Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘retail sales’

Two Important Economic Signals to Share with My Readers This Morning

By for Profit Confidential

U.S. Consumer Confidence CollapsingA good gauge for me on how consumers in the U.S. economy are faring has always been the statistics coming out of Wal-Mart.

Wal-Mart Stores Inc. (NYSE/WMT) reported its operating income in its second quarter (ended July 31, 2014) declined by 2.4%. Its subsidiary, Sam’s Club (wholesale store), saw its operating income, after taking out fuel, decline by 10.2%. (Source: Wal-Mart Stores Inc., August 14, 2014.)

For its entire 2015 fiscal year, Wal-Mart now expects to earn in the range of $4.90 to $5.15 per share compared to its previous estimate of $5.10 to $5.45 per share.

The performance of Wal-Mart is very important to economists like me because the massive reach of Wal-Mart is a good indicator of consumer spending. Wal-Mart is the biggest private employer in the world, with a staff of approximately two million, and the largest retailer in the world. More than one hundred million people visit a Wal-Mart store weekly.

So when Wal-Mart comes out with soft earnings, it gives me a reason to be concerned about the direction of consumer spending. But that’s not the only thing I’m worried about in respect to the economy.

According to FactSet, of those major public retailers that have reported their second-quarter same-store sales, 46.8% of them have reported sales below estimates.

Retail sales are stagnant for the simple fact that consumer spending is getting very soft here in the fifth year of the so-called economic “recovery.”

Below is a chart of the widely followed University of Michigan Consumer Sentiment Index.

University of Michigan Consumer Sentiment Chart

Chart courtesy of www.StockCharts.com

As you can see, consumer sentiment has tumbled to its lowest level … Read More

U.S. Economy to Enter Recession in Next 12 Months or Less

By for Profit Confidential

Consumer Spending Telling Us About U.S. EconomyAn economy is said to be technically in a recession when it experiences two consecutive quarters of negative gross domestic product (GDP) growth.

The biggest portion of the U.S. GDP calculation is consumer spending; then comes investments, government spending, and, finally, net of exports. By far, consumer spending is the biggest factor in calculating GDP. All you need is a slight decline in consumer spending for GDP to fall.

And as it stands, consumer spending in the U.S. economy is on the decline. In 2013, it accounted for nearly 70% of GDP, meaning that for every $1.00 increase in GDP, $0.70 was associated with consumer spending.

Since November, consumer spending for durable goods (goods that can last for a long time, like a T.V. or furniture) declined by 3.23%. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 22, 2014.)

When we look at sales at retailers in the U.S. economy, they keep telling the same story: U.S. consumers are tapped out. Of 175 retailers tracked by FactSet, more than half of them have reported store sales in the fourth quarter of 2013 that were below market expectations. (Source: FactSet, April 11, 2014.)

So far, for the first quarter of 2014, 20 of the major retailers have provided negative guidance regarding their sales and only nine have issued positive guidance. For the entire 2014 year, 31 retailers have issued negative guidance about their sales and only 15 have issued positive guidance. (Source: Ibid.)

There is a clear sign of declining retail sales. In 2011, same-store sales grew by 2.9%; in 2012, they increased by 2.6%; … Read More

Important Message Retailers Are Sending Us About the Economy

By for Profit Confidential

Consumer Spending Hits Trouble TerritoryConsumer spending in the U.S. economy is highly correlated to consumer confidence. If consumers are worried about the economy, they pull back on their spending.

The Conference Board Consumer Confidence Index decreased by 1.63% in February from January. (Source: Conference Board, February 25, 2014.) And we see the corresponding pullback on consumer spending in weak U.S. retail sales.

Macy’s, Inc. (NYSE/M) reported a decline of 1.6% in revenue in its latest quarter—which includes the holiday season. For its just-completed fiscal year, company revenues were up by only 0.9%. (Source: Macy’s, Inc., February 25, 2014.)

Sears Holdings Corporation (NASDAQ/SHLD) reported a decline of 12.6% in revenues in its latest quarter. Yes, I know this company is having problems; but a drop in revenue of 12.6% for a retail giant like this—and during the holiday shopping season—is an indicator that consumer spending is very weak. (Source: Sears Holdings Corporation, February 27, 2014.)

Target Corporation (NYSE/TGT) reported revenues fell by 3.8% in its last fiscal quarter. (Source: Target Corporation, February 26, 2014.)

Best Buy Co., Inc. (NYSE/BBY) is in a very similar situation. The company reported a decline of more than three percent in revenues for its latest quarter. And for the 12 months ended February 1, 2014, Best Buy’s revenues fell 3.4%. (Source: Best Buy Co., Inc., February 27, 2014.)

The retailers I just mentioned are just a few of the many retailers that reported a decline in their revenues in the last quarter of 2013, which suggests consumer spending is in troubling territory.

My point is that those companies that are closest to consumer spending—the big American retailers—are giving us a … Read More

Bad Weather to Blame for Consumer Spending Pullback? Numbers Argue Otherwise

By for Profit Confidential

Retail Sales All Slowing at the Same TimeMainstream stock advisors are blowing air…telling us the U.S. economy is stalling due to cold weather. They say the economic chill caused by the uncharacteristically cold weather this year is only temporary. I don’t believe this for a moment.

Sure, the weather had its impact. Consumers have been reluctant to go out and shop, and higher home heating bills might have them spending otherwise so far in 2014, but there’s more to the story.

While discussing existing-home sales for January, the chief economist at the National Association of Realtors said, “Disruptive and prolonged winter weather patterns across the country are impacting a wide range of economic activity, and housing is no exception.” Existing-home sales in the U.S. economy declined by 5.1% in January from the previous month. (Source: “Existing-Home Sales Drop in January While Prices Continue to Grow,” National Association of Realtors, February 21, 2014.)

The reality of the situation is that existing-home sales in the U.S. economy have actually been declining since August of last year. The annual rate of already built homes being sold in the U.S. economy was 5.33 million in August. In January, it was 4.62 million. (Source: Federal Reserve Bank of St. Louis web site, last accessed February 24, 2014.)

Below, I’ve prepared a table that shows the extent of the drop in existing-home sales in the U.S. economy.

Month

Sales (Annual Rate)

% Change from Previous Month

August

5,330,000

-0.93%

September

5,260,000

-1.31%

October

5,130,000

-2.47%

November

4,830,000

-5.85%

December

4,870,000

0.83%

January

4,620,000

-5.13%

Source: Federal Reserve Bank of St. Louis web site, last accessed February 24, 2014.

But weak home sales aren’t … Read More

These Two Indicators Say U.S. GDP is Already Declining in 2014

By for Profit Confidential

2014 Worst Growth Year for World Economies Since 2009In 2013, the U.S. economy, as measured by gross domestic product (GDP), rose at an average rate of 1.9% compared to 2.8% in 2012. And as it stands, GDP may slow further in 2014.

What makes me think this?

In January, U.S. industrial production declined by 0.3% from the previous month. This was the first decline in production since August of 2013. Production of automotive products in the U.S. economy declined by 5.15%, and appliances, furniture, and carpeting production declined by 0.6% in the month. (Source: Federal Reserve, February 14, 2014.)

And factories in the U.S. economy just aren’t as busy as they used to be. The capacity utilization rate, a measure of companies using their potential production, was 78.5% in January. The average rate between 1979 and 2013 has been 80.1%. While a difference of two percent in factory utilization isn’t a big number, because overhead is often fixed in factories, a two-percent decline in production is a big deal.

Then there’s the inventory problem; inventories in the U.S. economy continue to increase. In December, inventories at manufacturers increased by another 0.5% to $1.7 trillion. From December 2012, they have increased by 4.4%. (Source: U.S. Census Bureau, February 14, 2014.)

We have a situation in the U.S. economy today where factories are working at lower capacity than they have historically, while business inventories are rising—two bad omens for the economy; hence, you can see why I’m concerned about economic growth in 2014.

It’s a domino effect…

Inventories increasing suggest consumer demand is stalling. Examples of consumer spending declining in the U.S. economy are many. As I have … Read More

Ten Million People Left Out of Employment Statistics?

By for Profit Confidential

Three Reasons Why This Will Be a Bad Year for StocksAs I have been pointing out to my readers, the “official” unemployment numbers issued by the government are misleading because they do not include people who have given up looking for work and those people with part-time jobs who want full-time work.

In January, there were 3.6 million individuals in the U.S. economy who were long-term unemployed—out of work for more than six months. (Source: Bureau of Labor Statistics, February 7, 2014.)

Those who are working part-time in the U.S. economy because they can’t find full-time work stood at 7.3 million people in January.

Add these two numbers into the equation and the real unemployment rate, often called the underemployment rate, is over 12%. Meanwhile, the official unemployment rate from the Bureau of Labor Statistics sits at 6.6%—that’s the number you will hear politicians most often quote.

But if there’s a group of policymakers that looks past the “official” unemployment numbers, it’s the Federal Reserve.

At her speech before the Committee on Financial Services, U.S. House of Representatives in Washington, D.C. last week, Fed Chief Janet Yellen said, “Those out of a job for more than six months continue to make up an unusually large fraction of the unemployed, and the number of people who are working part time but would prefer a full-time job remains very high. These observations underscore the importance of considering more than the unemployment rate when evaluating the condition of the U.S. labor market.” (Source: “Semiannual Monetary Policy Report to the Congress,” Federal Reserve, February 11, 2014.)

Like all economists, Yellen knows that when an individual has a part-time job then their income isn’t as … Read More

Why the Winter Storm Is Skewing More Than Jobs Growth

By for Profit Confidential

Winter Storm Skewing More Than Jobs GrowthOld Man Winter appears to be killing the retail sector and the economic renewal. Extreme cold and nasty weather has engulfed about 70% of the country, reaching as far south as Georgia, North Carolina, and Texas, which don’t traditionally experience winter weather.

All that nasty weather means less driving to the malls and shops, which, judging by the numbers, appears to have been the case over the last two months. And if consumers don’t spend, the retail sector hurts and this translates into softer gross domestic product (GDP) growth.

Retail sales contracted by 0.4% in January, which represented the second straight month of declines following a revised contraction of 0.1% in December, according to the U.S. Department of Commerce. The poor showings were attributed to the weather.

With consumers staying at home, we are hearing whispers that fourth-quarter GDP growth could be revised downward from its initial 3.2%.

And while it’s too early to call for the economy to weaken, continued bad weather could mean just that. Now there are, of course, other reasons for the lackluster retail sector metrics.

There’s still a sense that the jobs market continues to be fragile following the creation of a mere 74,000 jobs in December that was blamed on the weather. Yet January was only marginally better with the creation of 113,000 jobs, which was well below the 185,000 estimate.

The jobs numbers are horrible, and unless they start to improve, I expect consumers to continue to feel hesitant about spending in the retail sector.

As I wrote in a previous commentary, investing in the retail sector will be much more difficult this … Read More

Investment Opportunities in Depressed Chinese Stocks

By for Profit Confidential

Where to Find New Investment Opportunities in the Emerging MarketsThe Securities and Exchange Commission (SEC) is currently shutting down numerous Chinese shell companies trading on U.S. exchanges, such as the over-the-counter market and the highly speculative Pink Sheets stock exchange.

This is good and is something the SEC needs to continue to pursue and enforce, so domestic investors can regain some lost confidence towards Chinese stocks.

The American appetite for Chinese stocks has been picking up; albeit, it’s nowhere near where it was a few years ago when Chinese stocks were all the rage.

Yet if you think there’s little interest in Chinese stocks, take a look at some of the sizzling debuts of the few Chinese initial public offerings (IPOs) that listed in the U.S. last year.

There are now worries China may be set for a downside slide. I have been hearing how the Chinese economy was set to burst, especially regarding the real estate and financial sectors in China. So far this has yet to happen, but we are continuing to hear continued bearish comments towards China.

It’s true the Chinese economy is stalling and may find it difficult to get back to its former double-digit growth, but with gross domestic product (GDP) growth at 7.7% in 2013 and estimated to rise 8.2% this year, according to the Organisation for Economic Co-operation and Development (OECD), these are not bad numbers. By comparison, the U.S. economy is predicted to grow 2.9% in 2014, according to the OECD. (Read “OECD Predicts China #1 Economy by 2016; Consumer Spending to Soar.”)

A recent showing of contraction in Chinese manufacturing in January was used by the Chinese bears … Read More

Top Stocks for Investors in an Uncertain Retail Market

By for Profit Confidential

How to Profit from an Uncertain Retail MarketInvestors were happily greeted with a surprise on Tuesday after the reporting of better-than-expected retail sales numbers that suggest the consumer spending market may be alive and well after all.

In December, the headline retail sales reading jumped 0.2%, which was above the Briefing.com estimate calling for a flat result. Even after adjusting for the volatile auto sales, the core retail sales reading surged 0.7% compared to the 0.4% consensus estimate.

The results offer some encouragement for spending this year in the retail sector and were much needed, given the recent downward guidance from several retailers.

Now, don’t get too giddy and go out and buy retail stocks at random. It’s not that easy. Investing in retail stocks at this time requires careful thought and evaluation. But with the right investments, there’s some money to be made in the retail sector.

The National Retail Federation also reported some encouraging numbers for the retail sector. Excluding auto, gas station, and restaurant sales, retail sales advanced 3.8% in November and December.

Sounds good on the surface, but there may be some underlying issues surfacing in the retail sector. About 25 of the 29 retailers that issued earnings guidance, unfortunately, offered a negative outlook. (Source: O’Donnell, J., “Holiday sales paint mixed picture for retailers,” USA Today, January 14, 2014.)

The stats put forth are non-conducive to a rally in the retail sector and, in fact, represent a troubled retail climate that is facing lower income from middle-class consumers.

Even the discounted retail sector area is showing some weakness in growth. Family Dollar Stores, Inc. (NYSE/FDO) offered a soft tone in its outlook … Read More

My Early Thoughts on Investing in 2014

By for Profit Confidential

2014 Stock Market: My Preliminary ThoughtsIt’s less than two weeks prior to the Christmas break, and with the New Year on the horizon, that means it’s time to sit down and really re-evaluate your portfolio.

Now, we could see Santa appear and deliver our Christmas goods (i.e. additional gains) into January. What a wonderful way that would be to begin the year? But I will discuss what’s to come in 2014 in my year-ahead outlook in three weeks’ time. At this point, I’m not positive, but I think it’s going to take some work to make money in the New Year (Santa’s not likely to drop that off under your tree).

The days of the Federal Reserve’s flow of easy money into the stock market, which we witnessed over the last four years, will be steadily fading away unless, of course, the new Federal Reserve Chair, Janet Yellen, decides to extend the bond buying longer than necessary. She does love the use of loose monetary policy to prime the economic engine, just as the exiting Federal Reserve Chair Ben Bernanke did for years.

Naturally, a lot of what the Federal Reserve does will circle around what’s happening in the economy.

The Federal Reserve wants jobs so consumers can go out and spend money, driving up the economic renewal. After all, consumer spending accounts for a whopping 70% of the country’s gross domestic product (GDP) growth. Now, imagine what it’s going to look like when Chinese consumers spend, which is exactly what the government is hoping for in that country. (Read “OECD Predicts China #1 Economy by 2016; Consumer Spending to Soar.”)

On … Read More

The Biggest Stock Market Bubble in History?

By for Profit Confidential

stock market bubbleThe only thing keeping the stock market alive is the easy money that is indirectly being pumped into it by the Federal Reserve, nothing else. The fundamentals for the market are dead in the water.

Here, I present five indicators that point to high risk for key stock indices.

Optimism continues to increase. There’s a general consensus among stock advisors and investors that the key stock indices will continue to go higher. Take the Sentiment Survey by the American Association of Individual Investors, for example. As of November 14, 39.20% of all respondents said they were bullish. In late June, this number stood at 30.28%. Investors who are bearish on key stock indices dropped to 27.47% from 35.17% in June. (Source: American Association of Individual Investors web site, last accessed November 20, 2013.)

History has repeatedly shown us that when the optimism increases and reaches the level of euphoria, key stock indices have turned the opposite way. The examples of this are many.

Corporate earnings are in trouble. Companies are posting lower revenues but reporting higher per-share corporate earnings, beating estimates as they cut costs, reduce their labor forces, and continue on their record stock buyback programs. This “financial maneuvering” cannot go on indefinitely.

And the outlook for corporate earnings continues to deteriorate. Just look at the chart below of estimates of corporate earnings per share of S&P 500 companies in the fourth quarter. You will notice there’s a very clear trend: the estimates continue to decline. Meanwhile, despite corporate earnings estimates falling, the S&P 500 has soared even higher.

S&P 500 Fourth Quarter EPS Estimates Chart

Companies are warning about their corporate earnings … Read More

Early Signs Point to Upcoming Storm for Retail Sector This Holiday Season

By for Profit Confidential

Retail SectorIt’s that time again. I haven’t heard the holiday music ring through the stores and malls yet, but it‘s coming, and I can tell you that retailers across America are nervous.

Black Friday is less than two weeks away, and I sense there’s increasing nervousness in the retail sector. For some, this weekend of spending accounts for over 50% of annual sales.

Macy’s, Inc. (NYSE/M) reported a strong fiscal first quarter in which it beat the Thomson Financial earnings-per-share (EPS) consensus estimate by $0.08 per diluted share or 20%. But while Macy’s offers investors some hope, the good news was short-lived, as the stock’s results may have had more to do with the company’s own success than a strong retail sector.

Wal-Mart Stores, Inc. (NYSE/WMT) and Kohls Corporation (NYSE/KSS) followed suit with soft reports that left investors worried about the strength of the holiday shopping season.

In the case of Wal-Mart, the world’s largest retailer reported a 0.1% decline in comparable U.S. store sales (without fuel) for the 13 weeks ended October 25, down from 1.7% growth a year earlier. For the 39 weeks ended October 25, Wal-Mart saw its U.S. sales contract by 0.4%, versus 2.4% growth in the year-earlier period. The result from Wal-Mart raises some red flags for the retail sector as we head into what is the most critical shopping time of the year.

Mike Duke, president and CEO of Wal-Mart, noted in the company’s quarterly report that the retail sector is “competitive.”

Wal-Mart also doesn’t appear to be too optimistic going forward and that makes me nervous, since the company is a good barometer … Read More

Time to Look at Chinese Stocks Again?

By for Profit Confidential

Time to Look at Chinese StocksThere are still many on Wall Street who frown on Chinese stocks and China. When word was spreading that the country’s real estate market was going to implode, China was a cesspool for capital.

Well, I don’t belong in that group of investors. Many of my readers will recall how I remain bullish on China and Chinese stocks in particular. Just take a look at many of the top-performing stocks over the past few weeks, and you’ll see that there are numerous Chinese small-cap stocks charging up on the charts. The buying has been driven by a move to seek more returns in regions, like China, that have largely not followed U.S. stocks higher.

Take a look at the S&P 500, as shown by the red candlesticks in the chart below, versus the Shanghai Composite Index, as reflected by the green line.

The obvious finding is that the S&P 500 has continued its upward move, while the Shanghai Composite Index has been unable to find any rhythm on the chart, based on my technical analysis.

S&P 500 Large Cap Index Chart

Chart courtesy of www.StockCharts.com

In my assessment, the divergence between the two indices has resulted in a buying opportunity for Chinese stocks.

Since making its initial acquisition in a 20% stake of specialty chemicals maker China National BlueStar in 2008 for $600 million, private equity firm The Blackstone Group L.P. (NYSE/BX) has been steadily involved in buying Chinese companies. Blackstone just signed a definitive merger agreement to buy China-based IT services firm Pactera Technology International Ltd. (NASDAQ/PACT) in a $600-million deal. Of course, the Chinese government, via its overseas investment fund, invested $3.0 billion in … Read More

An Obituary for the American Middle Class

By for Profit Confidential

U.S. economyIt’s the elephant in the room no one wants to talk about…

The middle class in the U.S. economy is on the verge of collapse. Yes, I said collapse. That social class that once helped the U.S. economy grow and prosper is coming apart. Will the U.S. economy ever be the same without it or is this the new norm?

Here’s why it’s important to you.

The middle class helped the U.S. economy (following World War II and up until the credit crisis of 2008) by buying goods and services they needed or wanted. They bought cars, TV sets, furniture, appliances, clothing, computers, and flashy gadgets. In simple terms: they spent money.

The spending by the middle class resulted in American companies selling more, making more, and hiring more people to meet consumer demand. Businesses then took their profits and invested in new projects and built more factories. This is how cities like Detroit flourished.

But where does the middle class of the U.S. economy stand now?

Signs of trouble for the middle class of the U.S. economy actually started to surface at the start of the new century, but it wasn’t until the financial crisis when the middle class in the U.S. economy really started to deteriorate.

Today, the middle class is not buying or spending like it once did—and this is not by choice.

The collapse of the housing market in the U.S. economy has taken a devastating toll on the middle class in this country.

While the media and politicians keep telling us the housing market has turned the corner and is healthy again, the delinquency rate … Read More

How Red Flags in the Retail Sector Are Threatening U.S. GDP Growth

By for Profit Confidential

Red Flags in the Retail Sector Are Threatening U.S. GDP GrowthThese days, I’m not shopping all that much unless there’s a massive discount at the stores. In fact, I only shop when the deals are significant.

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 … Read More

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