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

Posts Tagged ‘retail stocks’

The Worst Kept Secret on Wall Street

By for Profit Confidential

Why Retail Stocks Will Get Hit the HardestIn the first quarter of 2014, Retail Metrics, a retail industry research firm, found U.S. retailers missed their corporate earnings estimates by the most since the year 2000!

As I have been writing, consumer spending only increases when consumer confidence is rising. Unfortunately, in the U.S. economy today, that confidence is plummeting.

Last month, the Thomson Reuters/University of Michigan’s consumer sentiment index declined three percent from a month earlier. It was 84.1 in April, and it declined to 81.8 in May. (Source: Reuters, May 16, 2014.)

But consumer confidence is just one leading indicator that suggests consumer spending will decline in the U.S. economy; the unemployment situation and wages suggest the same.

The worst kept secret on Wall Street is that the big U.S. retailers are in trouble. While stocks, in general, have held their own this year (up about one percent so far in 2014), the stock prices of retail stores have fallen sharply. The chart below is of the Dow Jones U.S. General Retailers Index. The chart clearly shows the stock price of big U.S. retailers are falling quickly, down more than seven percent in the first five months of this year.

Dow Jones US General Retailers Index ChartChart courtesy of www.StockCharts.com

The story that consumer spending suffered in the first quarter of this year because of bad weather doesn’t sit well with me—I simply don’t buy it. The U.S. economy contracted one percent in the first quarter of 2014, the first time our economy has experienced an “official” contraction since the first quarter of 2011 for the simple reason that consumers are tapped out; their incomes are not keeping up with inflation.

All … Read More

What I Learned About Retail Stocks While Shopping in South Florida

By for Profit Confidential

Top Retail Stocks to Watch in the New YearI’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

New Retirement Trend: One-Third of Americans Need to Work Until 80

By for Profit Confidential

281013_PC_lombardiAccording to the just-released annual Wells Fargo & Company Middle Class Retirement Study, about 60% of middle-class Americans say that getting monthly bills paid is their top concern. This number stood at 52% in the 2012 study. (Source: Wells Fargo & Company, October 23, 2013.)

But there are more depressing results of the survey…

34% of middle-class Americans say that they will work until they are 80 years old, because they will not have enough money saved up for retirement! In 2012, the number of respondents with a similar opinion stood at 30%; and in 2011, this number was at 25%. While the U.S. economy is supposed to be in recovery mode, the trend shows more Americans will need to work after retirement.

Based on the results of the study, the Wells Fargo Institutional Retirement and Trust issued a statement saying, “We do this survey every year and for the past three years, the struggle to pay bills is a growing concern and the prospect of saving for retirement looks dim, particularly for those in their prime saving years.” (Source: Ibid.) No kidding.

While the stock market has more than doubled since 2009, while real estate prices are rising again, while Washington and the mainstream are telling us the U.S. economy is improving, Americans are becoming more “doom-and-gloomish.” According to the results of the CNN/ORC International poll released late last week, only 29% of Americans say that economic conditions are good right now—the lowest level of the year. (Source: CNN Breaking News Text, October 22, 2013.)

The chart below of the University of Michigan Consumer Sentiment Index is very important. … Read More

U.S. Retailers’ Dwindling Fortunes a Signal of Economic Slowdown Ahead?

By for Profit Confidential

economic slowdownWhen retailers in the U.S. economy warn about their sales being in a slump or start to forecast rough roads ahead, it should be a warning to investors of an economic slowdown ahead. The logic behind this is very simple: Retailers in the U.S. economy show trends about consumer spending; if retailers are worried, it means consumer spending is in trouble.

One way to get an idea about bleak consumer spending is by looking at what happens during the peak buying seasons. In the most recent peak buying season, being the back-to-school shopping season, retailers in the U.S. economy were only able to lure in customers by slashing their already low prices.

The president of Retail Metrics (a company that provides estimates of same-store sales), Ken Perkin, said, “They [discounts] seem to be above the norm. That was emblematic of just the lack of demand for back-to-school.” (Source: “U.S. retailers rely on deep discounts to win back-to-school shoppers,” Reuters, September 5, 2013.)

In the very recent past, we have heard from retailers like Wal-Mart Stores, Inc. (NYSE/WMT) and Macy’s, Inc (NYSE/M) about how they are struggling with their sales. And that’s a problem when you have both low-end and higher-end retailers facing similar customer demand issues.

The Cato Corporation (NYSE/CATO) is an apparel and accessory chain founded in 1946. The company reported its same-store sales in August were down two percent compared to the same period a year ago. The CEO of the company, John Cato, said, “August same-store sales were within our range of expectations and consistent with our current trend. We remain cautious in regard to the remainder … Read More

Even Deep Discounts at These Stores Couldn’t Lure Customers in Last Month

By for Profit Confidential

retail sectorThe retail sector of the economy acts as a gauge of consumer spending. When the retail sector shows weakness, it means consumer spending isn’t as strong. If that becomes the case, economists assume the U.S. economy will perform poorly since consumer spending makes up about two-thirds of U.S. gross domestic product (GDP).

As it stands, the retail sector is showing weakness and providing troubling news on consumer spending. According to Thomson Reuters, sales at retail stores open for at least a year increased a dismal 3.9% in July, below the analyst expectation of a rise of 4.4%. (Source: Reuters, August 8, 2013.)

A well-known name in the retail sector, Gap Inc. (NYSE/GAP), registered an increase of one percent in July same-store sales from July 2012. Analysts were expecting an increase of 1.7%.

Costco Wholesale Corp. (NASDAQ/COST) said its July same-store sales increased four percent from July 2012; analysts were expecting a rise of 5.1%. The company also stated that consumers are shying away from buying big-ticket items such as electronics.

In July, American Eagle Outfitters (NYSE/AEO) reported a decline of seven percent in its quarterly same-store sales, again compared to July 2012.

What’s even more troubling…to get those sales in July going, the retail sector had to offer deep discounts to customers.

July usually kicks of the back- to-school shopping season and gives us an idea of how consumer spending going into the fall season looks. After the holiday shopping season, the back-to-school season is the second busiest for the retail sector.

As it stands, the National Retail Federation (NRF) is already expecting lower spending in the retail sector on … Read More

Retail Stocks Find Big Success in the Great Outdoors

By for Profit Confidential

Retail-StocksThe great outdoors are back—big time.

Among retail stocks, it was widely expected that Cabela’s Incorporated (NYSE/CAB) would report very good earnings results. But the company didn’t just announce good earnings—it hit a grand slam.

Cabela’s is the world’s largest direct marketer of hunting, fishing, camping, and other outdoors merchandise. It is one of those retail stocks that is implementing its business plan perfectly.

It currently has 41 stores in the U.S. and three in Canada, totaling 5.4-million square feet of retail space, up 5.8% since the end of 2012.

According to the company, its sales for the first quarter of 2013 grew to $802 million, representing a gain of $179 million, or 29%, over the comparable quarter.

Not surprisingly, the company’s hunting equipment category experienced the biggest increase in sales.

The company said that its comparable store sales increased 24%, which is an outstanding performance in retail merchandising.

First-quarter earnings grew 73% to $49.8 million, way up from earnings of $28.8 million. Earnings per diluted share grew 75% to $0.70 from $0.40 in the comparable quarter.

Cabela’s five-year stock chart is featured below:



          Chart courtesy of www.StockCharts.com

While the sale of firearms and ammunition was expected to be strong, what was notable about Cabela’s first-quarter earnings performance is the strength experienced in other categories.

The company said it experienced strong growth in the sale of soft goods, footwear, optics, and archery. Excluding firearms and ammunition, comparable store sales increased nine percent, which is impressive. (See “Tills Ringing for Costco, Cabela’s—Obama Effect or Big New Trend?”)

As is the case with many corporations today, Cabela’s cash … Read More

From Discount to Big Box: Some Retailers to Watch

By for Profit Confidential

Some Retailers to WatchIt’s now officially the holiday shopping season after a relatively decent Good Friday and Cyber Monday. Online spending, according to the Adobe Digital Index, is estimated to reach record sales of around $2.0 billion, up 17% year-over-year. (“Cyber Monday Sales Climb to Record $2 billion,” BGR, last accessed November 27, 2012.) If the numbers are any indication, the retail sector could be in for a strong holiday shopping season over the next four weeks. We know shoppers are the most confident since February 2008, as the Conference Board consumer confidence reading came in at 73.7 in November. Add in the continued uptrend in home prices and, hopefully, job creation into 2013, and you have a good and much-improved climate for the retail sector.

Given what will be higher consumer spending as we head into 2013, the retail sector will definitely be a place to park some investment capital. I recently talked about some of the leading luxury stocks to look at, especially as a play on the strong retail sector market in China. (Read “Luxury Stocks That Are Leading the Pack.”)

The retail stocks that I envision to be successful will be both the manufacturers and the retail outlets.

For the more conservative investors looking for steady growth and dividend income, at the top of my list in the retail sector is Wal-Mart Stores, Inc. (NYSE/WMT) and Target Corporation (NYSE/TGT). Wal-Mart is an excellent global retail sector play, but it will need to get deeper into China to really make a dent and drive the share price higher. Target is intriguing, as the “poor cousin” of Wal-Mart has … Read More

The Best Retail Stocks this Holiday Shopping Season

By for Profit Confidential

Best Retail StocksToday is the big day for you shoppers! It’s Black Friday, and the retail sector is hoping you have the “shop until you drop” mentality this year. Retail heavyweights Wal-Mart Stores, Inc. (NYSE/WMT) and Target Corporation (NYSE/TGT) are two major retailers that decided to open their doors Thursday night and enter the Black Friday shopping window earlier.

At stake are billions of dollars and the potential to give the retail sector a significant boost in the fourth quarter.

The post-Thanksgiving shopping season for the retail sector is critical. Retail sales have increased in three straight years and hopes are for another great year. (Read “Why the Market Needs a Big Black Friday.”) Yet there is some caution. The National Retail Federation (NRF) is estimating that the retail sector could see sales jump 4.1% in the November to December period, versus 5.6% during the same period last year. The slower estimated growth could be due to the uncertainty of the fiscal cliff, and its impact on spending and the economic recovery. Consumers don’t like uncertainty.

So when you are shopping today at the stores or online, keep in mind that every dollar you spend will help America’s ability to expand as we head into 2013.

The question is: which will be the best retail stocks this holiday shopping season? My feeling is that buying in the retail sector continues to be selective and somewhat cautious, as evidenced by the retail sales reading in October that pointed to a 0.3% decline in total spending, worse than the market estimates and the 1.3% reading in September.

While the readings in the … Read More

Who’s Benefiting? Discount
Retail Stocks Hitting New Highs

By for Profit Confidential

Retail Stocks Hitting New HighsWant to know which stock market sector is making new record highs in this market? Retail stocks. Of course, the retail stocks that are doing great aren’t the big luxury names, but the discount retailers that are benefiting from the age of austerity. (See “Who Benefits in an Economy and Stock Market Like Today’s?”)

The stock market has been very kind to discount retail stocks that have produced solid revenue and earnings growth in an otherwise tough market for merchandizing. Stocks like Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), and The TJX Companies, Inc. (NYSE/TJX) are all doing exceptionally. The TJX Companies, which operates T.J. Maxx, Marshalls, Winners, HomeSense, and HomeGoods stores, has basically been going straight up on the stock market since 2001.

Retail stocks can be just as volatile as technology stocks. Like always, it all depends on the business cycle and what companies are benefiting from the economic times we’re experiencing. While retail stocks like Wal-Mart, Target, and TJX are doing great, Ralph Lauren Corporation (NYSE/RL) just warned on its revenues for its next quarter.

Target has really done well on the stock market since the beginning of this year. Wall Street earnings estimates have been going up across the board for all of 2012 and 2013. The company also did what all investors like; it recently increased its regular quarterly dividend by 20%. In addition, there are solid expectations for its upcoming quarter.

Retail stocks are emblematic of the current economic environment. If consumers are buying Ralph Lauren polo shirts, times are good. If business is booming for Wal-Mart, Target, and TJX, then you … Read More

Luxury Brand Stocks Losing Some of Their Luster

By for Profit Confidential

Luxury Brand Stocks Losing Some of Their LusterThe shares of luxury stock Coach, Inc. (NYSE/COH) got sideswiped on Tuesday after the maker of high-end designer handbags and accessories fell short on its fiscal fourth-quarter sales. The company blamed the shortfall on lower-than-expected growth at factory stores. And if not for strong sales in China, the miss would have been much larger. China is extremely brand-conscious. Same-store sales from China grew at double digits versus a muted 1.7% in North America. The growing importance of Asia is critical, with 317 Coach stores in Asia versus 523 in North America.

The showing from Coach indicates the current stalling within the luxury brand stocks in the retail sector, with the higher-end consumers appearing to be cutting back spending.

The retail sector continues to be a difficult place to make money and requires careful attention and monitoring. There are trades to be made, but you need to be selective.

Discount and big-box stores continue to do very well and, in my view, continue to be the space where you can make money in the retail sector. The recent successful initial public offering (IPO) of Five Below, Inc. (NASDAQ/FIVE) demonstrated the continued strong appetite for discount retail stocks.

Luxury retail stocks were on a tear in 2011, but have lost their luster amongst investors.

Luxury jeweler Tiffany & Co. (NYSE/TIF), after beating earnings per share (EPS) estimates in three straight quarters, has now fallen short in the last two straight quarters. Trading at $55.00 on Tuesday, the stock fell to a post-IPO low of $49.72 on June 27 and is well below its post-IPO high of $80.99 on October 27, 2011…. Read More

Japanese Pension Fund Buys Gold as Currency

By for Profit Confidential

interest ratesIn the midst of the current market correction in the price of gold bullion, a Japanese pension fund, Okayama Metal & Machinery, is going to place 1.5% of its total assets ($500 million) in gold bullion-backed exchange-traded funds (ETFs) (source: Financial Times, May 16, 2012).

This is the first time the fund has bought gold bullion in its history.

The chief investment officer of the fund said explicitly that investing in gold bullion was meant to protect against sovereign risk.

Historically, the $3.4-trillion Japanese pension market has invested in bonds, with the balance finding its way to other assets, but not gold bullion…until now.

The perception in Japan has begun to change, as retail investors are beginning to view investing in gold bullion as a protection against a crisis—whether it is a tsunami or a debt crisis like in the eurozone.

The oldest and largest Japanese wealth manager, Normura, has added investing in gold bullion in its survey to retail investors. It has found—much to its surprise—that the average Japanese person views gold bullion as the third-most desirable investment.

The second-largest financial firm in Japan, Mizuho Financial Group, has begun to allow smaller Japanese pension funds to invest in gold bullion.

Unlike North America, the talk isn’t of investing in gold bullion as a commodity, but the perception is that of gold bullion as a currency.

Now that the tables have turned and Japanese pension funds are beginning to dip into gold bullion, while the average person in Japan is warming to the idea of investing in gold bullion, increased demand in Japan is just beginning.

Follow me here. … Read More

Retail Sector Shines, Highlighting a Fundamental Strength in the U.S. Economy

By for Profit Confidential

corporate earningsIn a consumer-driven economy, what retailers say about their businesses is very important. For the most part, the retail sector has been saying that business conditions are getting better. A lot of retail stocks performed very well up until the recent stock market correction and valuations are reasonable. I’ve been writing about an underlying strength in the stock market and the U.S. economy and you can see it right now in the retail sector.

The strong first-quarter financial results of Wal-Mart Stores, Inc. (NYSE/WMT) beat consensus and the company expects strong profit growth in the current quarter. A lot of other brand-name companies in the retail sector reported very good numbers for the first quarter and many retail stocks are trading close to record highs on the stock market. Right now, with all the available news and lower oil prices, I’d say that second-quarter earnings season is shaping up to be surprisingly strong.

So, we have a stock market that’s in correction; however, economic news is showing mixed, but generally improving data. Lower oil prices stimulate consumers to spend and they lower the cost of doing business in the industrial sector. While speculators might bet that lower oil prices are a put option on the global economy, the spot price action directly affects the retail sector and that’s good for the economy.

As I keep saying, if we didn’t have the sovereign debt crisis in Europe, I believe the stock market would be a lot higher than it is currently. Corporate earnings growth may not be robust, but it isn’t flat either. The retail sector has been and should continue … Read More

High Oil Prices Mean Profiting From this Kind of Play

By for Profit Confidential

oil pricesWith the outlook for the U.S. and global economies looking more encouraging, we have seen a corresponding upward push by oil prices on the chart.

The April WTI Oil is advancing higher at above $108.00 and north of its 50-day moving average (MA) of $100.35 and 200-day MA of $95.86. A bullish golden cross is holding, with the 50-day MA above the 200-day MA.

An issue for us is that a large part of oil prices continues to be largely dictated by the folks in the Middle East, namely the 11-member cartel Organization of the Petroleum Exporting Companies (OPEC), which as a group help to decide what oil should be priced around. At this time, OPEC feels that oil prices of $100.00 a barrel are reasonable and $80.00 is viewed as the low point that is acceptable for oil prices. This might be fine with OPEC, as it adds to their rich coffers, but with the average price of gasoline at $3.48 a barrel, consumers aren’t happy with these high oil prices.

 But unless we see a massive flow of new oil from the controversial tar sands in Alberta, Canada, and a move back to offshore drilling in the post-BP era, oil prices will continue to be dictated by OPEC. I think it’s wrong to be held hostage by a group of oil-rich countries.

 The U.S. had agreed to allow oil from the tar sands delivered to refineries in Texas, but the deal is currently on the burner after the government, subject to pressure, decided that a different route from Canada was needed. The tar sands have long been viewed … Read More

Gold Stocks: There’s Value in Them There Hills

By for Profit Confidential

For years, I’ve been a bull on gold mining stocks, but also precious metals stocks in general.

Gold mining stocks and precious metals stocks did not perform very well last year (compared to recent years), but that doesn’t mean there is no value in them. Usually, when a sector like this is beaten down or forgotten by the market in general, value players come in and buy it up (myself, when gold bullion prices dip, I try my best to buy gold-related investment to average down my overall investment cost).

Analysts who follow the mining sector and who have earnings forecasts for these gold mining stocks typically value them as if the price of gold bullion was trading well below its current level. This means that, not only are the gold mining stocks cheap, they are also trading on the assumption that the price of gold bullion will fall to within the range of $1,200-$1,500 an ounce in a few years. Why buy gold bullion when you can buy a quality gold mining stocks at a discount to the price of gold bullion?

It’s been a frustrating time for investors of the gold mining stocks, but if the value players are hesitant to jump in feet first, there are other players who will.

Pan American Silver Corp. (NASDAQ/PAAS), the world’s second-largest primary silver miner, has just offered $1.5 billion in combined cash and stock deal to acquire Minefinders Corp. Ltd. (ASE/MFN), a medium-sized silver producer whose primary assets reside in Mexico. The price tag is a 36% premium to where Minefinders traded last Friday.

This, in my opinion, is … Read More

A U.S. Economic Recovery That Wasn’t

By for Profit Confidential

Am I missing something? I can’t seem to find the U.S. economic recovery I’m reading and hearing about in the media.

We all know consumer spending in the U.S. accounts for 70% of Gross Domestic Product (GDP).

If the U.S. economic recovery is to gain any traction in 2012, the U.S. consumer is going to have to play a major role. However, the latest retail sales figures for the month of December rose just 0.1% (Source: U.S. Commerce Department), which was weaker than analysts expected. But this is only the headline number!

If purchases of cars are excluded from the retail sales numbers, then retail sales actually fell 0.2%, which is the first month-over-month decline in retail sales since May 2010. Let’s keep in mind that this drop occurred during what is traditionally a great month for retailers: the holiday season. The so called “economic recovery” isn’t there!

Digging deeper—again keeping in mind that this was during the holidays—consumer spending at electronics and appliance stores fell 3.9%, while department stores sales slipped 0.2%. What economic recovery?

This is an ominous sign that retail sales and economic recovery will continue to be challenges in 2012.

Of course, there can be no improvement in retail sales if we don’t have jobs.

Remember those “glowing” job reports from the last two months: 120,000 jobs created in November 2011 and 200,000 in December 2011? Temporary hiring by retailers for the holiday season boosted those numbers. Now that the holiday season is behind us, guess what? Unemployment claims jumped by 24,000 in the first week of January. So much for that economic recovery hope we … Read More

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