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: How Lowe’s can you go?
Check out the weaker-than-expected earnings at Lowe’s.
Giving fuel to pessimists about the U.S. economy, Lowe’s, the No. 2 home improvement chain behind Home Depot, posted a quarterly profit and sales that missed analysts’ expectations, and also forecast lackluster earnings in the current quarter, underscoring “limited visibility into near-term demand.”
Sales at companies like Lowe’s had benefited immensely from the homeowner tax credit and cash for appliances programs, but now more and more uncertainty seems to be the watchword.
Last week, retailer J.C. Penney forecast a full-year profit below Wall Street’s expectations, stoking fears it would need further discounts to clear out inventory. That was a day after department stores Kohl’s and Nordstrom gave conservative profit outlooks.
“We are taking a relatively conservative approach to the economic climate and especially the moderate consumer,” Chief Executive Myron Ullman said.
U.S. retail sales rebounded in July but showed hints of lingering economic softness. However, investors can search for more clues this week with earnings from retail giant Wal-Mart Stores.
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Check Out Line: Frugality — Part Two?
Check out the apparent return of the frugalista.
Worries about stubbornly high U.S. unemployment and a tempermental economic recovery has shoppers reeling in spending on all but the essentials.
The 28 retailers tracked by Thomson Reuters reported an overall 2.9 percent rise in July sales at stores open at least one year, missing Wall Street forecasts of 3.1 percent. Seventeen of those retailers reported lower-than-expected sales, while nine — including Macy’s and Kohl’s — beat estimates.
“We are now in an environment where the dollars in consumers’ pockets are fewer, so the competition for those dollars has increased,” said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors.
U.S. consumer sentiment hit its lowest level in nine months in July on bleak prospects for jobs and income, according to Thomson Reuters/University of Michigan’s Surveys of Consumers. On Thursday, the government reported that new U.S. claims for unemployment benefits unexpectedly rose in the latest week.
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Barnes & Noble draws interest, but a tough sell
Check Out Line: Oops, Britney designed her first clothing line
Check out the latest celebrity designed clothing line.
Pop princess Britney Spears is launching her own fashion collection that targets the schoolgirl crowd. (Editor’s note: Can I say I am relieved my daughter is only 5 and unaware of this development?)
Spears, whom Forbes magazine once ranked the most powerful celebrity in the world and still ranks No. 6, has designed her first collection of clothing and accessories for Iconix Brand Group’s Candie’s brand, for which she has been the face the past three seasons.
The juniors’ collection, called “Britney for Candie’s,” will be sold exclusively in Kohl’s stores starting July 1 to kick off the back-to-school shopping season. (Pencils, check. Backpack, check. Britney-designed little black dress, must have!)
“Designing was a really fun, new way for me to express my creativity and I really wanted to create something by me for my fans,” Spears said, adding the collection was inspired by her favorite music and movies.
Can Spears, who rocketed to fame as a teen 11 years ago with hits like “Oops … I Did It Again” and “Baby One More Time” before suffering a high-profile meltdown in 2007 and early 2008 that included stints in psychiatric care, an ugly divorce, shaving her head and partying without panties, give Kohl’s a boost in the critical back-to-school shopping season? If all 5.2 million of her followers on Twitter come out, that would be a nice start.
Iconix will do its best to make Britney even more of a global brand name powerhouse as it plans to open specialty stores for the Candie’s brand in China.
Check Out Line: Department stores ready to duke it out
Check out department stores’ forecasts coming in below expectations as they try to gain market share.
On Friday, JC Penney became the latest chain to issue outlook that falls a little bit short of what Wall Street had already expected.
Thursday we saw mid-priced chain Kohl’s and upscale department store operator Nordstrom issue their own modest expectations.
Wait, wasn’t March a great month? Weren’t shoppers coming back? What gives? Let’s take a look at what the executives had to say.
“We know that our customers remain concerned about their budgets,” but like new, trendy merchandise at “compelling prices,” JCPenney Chairman and CEO Myron “Mike” Ullman III said in a statement.
Kohl’s CEO Kevin Mansell told analysts “we don’t want to get ahead of ourselves.” He also told Reuters: “Demand in the categories in which we operate is flat or down over the last couple of years. Therefore, the successful retailers are going to have take business from others.”
Now it looks like chains are revving up to do their best to grow at the expense of rivals as consumers keep close tabs on their spending.
Check Out Line: Retail earnings present a mixed bag
Check out U.S. retailers posting better-than-expected profits but seeing their shares fall.
Kohl’s Corp on Thursday posted quarterly profit that rose more than Wall Street had expected. But the mid-tier department store operator’s shares fell nearly 3 percent after its forecast for the second quarter and full year fell short of analysts’ estimates.
“Consumers appeared to be a little more confident in their spending, but remain focused on value and ways to make their dollars go farther,” said Kohl’s CEO Kevin Mansell in a statement.
Meanwhile, specialty retailer Urban Outfitters reported that quarterly profit rose 72 percent, but its earnings per share only topped Wall Street estimates by a penny and its shares fell 3 percent.
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Oops, they (Kohl’s and Britney) did it again
Looks like Kohl’s has not found its partnership with pop starlet Britney Spears and the clothing line she shills to be “Toxic.”
Kohl’s, seen in some circles as dowdy and bland, has been on a campaign to spice things up in recent years, hence Britney’s pitching gig for Candie’s, a line of women’s clothes available only at Kohl’s.
Last year Britney signed on to be the spokesperson for Iconix Brand Group’s Candie’s brand and on Tuesday, all parties said the deal had been extended a second year. Spears even told fans about it on her own site.
Kohl’s, like most retail chains, wants to beef up its exclusives, adding to its Simply Vera Wang and Dana Buchman women’s clothing lines. And raising more than a few eyebrows, CEO Kevin Mansell hinted in November that Kohl’s would sell ever sexier lingerie.
(Reuters photo)
Check Out Line: Retailers’ ad strategies face “Tipping point”
Check out the quickly shifting media landscape putting retailers’ ad strategies at risk.
In a research note this week, Credit Suisse analyst Michael Exstein examined what changes in the media world mean for retailers who are used to reaching consumers through traditional channels — like the newspaper.
In the past five years, there has been a modest shift from print toward digital media, but Exstein warned that: ”We may in effect be reach a ‘tipping point’ where past media strategies will no longer be sustainable.”
Promotional national retailers that cater to a younger demographic and rely on national media to communicate to customers may be most exposed to changes in the media landscape, he said.
“This is a particularly acute problem for retailers that are used to (some would say dependent on) driving sales and marketshare through promotions such as Target, Kohl’s, Macy’s, and JCPenney,” he said.
“How will they promote in the future if the Sunday newspaper can not be counted on to distribute an insert or an television network can not be counted on to deliver an audience at a specific time/day?”
Retailers like Target that have a large number of younger shoppers — shoppers who rarely, if ever, read a newspaper and instead spend large amounts of time using Facebook or Twitter – there is less time to respond to the changing way consumers consume media, he said.
Check Out Line: When cost cuts aren’t enough
Check out the cost cutting formula failing at Sears.
In the past few weeks a slew of retailers, ranging from Target to Macy’s to Dillard’s, have posted results that were better than Wall Street expected, helped by cost cuts. Retailers have done everything from freezing executive salaries to eliminating jobs to slowing store expansion plans.
But on Thursday, Sears reported a surprise loss in its second quarter while analysts were expecting a profit.
The company, controlled by hedge fund manager Edward Lampert, cut total costs and expenses 8 percent. But revenue fell 10.3 percent to $10.55 billion.
Sales at its Sears stores continued to suffer from the faltering housing market, which has sapped demand for its Craftsman tools and Kenmore appliances.
Same-store sales at Sears fell 12.5 percent, while Kmart’s same-store sales slid 3.9 percent. Overall, same-store sales fell 8.6 percent, and the decline accelerated after slowing during the past two quarters.
“Ouch,” wrote Morgan Stanley analyst Gregory Melich in his note reviewing the results. “This morning’s 2Q miss was pretty much across the board, with weak comps and lack of gross margin expansion standing out.”
Check Out Line: Wal-Mart flexing muscles amid recession
Check out the quarterly results at Wal-Mart.
The retail giant posted a flat profit in line with Wall Street’s expectations, but it gained market share in the recession as consumers sought to take advantage of the company’s low prices on necessities.
Wal-Mart Chief Executive Mike Duke said the company remains cautiously optimistic about the timetable for the economic recovery, while Vice Chairman Eduardo Castro-Wright said a large part of its U.S. growth was coming from new customers.
Others have accepted the new reality of thrifty shoppers as well, as upscale, natural grocer Whole Foods blew past analysts’ profit expectations thanks partly to cost controls and lower-priced fare. Department store operator Kohl’s, which typically has lower-priced items than other chains and uses discounts to lure shoppers, also just topped Wall Street’s profit expectations.
Hopes the economy will soon emerge from recession were dented this week by a government report that showed sales at U.S. retailers fell for a second straight month in April.
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