In my view, this is the new reality in the retail sector. And it’s not only hurting the retail sector, but it is also supporting an increase in traffic at the major discount mall operators, such as Tanger Factory Outlet Centers, Inc. (NYSE/SKT) and king of discount malls Simon Property Group, Inc. (NYSE/SPG), which owns the well-known Premium Outlets centers.
If you haven’t been to the Premium Outlets malls, these are large malls where there are as many as 100 stores offering quality goods at cheap discount prices. All of the major retailers are there.
Yet the retail sector continues to show mixed results that clearly do not suggest consumer spending is rising at levels the economy wants to see, given the low interest rates.
Retail sales in July were better than expected, but in my view, they still don’t support a massive spending push in the retail sector, which means potential problems brewing for America’s gross domestic product (GDP).
We are beginning to see weakness amid the department stores in the retail sector. There was even a disturbing report from bellwether retail giant Wal-Mart Stores, Inc. (NYSE/WMT), which reported dismal growth in the U.S. and around the world. When this happens, you know all is not right in the retail sector, as Wal-Mart is a good barometer of consumer spending activity.
So it wasn’t a surprise to see department store Macy’s, Inc. (NYSE/M) fall short in its fiscal second quarter after three straight quarters in which the company beat Wall Street earnings estimates.
Similarly, Nordstrom, Inc. (NYSE/JWN) beat the Street but offered a sour outlook for its fiscal 2014 (ending in January). The key same store sales are estimated to expand by two to three percent, compared to the previous estimate of three- to five-percent growth. Is this perhaps a sign the economy is slowing?
The weakness continued with Saks Incorporated (NYSE/SKS), after the troubled retailer reported a massive loss and a soft 1.5% rise in same store sales versus the 4.5% estimate. Saks will soon become a Canadian company after being acquired by Hudsons Bay Company (TSX/HBC) for $2.4 billion. The thinking is that Hudson’s Bay, which sold its Zellers Inc. properties in Canada to Target Corporation (NYSE/TGT), may look at launching stand-alone or in-house Saks stores in Canada.
The soft guidance provided by the numerous chains in the retail sector is a red flag that clearly tells us GDP growth in America could continue to be soft going forward.
Read about my favorite fast food stocks in “McDonald’s Proving Position as ‘Best of Breed’ in the Fast Food Sector.”