What does gas at $4.50 a gallon mean for some mall-based department stores?

A downgrade by Goldman Sachs.

Goldman sharply raised its forecast for oil prices in the second half of this year, saying it expects U.S. crude to average $141 a barrel, up from a previous projection of $107. Goldman also forecasts prices will rise further next year to average $148.

That is not good news for retailers.

“Higher energy spending in the second half is likely setting the stage for a more challenging backdrop for consumer discretionary sectors, particularly for the department store stocks,” Goldman noted.

Goldman downgraded JC Penney and Nordstrom to ”neutral” from “buy.” It swapped its conviction list “buy” designation on Kohl’s with Wal-Mart. It upgraded off-price retailer TJX to “buy” from “neutral.”

Goldman also cut its second half same-store sales estimates for JC Penney, Kohl’s, Nordstrom and Macy’s.

“We believe companies will face an uphill battle against escalating energy prices offset by easier top-line compares and the anniversary of 2007’s extremely warm Fall season,” Goldman said about the second half of the year. ”In the end, we believe energy and constrained cash flow will win this tug-o-war causing same store sales to re-decelerate as the second half progresses.”
 
(Photo: Reuters) 

Check out Wal-Mart’s earnings.

The world’s largest retailer posted a 7 percent rise in quarterly profits.

But even as the discounter drew cash-strapped consumers looking to save money, the company also indicated that it could miss second-quarter earnings estimates, which pressured its stock price in the morning.

Consumers are being hit by higher transportation costs and a difficult economic climate, the company acknowledged.

“Customers are faced with results of a tougher economy, higher gas prices, food inflation and the increase in the overall cost of living,” said Eduardo Castro-Wright, head of Wal-Mart’s U.S. operations, on a recorded call.

It also is becoming more obvious that customers are running out of money between paychecks as the company sees business ebb and flow with the paycheck cycle, the retailer said.

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Pain at the other pump: shoe prices rise (Wall Street Journal)
 
Liz Claiborne posts net loss, cuts year outlook

Check out things looking a little better in retail?
 
Ann Taylor raised its forecast for first-quarter earnings, citing improved results at its LOFT chain and stronger expense control.
 
This comes a few days after many retailers posted better-than-expected sales in April and could mark the start of a trend.
 
Goldman Sachs said the better April could lead to modest first-quarter earnings beats.
 
“This will be particularly evident across the department store sub sector as most management teams reduced their earnings outlook post March results, which fell short of plan. Kohl’s has already kick started this trend stating EPS would ‘exceed’ previous 40 cents to 42 cents guidance. We suspect J.C. Penney will follow suit, beating management’s 50-cent forecast … given high end of plan sales,” Goldman said in a research note.
 
Retail earnings get going in earnest this week with reports from Wal-Mart, Macy’s, J.C. Penney and others.
 
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April retail sales barely budged: SpendingPulse
  
Luxury brands Prada, Ferragamo risk competing IPOs

(Photo: Reuters)

Check out those federal rebate checks.
 
Tax rebates began arriving in U.S. consumers’ bank accounts this week as part of Washington’s $152 billion stimulus package.  (Direct deposits this week and paper checks next week.)

Retailers have various strategies for attracting those rebate dollars. Many of them are offering 10 percent bonuses when the checks are converted to store discounts.

Then there is Wal-Mart, which will cash the checks for free. That’s it. Cashing the checks for free. No bonus, like Kroger or Supervalu are offering. Just cashing the checks for free.

Of course, unlike other retailers, Wal-Mart will cash the checks free without requiring a purchase in the store. Obviously, if you have to put the funds from your rebate onto a Kroger or RadioShack gift card, you would spend the money in those stores.

“We’ll focus on providing real, long-term value on the items that matter and put shoppers in control of their own spending,” said John Fleming, executive vice president and chief merchandising officer, Wal-Mart Stores, U.S.

So you don’t have to spend the money at Wal-Mart. But once you cash the check there, the company is also cutting prices on everyday items like shampoo, lunch meat and cereal to coincide with the checks arriving.

Overall, Customer Growth Partners estimates that $40 billion of the rebate payments will be spent by consumers. The rest will be used for debt reduction and savings. But that, along with $15 billion in cash flow from consumers no longer paying to heat their homes as that season ends, could add $55 billion in retail spending in the coming months, the research firm said.

“One swallow does not a summer make, but our visits to the malls and the Big Boxers over the past week showed the strongest traffic of the year, now that heating bills are paid off,” Customer Growth Partners President Craig Johnson said.  “And at least at the Apple stores and some teen Apparel players — and of course at Costco and Wal-Mart — we’re seeing the biggest crowds since Christmas.”

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March’s weather was not exactly a friend to retailers.

It was cold, damp and even snowy in parts of the country — not quite ideal weather conditions for retailers trying to sell new spring goods, like dresses, sandals, or even fertilizer. (We saw the extent of their struggles on Thursday, when retailers reported dismal March sales figures)

While weather is obviously a very local phenomenon, April so far has not been much kinder than March. According to weather tracking firm Planalytics, this weekend – April 12th and 13th — will be a repeat of most Eastern weekends this spring — a mixture of storminess and cooler temperatures.

But wait … could an upper air pattern be coming to the rescue?

Planalytics said its meteorologists see a change in the upper air patterns between April 16th and 20th. That should result in warm, fair conditions over much of the East and Southeast, extending westward into Texas and as far north as southern Ontario and Quebec, the firm said. 

“Pent-up demand is strong in the East, from the Carolinas to the major Canadian cities of the St. Lawrence, where consumers have been anxious to get out and about. Their gardens need tending, bicycles tuning, and kids want out of the house,”  Planalytics said.

Get ready for surging demand for shorts, sundresses, fertilizer, grass seed, bottled water – even beer — Planalytics said, as people flock to the stores or enjoy the outdoors.

But we can’t all enjoy better weather.

“Unfortunately, the same change turns the Northwest cool and stormy and keeps many of the western and central Canadian provinces out of the fair weather,” the firm said.

(Photo: Reuters)

 Check out what Wal-Mart customers have to say about the economy and how it is changing how they shop.
 
Reuters reporters went to Wal-Mart stores in New Jersey, Illinois and California this week to see how the weak economy (see today’s jobs report) has made them change how they grocery shop.
 
Here are some of their comments. For the full story, click here. For the Reuters Television video, click here.
“I don’t buy a lot of expensive meat anymore. I buy more vegetables, because they are cheaper.” — Fran Allen, 77-year-old part-time factory employee from Romeoville, Illinois.
 
“I buy what is on the list and nothing that isn’t on the list.” — Patricia Norris, homemaker in Romeoville.
 
“That doesn’t cover it…. I went over again … It’s almost impossible to stay on budget.” – Barbara Armour, whose family food budget is $350-$400 month, after shopping at a Santa Clarita, Cal. store.
 
“Something has to be done, because these prices are just getting ridiculous.” — Karen Stewart, hospital housekeeper from Plainfield, Ill.
 
“I’m making changes just because of how much I’m paying on gas…. I went to a gas station with $100 and came out with nothing.” — Jamie Dorgan, homemaker from Joliet, Ill.

“People might not buy clothes, shoes, jewelry, but they need food. People have to eat.” — Ravi Varma, a convenience store operator who uses the Secaucus Wal-Mart as his supplier.

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Fred Katayama visits a Wal-mart just outside New York City to see how consumers socked with high gas prices and a sputtering economy are changing the way they shop. His full report hits the reuters.com website on Friday. It’s part of a Reuters multimedia presentation in text, video and pictures.

Low price retailers appear to be in. The top performing stock in the first quarter among components of the Dow Jones Industrial Average, through Friday, was Wal-Mart, with a 9.66 percent gain — one of only five stocks up in the index.

And in a much wider group, Big Lots is the big winner in the S&P 500 with a 40.25 percent gain in through Friday. The shares of the company, which specializes in  the sale of excess inventory, posted a 33 percent increase in March alone.

As the U.S. economy struggles, lower-priced retailers like Wal-Mart and Big Lots have benefited from consumers trading down.

Warehouse clubs like Costco and BJ’s have also been helped by customers looking for bargains on food and fuel.

So as the economy worsens, Wal-Mart shareholders gain. Through Friday, Wal-Mart investors are collectively $18.4 billion richer this quarter, the biggest quarterly increase in Wal-Mart’s market cap in four years.

(Additional reporting by Dan Burns)

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