent of of respondents said they plan to spend less on back-to-school items this year. In fact, almost half plan to reduce their household spending by more than $100.
 
Stop us if you’ve heard this one before: Higher gas and food prices continue to pressure consumers, Deloitte’s U.S. Retail leader Stacy Janiak said in a news release.
 
“Retailers should focus on areas that will contribute to profitable growth, such as adapting their merchandising and promotional activities to increase loyalty among existing customers and attract new customers,” she said.
 
Among survey findings: 79 percent will buy more back-to-school items on sale, 68 percent will buy more lower-priced items and 46 percent will shop at different — or less expensive — stores than usual.
 
Also in the basket:
 
Hasbro profit tops view, costs remain challenging
 
Crisis at Mervyns: Credit concerns mount over economic woes (WWD)

(Photo: Reuters)

Office supply retailers give more power to the penny

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pennies.jpgThink a penny can’t buy much these days? If you’re a back-to-school shopper, think again.

Major office supply retailers–Staples, Office Depot and OfficeMax–are offering some basic school supplies for a penny and have marked down other items to give consumers relief from higher gas and food prices and to try to lure shoppers over the next couple of months.

Check Out Line: Looks like inflation worth whining about

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gas.jpgCheck out how much stuff costs.
 
Consumer prices rose 1.1 percent in June, the biggest monthly increase in 26 years. The culprits are the same as we have seen for months: energy prices rose 6.6 percent from May, with food up 0.8 percent.
 
Overall, prices were up 5 percent from a year ago. And not to whine about it, but it looks like more price hikes could be on the way, as food and consumer products companies continue to grapple with rising energy and commodity costs.
 
The news puts the Fed in a bind, economists said. Rising inflation means the Fed isn’t likely to be able to cut rates anymore, which means help for shoppers in the form of lower interest rates. But with the economy still weak, the Fed also may not be able to raise rates to tame inflation, which means prices could continue to soar and further pressure consumers.
 
“We have to get used to the idea of 5 percent (annual) headline inflation,” Alan Ruskin, chief international strategist at RBS Greenwich, said.
 
Also in the basket:
 
P&G Global marketing chief Stengel to step down (Ad Age, WWD, WSJ (subscription required for the last two) )
 
Quick hook at Halston: Creative Chief Zanini said to be out at label (WWD)

Furniture Brands speeds up cost cuts, warns on ’08

(Reuters photo)

Check Out Line: 2009 doesn’t look that great, either

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clouds.jpgCheck out what Morgan Stanley is saying about retailers and restaurant owners.
 
It isn’t good. Morgan Stanley is cutting its 2009 earnings estimates and price targets, saying its retail sales lead indicator dropped 1.1 percentage points in June, and the key reasons — home prices, unemployment and food and fuel inflation — are not likely to improve anytime soon.
 
The indicator, which uses a bunch of factors to predict future retail sales, is down 3.7 percentage points from a year ago and the outlook for the second half of 2008 looks grim, Morgan Stanley said in a research report.
 
“We see the likelihood of a decelerating 2008 carrying over into 2009 growing,” Morgan Stanley said, adding that the tax rebate checks making their way into the system will not be enough to offset macroeconomic headwinds in 2009.
 
Tax rebate checks “may actually have a pull forward effect that could make conditions worse for retailers into 2009,” Morgan Stanley said.
 
Also in the basket:
 
Chico’s June same-store sales fall 12.9 percent
 
M&S’s Rose faces stormy showdown with shareholders 
 
(Photo: Reuters)

Check Out Line: Office Supply Blues

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pencils.jpgCheck 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.

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