Retailers, consumers and prices
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.”
Check out sluggish sales and high gasoline prices.
According to the International Council of Shopping Centers, chain-store sales were flat in the week ending May 24, compared with a week earlier, and were up only 1.5 percent year-over-year.
“Consumers remain cautious in their discretionary spending as a result of the record high gasoline prices,” said Michael Niemira, ICSC chief economist.
Gas costs cutting into consumer discretionary spending isn’t a new thought. But ICSC takes a stab at quantifying the effect, estimating that current gas prices — well over $4 a gallon in some places — are cutting demand at chain stores by nearly 1 percentage point.
Niemira also said a consumer tax rebate tracking survey is showing a “low propensity” to spend the recent tax rebate checks. That stimulus package might not be so stimulating.
Some retailers have been able to manage through the weakness. American Eagle Outfitters, for example, used cost-cutting and inventory reductions to post better-than-expected first quarter profit on Wednesday.
Others have have had more difficulty. Chico’s posted a sharp drop in quarterly profit, the latest example of weakness in the women’s apparel sector.
Also in the basket:
Lululemon’s incoming CEO advocates measured mantra (WWD)
Polo Ralph Lauren profit tops view; shares jump
Dollar Tree profit rises more than 14 percent
Coca-Cola Enterprises sees 2nd-qtr profit down
For Coors Light, a Night Out That Begins on MySpace (N.Y. Times)