Posts Tagged ‘retail sector’
Yesterday was an amazing day for the markets.
Gold bullion hit a three-month low despite: 1) inflation rising rapidly in North America; and 2) the Chinese buying half of this year’s world gold production.
The stock market was up to a new high despite: 1) corporate insiders selling like mad; 2) corporate earnings growth collapsing; 3) the amount of money investors have borrowed to buy stocks standing at a record high; and 4) the economy stinking.
In the words of Robert Appel, my esteemed colleague, the following best describes what is happening with the markets:
“Time to take those ruby slippers out of the closet because we are definitely on our way to the ‘Wizard of Oz’ show once again. There is a view that the government and its ‘special contractor’ (the Fed) have things under control and we are now at the beginning of the biggest stock bull in history. We don’t buy that theory for a minute but we do acknowledge it exists.
“Those opposing this view—an ever-declining number—suggest that if inflation were defined as it was when the greatest economic minds of our age were still alive—the U.S. economy would be in big trouble. The recent corporate earnings wipeout in the retail sector was one of the most under-reported financial stories of the year.
“Interestingly (this is too bizarre to make up) the only major upside surprise in the retail sector in respect to first quarter earnings reports was Tiffany’s…where they can barely keep up with demand. No surprise for our readers as the ‘gap’ between rich and poor under QE [quantitative easing] has only intensified. QE … Read More
Old 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
You can tell from the activity and the lack of direction in the stock market that the much-anticipated fourth-quarter earnings season has, yet again, been another letdown.
Now I’m not saying the early results this earnings season have been that bad; it’s just that the numbers from corporate America have not been that great.
And with just four days remaining in January, the NASDAQ and Russell 2000 are slightly positive, while the Dow Jones Industrial Average and the S&P 500 are in the red. This creates some anxiety.
As many of you know, I have discussed my views on earnings and, more particularly, the revenue side. I don’t really care that companies beat earnings-per-share (EPS) estimates as many of these so-called sell-side estimates from Wall Street have been adjusted downwards to meet the lower expectations over the past few years.
It’s akin to analysts doing whatever they can to make sure companies can meet lower targets instead of demanding that companies deliver.
So far, the early numbers this earnings season suggest it’s more of the same—and perhaps slightly worse.
Of the 53 S&P 500 companies that have reported so far this earnings season, a mere 57% have managed to beat the mean average based on research from FactSet. (Source: “Earnings Insight,” FactSet, January 17, 2014.) And of the 101 companies that have offered guidance, a staggering 96 companies offered negative EPS guidance, while just 15 companies were positive in their assessment.
Folks, this is not good, considering that Wall Street has already been manipulating estimates. Plus, only 58% of these companies have beaten the mean sales estimates. Again, not good…. Read More
When it comes to love, we often hear the phrase, “Beauty is in the eye of the beholder.” Well, the same could be said for the stock market.
Many investors look for the companies that deliver consistent results and satisfy the number-crunchers on Wall Street. While I belong to that group, I also take alternative views and search for companies that are the so-called dogs of the stock market. However, as our theme suggests, choosing in the stock market based only on a company’s outer appearance doesn’t always produce the best outcome.
Think about it this way: Why always select the stocks that are in favor by the stock market? Often, you may be the last to the dance, so you end up chasing stocks that have already made major stock market moves—the upside is limited.
I like looking at distressed companies that are facing some hurdles but have enough upside potential to make these stocks a worthwhile trade in the stock market. These plays are often referred to as contrarian investments—companies that are out of favor but have enough potential to demand a closer look in the stock market. In this case, you are often buying a company at a low valuation and price, as the stock market has turned against them.
I like these contrarian situations, as the potential upside is significant if these companies can turn around their operations.
In the past, I have highlighted opportunities such as Groupon, Inc. (NASDAQ/GRPN) and Facebook, Inc. (NASDAQ/FB)—both of which made spectacular gains thereafter. (Read “Why Macy’s Is Such a ‘Good’ Retail Play.”)
Nokia Corporation (NYSE/NOK) was … Read More
Investors 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
In the retail sector, it’s all about vision and execution. The reality is it’s all in the details, especially in the department store sector, where it’s all about product offerings and marketing.
Of the department stores in the retail sector, Macy’s, Inc. (NYSE/M) is probably the best-managed and best-performing company. Simply take a look at rival J. C. Penney Company, Inc. (NYSE/JCP), and you’ll understand why it has been a lot better for Macy’s investors than J. C. Penney’s. (Read more of my thoughts on this in “J. C. Penney, Coach Joining the Losers in the Retail Sector?”)
While Macy’s continues to look for ways to continue its sales growth and profitability, J. C. Penney is just trying to stay afloat in the retail sector and avoid a possible bankruptcy down the road.
The chart below shows the divergence in share price between Macy’s and J. C. Penney since October 2012. Macy’s has steadily climbed, as reflected by the red candlesticks, compared to J. C. Penney, as shown by the dark green line, based on my technical analysis.
Chart courtesy of www.StockCharts.com
It’s amazing how the wrong strategy could backfire in the retail sector and cost a company like J. C. Penney billions of dollars, while rewarding a company like Macy’s for excellent execution.
Macy’s announced it would cut about 2,500 workers, which is a small fraction of its total headcount of about 175,000. The company will also look at other cost cuts that could shave about $100 million off the expense side beginning this year. (Source: “Macy’s, Inc. Outlines Cost Reduction Initiatives to Support Continued Profitable … Read More
I’m not a shopper by any means but I just got back from my annual trip to South Florida where I was able to take a look at the retailers that appear to be attracting tons of traffic in the retail sector.
First of all, the big-time shopping mall in the Orlando area is the “Premium Outlets” mall chain. The operator of these discount outlet malls across America (which recently expanded into Canada), Simon Property Group, Inc. (NYSE/SPG), is a very interesting play on the retail sector. In each mall, there are often many more than 100 retailers from the top brand-name retail stocks in America.
As I walked around the mall, I noted what retailers were popular based on each store’s traffic and the buying frenzy inside. Remember, consumer spending drives the economy and overall gross domestic product (GDP) growth, so business in the retail sector can be quite telling.
One of the top retailers was NIKE, Inc. (NYSE/NKE), which is a major attraction in the mall and one of the top stocks in the retail sector. While Under Armour, Inc. (NYSE/UA) has been increasing its market share, I continue to feel that NIKE is the “Best of Breed” in the sports apparel business in the retail sector.
In the youth apparel area, The Gap, Inc. (NYSE/GPS) was a major focal point in the mall, along with Banana Republic, which The Gap also operates. In the youth and early adult clothing market, The Gap has been successful in turning around its business over the past decade and is now a good pick to consider in the retail sector…. Read More
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
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