Shop Talk
Retailers, consumers and prices
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.
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Check Out Line: The tale of two home centers
Check out the differing prospects at Home Depot and Lowe’s.
Home Depot topped analysts’ expectations with its quarterly report on Tuesday morning and raised 2010 forecasts after its strong start out of the gate.
That dose of confidence came a day after smaller rival Lowe’s issued guidance that disappointed investors. Remember, Lowe’s was a bit cautious when it came to talking about the possibility of an economic recovery.
Meanwhile, retail investors got more big news a little later in the morning: Wal-Mart’s quarterly results. Early signs showed that sales were a bit better than Wall Street anticipated. Still, sales at U.S. Walmart stores open at least a year fell 1.4 percent. The world’s largest retailer said it plans to open a significant number of stores in the second and third quarters.
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Black Friday comes early to Home Depot
For Home Depot, Black Friday comes in spring.
As many Americans prepare to spruce up their gardens, the world’s largest home improvement retailer will host “Spring Black Friday” — a weekend of regional door buster deals in March and April.
Like the traditional Black Friday that occurs the day after Thanksgiving to unofficially start the holiday shopping season, the home goods retailer hopes its spring event will jumpstart its busiest selling season.
Last month, Home Depot reported its first quarterly same-store rise in nearly four years and gave an upbeat full-year forecast as customers begin making bigger renovation projects.
From lawn products to patio and grills, the retailer will slash prices on several spring products in March and April.
“Spring is our Christmas,” said Craig Menear, executive vice president for merchandising. “Traffic in our stores is at its highest during the spring season.”
This is a great idea, regardless of whether it is Home Depot, Lowes, Menards or any retailer for that matter. Kudos to Home Depot for creating its own “Too Big To Ignore” event. Their voice might not stand out during traditional Black Friday, but during the crucial spring season for DIY retailers, Home Depot is attempting to gain Retail Leverage versus their competitors.
Check Out Line: Saks doesn’t sell
Check out the recession. It appears it was still alive and well at Saks in the second quarter. The upscale retailer posted a $54.5 million loss in the quarter, wider than the $32.7 million seen a year earlier. Same-store sales fell 15.5 percent in the quarter and Saks expects that measure to fall in the mid-to-high single digits in the second half of the year. The company has been cutting expenses and controlling inventory. The loss also was not as bad as analysts expected. But unless a Versace dress becomes the “must-have” back to school item, the tough sales environment at Saks is likely to continue. Also in the basket: Cost cuts help Home Depot beat estimates Big part of U.S. back-to-school sales still ahead: NRF CKE same-store sales off 3.6 pct in latest four weeks Target profit falls, but beats Wall Street view
(Reuters photo)
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.
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This is a worldwide trend, bargain and dollar stores are flourishing and businesses selling products with higher profit margins see their revenue fall sharply. Could it be that we’re in a recession?
Check Out Line: Home Depot’s less bad news
Check out how less bad is the new good.
The latest example of this new reality is Home Depot’s revised profit outlook.
The world’s biggest home improvement retailer said this year’s earnings from continuing operations could be flat to down 7 percent. That compares with its earlier call for a fall of 7 percent.
Home Depot Chief Executive Frank Blake said in a meeting with analysts that economic indicators are signaling that the worst of the housing downturn is over.
Home Depot still expects sales to fall by about 9 percent this year, with sales at stores open at least a year down in a high-single-digit percentage range. It expects gross margins to be flat to slightly higher.
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Check Out Line: Retailers’ results surprise Street
Check Out better-than-expected quarterly results from Home Depot and Saks, as retailers across the spectrum succeed in cutting costs.
Home Depot, the top specialty home improvement retailer, said its quarterly profit was 35 cents per share in the first quarter, excluding items, topping Wall Street estimates for profit of 28 cents.
Aggressive cost cuts – such as closing its Expo Design Center chain and laying off about 7,000 workers – helped offset a 9.7 percent decline in sales.
The same phenomenon occurred at high-end retailer Saks, whose 3 cent-per-share loss, excluding items, blew away analysts’ average expectation for a loss of 26 cents per share.
Saks shares jumped nearly 13 percent in premarket trade, while Home Depot shares slumped 1.7 percent as the results, while still better than expectations, were not as good as those from rival Lowe’s, which reported better-than-expected profit on Monday due to strong sales of outdoor goods.
Saks raised its target for cost cuts, even as it expects sales to decline throughout the rest of the year.
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You give the name of the author who writes the blog… but not the photographer who shoots the photo for the blog….
The Do-It-Yourself Lift
The recession is leading many consumers to sharpen their do-it-yourself skills, opting to work on their cars and homes themselves rather than hire professionals.
Home Depot said it is gearing up for spring with a wide assortment of lawn equipment and fertilizer products, looking to cash in should consumers cancel their contracts with professional landscaping companies.
The company said some consumers in cold-weather climates bought snowblowers in the fourth quarter, opting to clean their own driveways and save money instead of calling on snow-removal services.
“We wonder if that might not happen in the spring in the garden business,” Chief Financial Officer Carol Tome said in an interview. “If that were to happen, we’ll be ready with a broad assortment.”
Home Depot, which posted better than expected results for the fourth quarter adjusted for charges on Tuesday, gave insights on how its consumers are spending. During the fourth quarter, it said purchases of $500 or more fell in double-digit percentages. But average purchases of less than $20 fell only about 3 percent, suggesting consumers are still spending on basic home repairs.
“Consumers in general are being pretty careful,” Tome said. “We’ve seen savings rates increasing so that will impact consumer spending, too.”
While the rate of sales declines in hard-hit housing markets such as California and Florida has eased, Home Depot is not yet ready to say weakness in those states has hit bottom. Now, malaise has spread to areas that used to be more solid. For example, sales in the Ohio Valley and Pacific Northwest have softened considerably, Tome said.
Memo to Obama: Help Housing
Home Depot is hoping that U.S. President-Elect Barack Obama will take actions that will help bring the housing market out of its years-long slump.
As recent as early September, the retailer’s top executive said the housing market may be nearing the bottom of its decline. But that was before the financial crisis and rising unemployment took a toll on consumer confidence.
Now, the world’s largest home improvement chain says it is not seeing the better trends it had expected and noted that some housing markets, such as the U.S. Northwest, have worsened compared with a year ago.
“We think it’s prudent to be cautious,” Chief Financial Officer Carol Tome said in an interview this week after Home Depot posted better-than-expected third quarter results.
Though she didn’t give specifics on what the incoming U.S. president could do to aid the housing market, she expressed hope that Obama would do something.
“Anything the Obama administration can do for housing is certainly something we’d support,” Tome added.
She said rising unemployment now poses a major threat to consumers, who are cutting back their use of credit and paying more with cash.
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