Tuesday, November 13, 2007

Empty Stockings for Retailers This Holiday

'Twas the night before Christmas, when all through the house
Not a creature was stirring, not even a mouse;
The stockings were hung by the chimney with care,
In hopes that St. Nicholas soon would be there. ~ Clement C Moore (1779 - 1863), A Visit from St Nicholas

A slumping housing market, consumer worries over jobs and tight credit, rising gasoline and food prices, and unusually warm weather in much of the country—amid a decelerating discretionary consumer spending environment, the 10Q Detective suspects that many of the leading retailers of apparel and home goods expected to announce earnings this week will slash sales and share-net guidance for the critical holiday selling season.

Tuesday Nov. 13th
  • The TJX Cos. (TJX-$29.32) expects earnings from continuing operations between 53 cents and 55 cents per share for the third-quarter 2008. Analysts polled by Thomson Financial expect the off-price retailer of apparel and home fashions to report earnings of 55 cents per share on revenue of $4.78 billion.
  • The world's biggest retailer Wal-Mart Stores (WMT-$43.32) will report before the bell. The discounter is expected to say that third-quarter net income rose 2.5 percent to $2.71 billion, or 67 cents a share, in the three months through Oct 31. Revenue probably rose 9.9 percent to $91.8 billion, the average estimate of 16 analysts in a Bloomberg survey.

Wednesday Nov. 14th

  • Excluding acquisition integration costs, Macy's (M-$28.75) forecast third-quarter profit of 5 cents to 10 cents per share. Analysts polled by Thomson Financial expect the department store retailer to post a profit of 8 cents per share.

Thursday Nov. 15th

  • Kohl's Corporation (KSS-$48.59) has already reported weaker-than-expected October sales and slashed its third-quarter profit estimate. Last week, the mid-priced retailer of apparel and home goods lowered third-quarter profit to 59 cents to 60 cents a share, down from a previous forecast of 67 cents to 71 cents a share. Analysts' had forecasted an average of 66 cents a share, according to Reuters Estimates.

Friday Nov. 16th

  • AnnTaylor Stores (ANN-$31.52), a specialty retailer of women's apparel, shoes, and accessories in the United State, cut estimates last month and is expected to deliver 61 cents per share.

Current Trends & Outlook

Analysts have said that lackluster results—to date—from other retailers portend a challenging holiday outlook. In our view, from a top-line perspective, store traffic and same-store comps will be dependent on inventory (product assortment) selection and increased discounts and promotions to lure shoppers.

According to the
National Retail Federation, the world's largest retail group, total 2007 Holiday sales should rise 4 percent, the slowest holiday sales growth since 2005, when sales rose just 1.3 percent.

On the heels of soft October sales numbers (for most retail chains), and the continued dependence on promotional discounting this holiday season (including markdowns/clearance), the 10Q Detective doubts that most companies in the retail space will be able to best manage inventory positions (avoid inventory shortages of hot products and product assortment misses) to expand gross margins. We see additional downside risk to fourth-quarter operating share-net across the vast majority of retailers. Save for the occasional take-out rumor, we believe few catalysts exist to do any retail stock shopping.

Editor David J. Phillips does not hold a financial interest in any of the companies mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

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