Retailers, consumers and prices
The Commerce Department said on Tuesday that total sales at U.S. retailers rose a less-than-expected 0.1 percent in June. Economists polled by Reuters had forecast total retail sales to rise 0.4 percent in June, following a 0.8 percent gain in May.
Part of the weaker-than-expected results were due to falling demand for cars. Auto and auto parts sales fell 3.3 percent in June — their worst month since February 2006. But even excluding autos, retail sales rose 0.8 in June, which was below the consensus estimate of 1.0 percent. Excluding autos, building supplies and gasoline, retail sales rose 0.4 percent in June.
Economists had expected government tax rebate checks to give a bigger boost to retail sales in June, despite the weak overall U.S. economy, as shoppers had excess cash to spend. But last week, major retail chains, like J.C. Penney, Target and Gap, released their June sales results and many did not see a rebate boost. Penney said it might have received a “modest” sales lift from the checks but any benefit would be “short lived.”
Wal-Mart posted June sales that topped expectations and boosted its second-quarter earnings forecast after rebate check-wielding shoppers filled their carts with food, medicine and flat-screen TVs.
The maker of Pepperidge Farm cookies and V8 juice has raised prices to offset soaring commodity costs and announced a $1.2 billion share buyback program that should help boost shares.
Wal-Mart has been cutting prices ahead of key events this past year, like Black Friday, Christmas and the Super Bowl, to drive shoppers into its stores.
Now the world’s largest retailer is cutting prices on baked beans, barbecue sauce and patio furniture, betting the big event in many shoppers lives this summer will be a “staycation” — a vacation basically spent at home.
Upon entering Wal-Mart Stores annual shareholder meeting, an observer might be forgiven for thinking they had just walked into a lively, national political convention.
Patriotic red and blue buntings covered the 16,000-seat arena at the University of Arkansas, the music hardly stopped and the crowd was treated to a constrant stream of well-tuned public relations bullet points — in this case, sustainability, community relations and saving shoppers money.
Another 27,000 retail jobs disappeared in May, according to the U.S. government’s monthly employment report. That makes 152,000 retail jobs eliminated since the beginning of the year.
Overall, nonfarm payrolls fell by 49,000. But even more worrisome for the economy and for retailers could be the jump in the unemployment rate to 5.5 percent. That half-point jump was the largest such move in 22 years and brought the unemployment rate to its highest level in 3-1/2 years.
Retailer’s May sales reports yesterday were mostly better than expected, causing some analysts to think they could signal the beginning of a consumer turnaround.
But others said it just showed a blip in spending that was caused by the tax rebate checks consumers have begun to receive.
Economic concerns could still linger after all that stimulus money is gone, they say, and things could get worse if consumers, already hit by $4-a-gallon gasoline, soaring food prices and falling home values really start to worry about their jobs.
Wonder how a half-point jump in the unemployment number plays into that?
Meanwhile, to take your mind of the jobs report, there’s always the company pep rally that masquerades as the Wal-Mart annual meeting. The world’s-largest retailer flies in employees from all around the world to help pack the basketball arena at the University of Arkansas, where stars entertain the crowd (this year’s acts include Miley Cyrus), everybody does the Wal-Mart cheer, and, oh yeah, shareholders get to ask questions.
Also in the basket:
New Wal-Mart director may herald changing of the guard (Wall Street Journal, subscription required)
Target grows makeup artist brands, adds testers (WWD)
Check out the other discounter.
The wisdom in the struggling U.S. economy is that discounters are doing well as consumers trade down to try to save some money. It has worked for Wal-Mart, which saw first quarter profit rise 7 percent, while same-store sales rose 2.9 percent.
Not so much for Target, though.
That discount retailer today posted a 7.5 percent decline in net income for the quarter and its same-store sales dipped 0.7 percent and were weaker than the company had expected.
For a time, Target attracted customers with an approach that became known as “cheap chic,” with designers like Isaac Mizrahi developing exclusive clothing lines for it. At the same time, Wal-Mart has stumbled with its own attempts to upgrade its apparel offerings.
But even before the economy went south, Wal-Mart refocused on offering lower-priced value, a move that has helped the company in an economy that many say is in a recession.
Meanwhile, sales are falling short of Target’s target. And Mizrahi has left to become creative director at Liz Claiborne.
Right now, it looks like the dog days for Target, while Wal-Mart sports a smiley face.
Also in the basket:
Home Depot posts quarterly loss
Saks Inc posts higher quarterly profit
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.
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.
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.
Also in the basket:
April retail sales barely budged: SpendingPulse
Luxury brands Prada, Ferragamo risk competing IPOs