Retail Industry Trends

[HenryTo]

Retailiers already bracing for the worst. The $64 billion question is, as always, how bad will this get and how much of this has already been factored into retail stocks?
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Retail Holiday Season May Be Modest
Tuesday October 30, 5:15 pm ET
By Betsy Vereckey, AP Business Writer
Sluggish US Economy May Weigh on Holiday Sales for National Retailers

NEW YORK (AP) -- U.S. retailers are bracing for a difficult holiday season, some industry watchers say, as higher gas prices and a sluggish housing market are expected to continue crimping consumer spending.

At a conference on Tuesday hosted by the Retail Marketing Society, a membership-based organization focused on the retail industry, some industry executives said holiday sales may be sluggish.

"This holiday season will be somewhat Grinch-like," said Carl Steidtmann, chief economist at Deloitte Research.

Steidtmann said retailers are preparing for the worst, especially given tightening credit and problems in the housing market. Steidtmann said it will be at least 18 months to two years before the housing market bottoms.

Merrill Lynch analyst Jaime Sheinheit said higher energy costs will weigh on consumer spending, noting that retailers have had trouble getting customers in the door. However, it's hard to tell whether the sluggish traffic is related to softening consumer spending or warm weather, Sheinheit said.

"Cold weather may spark shopping," she said.

In the luxury sector, Sheinheit said handbag maker Coach Inc. has warned of sluggish traffic in its U.S. stores. The company recently issued a fiscal second-quarter same-store sales outlook it called "conservative." Same-store sales are sales at stores open at least a year, and the industry metric is considered a key barometer of a retailer's health.

David Wolfe, creative director at Doneger Group, a buying office, said Coach has reached its saturation point with aspirational customers, who may not have the money to spend on these handbags but still want quality at a price.

Meanwhile, wealthy customers may help other luxury retailers this season, like Tiffany & Co., as spending patterns among the affluent tend to stay the same, regardless of changes in the economy.

Sectors that might fare better include teen retailers, Sheinheit said, noting that the income of their main customer, teenagers, usually stays the same. Companies in this sector include American Eagle Outfitters Inc. and Abercrombie & Fitch Co.

One company that may emerge stronger, Sheinheit said, is AnnTaylor Stores Corp., which has leaner inventory and a new product assortment at its lower-priced Loft division. In August, the company said it increased markdowns to reduce inventory heading into fall seasons at both its Ann Taylor and Loft stores.

"There is a lot of opportunity for Loft to improve margins this holiday season," Sheinheit said. "As always, what it comes down to is having the right product."

[HenryTo]

Mall traffic drops dramatically for the week ending December 8th:

http://money.cnn.com/2007/12/11/news/economy/mall_traffic/index.htm?cnn=yes

[HenryTo]

Hi DJ,

Retail sales, which is part of consumer spending (which itself makes up about 70% of GDP) has typically be led by the growth of personal income over the last 50 years - at least if you have picked up any good economics research text.

That being said, I usually ignore the month-to-month growth readings in retail sales numbers, mainly because it is mostly all "noise." The reason why I am keeping watch on the 2007 Christmas retail season in particular is to try to get a sense of just how bad consumer sentiment is - especially in light of the ratcheting down of retail sales projections over the last few months. Aside from the recent "dislocations" in the credit markets, this is the one thing that many traders and investors have fixed their eyes on - and is the main reason why many retail/consumer discretionary shares have been severely lagging the market. The ShopperTrak numbers yesterday gave the bulls a glimmer of hope, but like I mentioned in my email on Saturday, it is still too early to tell.

Best of luck!

Henry

[rffrydr]

It's good:

http://biz.yahoo.com/ap/071125/holiday_shopping.html

Shopping is targeted and bargains are mandatory. You think Hang Seng is watching?
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Today is the Tomorrow you worried about Yesterday!

[texfly101]

Henry,
How does, if it does, this set of retail statistics correlate with indicators like CPI, VIX, Sentiment, etc? And does the correlation, if any, change according to whether the market is trading bear/bull or sideways? Not asking for any real in depth analysis (even tho I am always impressed with what this site dredges up), something in the vein of your experience over the years maybe? Thanks, dj
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dj

[HenryTo]

More updates for the weekend now trickling in. This one is from the National Retail Federation. According to this survey, average spending was down 3.5% from last year for the long weekend, but this decline was made up by a 4.8% increase in overall retail traffic:

http://www.nrf.com/modules.php?name=News&op=viewlive&sp_id=420

[HenryTo]

Early sales numbers for "Black Friday" look encouraging so far. As always, we will need to see if this follow through for the entire weekend, not to mention "Cyber Monday" (and what the profit margin impact of all these sales we just had).
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Retailers Post Robust Start to Holidays
By ANNE D'INNOCENZIO – 9 minutes ago

NEW YORK (AP) — The nation's retailers had a robust start to the holiday shopping season, according to results announced Saturday by a national research group that tracks sales at retail outlets across the country.

According to ShopperTrak RCT Corp., which tracks sales at more than 50,000 retail outlets, total sales rose 8.3 percent to about $10.3 billion on Friday, the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4 percent to 5 percent.

"This is a really strong number. ... You can't have a good season unless it starts well," said Bill Martin, co-founder of ShopperTrak, citing strength across all regions. "It's very encouraging. When you look at September and October, shoppers weren't in the stores."

In a separate statement released Saturday, J.C. Penney Co. reported "strong performance across all merchandise categories," including fine jewelry, outerwear, and young men's and children's assortments.

But the department store chain cautioned, "while we are encouraged by our strong start, it is still early in the holiday season, and we are mindful of the headwinds consumers are facing."

J.C. Penney, Wal-Mart Stores Inc. and other major retailers are expected to report same-store results for November on Dec. 6. Same-store sales are those at stores opened at least a year and are considered a key indicator of a retailer's strength.

The upbeat reports were encouraging since merchants have been struggling with anemic sales in recent months, as shoppers, particularly in the middle and lower-income brackets, were becoming more frugal amid higher gas and food prices and an escalating credit crunch.

In an apparent sign of desperation, the nation's stores ushered in the official start of the holiday shopping season on Friday with expanded hours, including midnight openings, and a blitz of early morning specials that were more generous than a year ago. J.C. Penney and Kohl's Corp. opened at 4 a.m., an hour earlier than a year ago.

The strategy appears to have worked, as shoppers jammed stores in record numbers for early morning deals on Friday. Martin noted that judging by the strong figures on Friday, stores were able to sustain strong sales throughout the day. He said he's counting on strong traffic throughout the weekend as many stores, including Macy's Inc., are continuing with special deals.

While Black Friday — so named because it was traditionally when the surge of shopping made stores profitable — starts holiday shopping, it is not considered a bellwether for the season. However, merchants see Black Friday as setting an important tone to the overall season: What consumers see that day influences where they will shop for the rest of the year.

Last year, retailers had a good start during the Thanksgiving weekend, but many stores struggled in December, and a shopping surge just before and after Christmas wasn't enough to make up for lost sales.

This year, the Washington-based National Retail Federation predicted that total holiday sales would be up 4 percent for the combined November and December period, the slowest growth since a 1.3 percent rise in 2002. Holiday sales rose 4.6 percent in 2006 and growth has averaged 4.8 percent over the last decade.

[rffrydr]

2-year swap spread already at '89 levels. The consumer-led recession has been priced.
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

If there is one thing I can say during Thanksgiving about the stock market, it is this: Watch internet sales this Friday. This is usually the first statistic that is available, and is also a statistic that has experienced the most growth over the last few years. If this statistic goes, then so goes retail sales. The article also says that there is a "natural terminal velocity" for online sales, but I don't believe we are there yet:

http://www.bloomberg.com/apps/news?pid=20601109&sid=ap4QN6xuA78U&refer=home

[HenryTo]

Aside from Nordstrom, Abercrombie is one of the few bright spots in the retail industry, although same-store sales growth was still relatively flat on a year-over-year basis for 3Q:
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Abercrombie Earnings Up 15 Percent
Wednesday November 21, 10:01 am ET
Abercrombie Earnings Up 15 Percent in 3Q

NEW ALBANY, Ohio (AP) -- Abercrombie & Fitch said Wednesday that its profits rose 15 percent in the third quarter, despite comparable-store sales that were nearly flat.

Abercrombie said it made $118 million, or $1.29 per share, for the quarter ended Nov. 3 compared with profits of $102 million, or $1.11 per share, a year ago. Sales for the quarter rose 13 percent to $974 million from $863 million a year ago.

Analysts surveyed by Thomson Financial expected earnings of $1.28 per share on revenue of $988 million.

"Our company is performing very well across all of of our concepts, importantly, Abercrombie & Fitch has generated strong results for many years," Mike Kramer, chief financial officer, said during a conference call.

Sales at stores open at least a year, considered a key indicator of a retailer's strength, were up 1 percent in the quarter.

Same-store sales increased 3 percent at both the company's Abercrombie & Fitch chain and its abercrombie children's clothing stores. Abercrombie's Hollister business saw a 1 percent decline in comparable-store sales, and they were down 7 percent at the company's RUEHL stores.

Higher sales were powered by more Hollister stores. In the past year, Abercrombie has added 59 Hollister locations, bringing the number of surfer-inspired stores to 431 as of the end of October. The number of Abercrombie & Fitch stores has remained flat at 358 over the past year.

Kramer said that while the retailer continues to expand in the United States, it has focused especially on adding Abercrombie and Hollister stores internationally.

"Our international stores continued to generate exceptional sales and profits and their high performance in the recent quarters only increases our expectations for them in the future," he said.

The company has looked in particular to Canada, Asia and Europe, Kramer said.

For the fiscal year to date, Abercrombie has made $259 million, or $2.82 per share, compared with $224 million, or $2.44 a share, last year. Sales rose 16 percent to $2.5 billion from $2.2 billion.

Same-store sales are down 1 percent for the year.

Abercrombie maintained its profit forecast of $3.63 to $3.67 per share for the second half of its fiscal year. Analysts have forecast profits of $2.38 per share for the fourth quarter, bringing their total estimate to $3.56 for the last half of the year.

Shares rose $1.24, or 1.7 percent, to $74.03 in early trading. The stock has traded between $65.75 and $85.77 in the past year.

The company, based in this Columbus suburb, operated 358 Abercrombie & Fitch stores, 198 abercrombie stores, 431 Hollister locations and 20 RUEHL stores as of the end of the quarter.

Abercrombie & Fitch: http://www.abercrombie.com

[HenryTo]

Bloomberg on retail sales:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aETVIvpR._fk&refer=home

[rffrydr]

Non-financial CP down 9.2billion, frontrunning economic slowdowns. Look for stresses to appear in corporate bonds with CP financing.

Eurodollars: Dec70/March08 spread contracted 63bp, the largest one day move in the spread since at least 2000. This contraction not only suggests that there will be a significant squeeze for cash at the end of the year but additionally that the market is pricing in a rate cut in December and into the beginning portion of next year. The tensions have cause the ED$ strip curve to sag considerably in the front, estimating an approximate 3.75% funds rate by December of 2008.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Overview:

http://financialsense.com/Market/goldberg/2007/1101.html
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Kohnl's cuts forecasts:
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Kohl's posts lower profit, cuts forecast
Thursday November 15, 7:45 pm ET

ATLANTA (Reuters) - Kohl's Corp (NYSE:KSS - News), a mid-priced retailer of apparel and home goods, reported a nearly 14 percent drop in third-quarter net income, and cut its earnings forecast for the holiday selling season and full year.

The company's shares fell more than 2 percent in extended trading.

Net income fell to $194 million, or 61 cents a diluted share, for the third quarter ended November 3, from $224.5 million, or 68 cents a share, in the year-ago period.

Analysts expected profit of 60 cents a share, according to Reuters Estimates.

Total sales rose about 5 percent to $3.8 billion, below analysts' estimates of $3.9 billion, according to Reuters Estimates. Sales at stores open at least a year fell 2.6 percent as the average purchase decreased.

"We're being very very conservative about what could happen in the fourth quarter, and hopefully business will improve as the weather gets cooler," Chief Financial Officer Wes McDonald said during a conference call.

The company said weather-sensitive goods showed significant weakness in the quarter, with the children's category most affected.

But Kohl's added that accessories, beauty and jewelry sales were strong, and said it was "extremely pleased" with the performance of clothing by designer Vera Wang and Food Network kitchen gadgets, two recently launched product lines.

The company in recent months cited pressure on its business from the weak U.S. housing market and promotions from rivals, and earlier this month had slashed its earnings estimates for the third quarter.

Retail watchers have expressed concern about the impact the slumping housing market and higher food and gasoline prices could have on consumer spending heading into the holiday season.

Sales of Kohl's department store rivals also have been challenged as consumers wrestled with these factors.

Retailer J.C. Penney Co (NYSE:JCP - News) earlier on Thursday posted a 9 percent drop in quarterly profit and cut its holiday forecast. Its chief financial officer said during a conference call that promotional activity would likely increase.

On Wednesday, Macy's Inc (NYSE:M - News) also cut its sales forecast for the current quarter and full-year.

Earlier this month, Kohl's reported October same-store sales that were weaker than expected, hurt by unseasonably warm weather and the resulting poor sales of cold-weather gear. Its same-store sales also fell in September and August.

Kohl's said it now expects fourth-quarter profit of $1.45 to $1.51 a share, assuming same-store sales of flat to down 2 percent. In August, the retailer had forecast fourth-quarter earnings of $1.63 to $1.69 a share.

Because of a calendar shift, Kohl's said it expected same-store sales to rise in the high-single digits on a percentage basis in November, but would likely fall in December.

The chain said full-year profit was expected to be $3.52 to $3.58 a share, down from its previous forecast of $3.77 to $3.87 a share.

Analysts expected a profit of $1.58 a share for the fourth quarter and $3.64 a share for the year, according to Reuters Estimates.

Kohl's shares were down 2.9 percent to $47.50 in extended trading from their $48.92 close on the New York Stock Exchange.

[HenryTo]

JC Penney guides down for the fourth quarter. Stock makes a 52-week low:

http://www.bloomberg.com/apps/news?pid=20601087&sid=asmALEu3Jw6k&refer=home

[HenryTo]

The "Apparel & Accessories" report from "Retailing Today":
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Top Story: Unseasonably warm weather keeps sales cold

Cooler temperatures failed to offset the sale slump that has continued into October. The Citi Investment Research, Holiday 2007 Snapshot report stated that this October is expected to rank as one of the warmest in 43 years. Consequently, the numbers are in and they do not impress anyone.

For the four weeks ended Nov. 3, Macy's Inc. reported a decrease of 0.5% compared to the same period last year. Total sales dropped to $1.85 billion from $1.86 billion, while same-store sales decreased by 1.5%.

At American Eagle Outfitters, comparable-store sales decreased 3% compared to a 12% increase for the same period last year. However, total sales for the four weeks ended Nov. 3 were $210.2 million, an increase of 13%. A report by Todd Slater, managing director and specialty retail, apparel and footwear analyst at Lazard Capital Markets, stated that American Eagle outperformed in knit tops, denim, sweaters and fleece, but lost luster in outerwear, large handbags, pants and down-trending graphic tees. Both the aerie and f.i.t. collections continue to succeed as strong players.

AnnTaylor Stores increased their net sales by 3.7% to $191.6 million for the four-week period ended Nov. 3. In a break down by division, the company showed a decrease of 8% in net sales for Ann Taylor and a 6.2% increase for Ann Taylor LOFT. Comparable-store sales fell by 4.2% for the October 2007 period.

"From a top-line perspective, October was a tough month, due to persistent traffic softness and unseasonably warm weather," announced Kay Krill, president and ceo of AnnTaylor Stores. "As we head into the holiday season, we are confident in our strategies and our product assortments, although we believe it is prudent to be cautious in this difficult retailing environment and with the ongoing macroeconomic uncertainty."

With a 1.6% increase, Kohl's reported positive net sales as well, even though comparable-store sales decreased 3.8%. Larry Montgomery, Kohl's chairman and ceo, stated that the comparable-store sales shortfall can be attributed to lack of sales in the weather-sensitive business of outerwear, sweaters and fleece.

On the other hand, Target reported a net retail sales increase of 9.7% as well as an increase of 4.1% in comparable-store sales for the four-week period ended Nov. 3. "Due to strength in the last week of the month which benefited from year-over-year Halloween timing, our October comparable-store sales were at the high end of the range provided in our mid-month update," announced Bob Ulrich, chairman and ceo of Target.

RT Analysis...

Although it's easy to blame the weather or, in the case of California retailers, fires, economic setbacks are also contributing to poor sales. As crude-oil prices are expected to surge at $100 per barrel, heating bills have no choice but to go up and consumers may think twice before filling up their gas tank for a shopping trip.

Eric Beder, senior vp of Brean Murray, Carret & Co., believes that October numbers are a reflection of both weather and consumer. "In general, October is not a huge month for revenue, so smaller factors can affect it," he said. "We had colder weather that contributes and the consumer that has not been shopping. Both are a problem." Some factors that contribute to customer spending reluctance are gas prices, limited fashion newness and lack of clearance product.

According to Slater, October was the second-worst comp month this year. Citi Investment Research, Holiday 2007 Snapshot predicts that in November, mall traffic will improve due to forecasts of colder than average temperatures that should awaken the pent-up demand for weather appropriate apparel. Cold weather will incite the demand for warmer apparel, but it will also result in higher energy bills - leaving the consumer with a conundrum of how to spend their dollar, or more likely, whether post-bill paying money should be spent on apparel.

Fortunately, the official holiday shopping season is just around the corner, beckoning consumers to spend. "I think November will be an OK month," said Beder. "The weather is turning and a lot of retailers are ready for strong black Friday. It is not going to be a barn-burner Christmas, but it's going to be a decent Christmas."