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: Consumers beware! Rising prices even at Wal-Mart
Check out rising prices even at Wal-Mart.
Pressures created by rising costs have caused even the world’s largest retailer, known for its ”rollback” discounts, to boost the prices that consumers pay for groceries. Wal-Mart Stores raised average prices on supermarket items by about 6 percent in a month, according to a recent J.P. Morgan study in Virginia that compared the prices of 31-item goods sold at its supercenters, and at supermarket rivals Kroger, Safeway, Harris Teeter and Whole Foods. Specifically, the study found that prices at a supercenter in Virginia rose 5.8 percent, the most significant sequential increase since JP Morgan started price comparisons in January 2009. While the world’s largest retailer remains the cheapest among supermarkets, rivals such as Kroger and Safeway are gaining ground, according to J.P. Morgan. Rising costs of raw materials and oil are pressuring companies to pass on costs to consumers with higher prices.
Indeed, clothes makers such as Nike, VF Corp and Hanesbrands are facing the same conundrum. And British baker Greggs said soaring wheat prices were set to push up costs, emphasizing a theme that may be repeated for such food makers as General Mills, Kellogg, Kraft and Sara Lee.
However, the timing is not good as the state of the U.S. economy is still uncertain and unemployment remains stubbornly high, leading many consumers to still be wary about spending. U.S. retailers in July posted weaker-than-expected sales despite increased discounting. Also in the basket:
Wendy’s/Arby’s to expand into Russia
Check Out Line: Beware the ides of rising costs for food companies
Check out fears of rising costs for U.S. food companies.
Rising commodity costs and promotional discounts are pressuring profit margins for food companies and analysts said more may be on the horizon.
General Mills, whose brands include Cheerios, Green Giant and Haagen-Dasz, said on Tuesday that the gross margin in its most recent quarter was flat, excluding higher ad costs and other items.
On Thursday, General Mills said it expects pricing and promotions to look the same over the next six months as they have the prior half year. It also sees some players in the sector moderating their promotional activity as commodity costs rise and sees raising list prices in some categories after that.
The company’s comments were seen as a harbinger of things to come, especially since its 2011 earnings forecast missed Wall Street estimates.
“I think ‘canary in the coal mine’ is a good way to think about it,” Janney Capital Markets analyst Jonathan Feeney said. “This is the first company to talk since Wal-Mart’s rollbacks.”
Earlier this year, Wal-Mart introduced discounts, which it calls rollbacks, on thousands of items, leading other stores and brands to cut prices.
Wal-mart’s global workers talk sales…and soccer
Wal-Mart management and about 1,200 workers from around the globe gathered in Fayetteville, Arkansas, for a spirited, pre-shareholder meeting pep rally.
Their message? “We are merchants!”
The employees, who are tasked with helping to grow company sales, reiterated that point multiple times.
But they also asserted their love for soccer and excitement over the sport’s upcoming World Cup tournament scissor-kicked its way into several country presentations.
Managers from countries ranging from Brazil and Mexico to India and China, laid out plans to boost sales for Walmart’s international division, which grew 11 percent last year to top $100 billion for the first time.
Representatives from soccer-obsessed Brazil, which had 2009 sales of $10 billion, introduced their colleagues to their ”end-to-end” sustainability effort that, among other things, resulted in greener packaging for Band-Aids and Neve toilet paper. But the highlight of the presentation was their soccer-themed entertainment.
While more mature markets like the United States, United Kingdom and Japan work to save costs and boost sales with in-store promotions and low prices on everyday items, developing markets in Central America also are focusing on basic issues like food safety.
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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Olive Garden owner goes Green
Darden Restaurants, owner of restaurant brands like the Olive Garden, Red Lobster and LongHorn Steakhouse, has joined the Sustainability Consortium — a group of scientists, academics and industry leaders working to “green” consumer products.
Darden, an 1,800-unit restaurant chain considered one of the industry’s best performers, has set a per-restaurant goal of reducing energy and water use by 15 percent by the year 2015. Long term, it aims to send zero waste to landfills.
Darden said it already has cut water use by about 700,000 gallons per year in each of its restaurants, installed energy-efficient lighting and has begun using “power up” schedules that help cut energy consumption.
“Our business relies on a number of natural resources, and these goals are designed to help us be the best stewards of those resources that we can be,” said Ian Olson, director of sustainability for Darden, which operates 1,800 eateries.
Other Sustainability Consortium members include Wal-Mart Stores, Safeway, Best Buy, PepsiCo, Tyson, Hewlett-Packard, Dell, Intel and Waste Management.
The technology companies in the consortium said they were committed to creating what they say is a better way to identify the most environmentally friendly consumer electronics.
For its part, Wal-Mart is working on its own index that could be used as an industry standard. The retailer provided seed funding for the Sustainability Consortium.
Check Out Line: Duke wins, but there’s another bracket to fill
Check out a different kind of tournament bracket still underway.
The Duke Blue Devils may have won yet another college basketball title Monday night, but consumers can still make their “Sweet 16″ picks in Consumerist.com’s annual “Worst Company in America” tournament, which runs through April 26.
In its fifth year, the website, owned by Consumers Union, the publisher of Consumer Reports, lets consumers vote for their least favorite companies in matchups much like the NCAA tournament. Starting with 32 “teams,” the tournament pairs companies in votes in which the “winner” (think about it, in a worst company vote you want to lose) advances to face the next competitor.
In the first round this year, Bank of America beat Citibank, GM beat Toyota and in an “upset” Cash4Gold beat defending “champion” AIG. Other companies that advanced included Walmart, Ticketmaster, United Airlines, Best Buy, Apple and Comcast, which has lost in the title game the last two years.
In addition to AIG, past winners have included Halliburton, Recording Industry Association of America and Countrywide. In last year’s final, AIG whipped Comcast 3,528 to 1,968 as voters took their frustration over the recession out on a company that was bailed out by the U.S. government.
“They were just constantly in the headlines,” Consumerist.com co-managing editor Ben Popken said of AIG. “They became a real focal point for what went wrong with the economy.”
Consumers nominate companies to compete in the annual tournament, which was created as a tongue-in-cheek way for shoppers to “bite back” using social media and the Internet, according to Consumerist.com. To be considered for inclusion the website now requires that companies must regularly provide products or services to consumers.
Check Out Line: February sales strong despite snow
Check out the return of the shopper. Even at Abercrombie & Fitch.
Several U.S. retailers showed off strong sales gains — albeit over an ugly February 2009 — despite the winter storms that bashed the Northeast, mid-Atlantic and other parts of the United States.
It’s too early to declare a major rebound yet, analysts said, but the sales gains signal that consumers are heading back to stores for more than just the essentials these days.
“We are not in full recovery mode, in my opinion, nor is the weak economy over,” said Hexagon Securities Managing Director Doug Conn. “But we are definitely starting to climb out of the hole that we dug ourselves into in late 2008 through 2009 … We have a lot further to go to get back to a healthy economy.”
The Thomson Reuters same-store-sales index rose 4 percent in February, topping expectations of a 2.9 percent increase and a year-earlier drop of 4.7 percent. It was the best February since 2005, when same-store sales rose 5.7 percent. Check out this
“Counter to what you are seeing from a consumer confidence reading perspective … I think people are feeling generally a little bit better about things and as a consequence are starting to open up their wallets,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
The biggest surprise jump in sales came at Abercrombie & Fitch, which finally started discounting a few months ago after seeing competitors attract teens with their deals.
Check Out Line: Sam’s Club outsources, sheds 10 percent of jobs
Check out Sam’s Club cutting 11,200 jobs or about 10 percent of its workforce as it outsources in-store product demos and sheds jobs for recruiting new business members to its warehouses.
Sam’s Club, a division of Wal-Mart, will use a third-party company, Shopper Events , rather than its own staff to essentially hand out food samples or demonstrate electronics to passersby, allowing Sam’s Club to let go of about 10,000 mostly part-time workers. (Though they can apply for new jobs with Shopper Events.)
Sam’s Club is also getting rid of about 1,200 staff responsible for recruiting new business members.
(The move has some echoes of Saks Inc’s decision to offload workers at its cosmetics and fragrance counters at its Fifth Avenue flagship store by the end of this month and have outside vendors staff their counters.)
Sam’s Club’s moves could put extra pressure on rival Costco, which has resisted mass layoffs, said Wall Street Strategies analyst Brian Sozzi in a note on Monday.
Also in the basket:
* Italy’s Ferrero rules out bidding for Cadbury * Bang & Olufsen unexpectedly posts Q2 loss
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