Retail Is For Stockpickers
Friday, August 20th, 2010
Because September 2004, the S&P Retail Index has been caught in the sideways consolidation channel at between 400 and 500, unable to establish a sustainable trend in one direction or the other. Throughout that time, the monthly retail numbers happen to be largely mixed. But in January, the retail data (excluding auto) was impressive, showing growth of 2.20% versus the estimate of 0.8%. It was the strongest reading in a long time.
Yet the initial optimism appears to become fading following seeing mixed reports from the nation’s retailers on Thursday. The early data suggests that same-store sales growth will be sub par compared to what we saw in January.
The reading in January may possibly happen to be an aberration because of warmer than expected temperatures. The surfacing of cold weather in February apparently sent a chill through the pocketbooks of consumers. Also, the strong January sales might have taken away from spending in February.
The reality may be the absence of the positive trend in retail makes investing in retail stocks much more of a risk. You must pick the proper organization. Even bellwether stocks such as Wal-Mart Stores (WMT) are struggling as far as its share cost in spite of some decent sales results and same-store sales growth. But the current valuation deserves a look.
Youth oriented clothes retailer Gap (GPS) can be a organization that is clearly struggling at the cash register. Its February same-store sales crashed 11% year-over-year, properly above the Street estimate calling to get a decline of 6.80%. This followed for the heels of an 11% decline within the company’s Q4 earnings along with a FY07 forecast that was short of Wall Street expectations.
GAP expects comparable-store sales to become negative within the first half and turn moderately positive for the remainder with the year. Same-store sales are widely viewed since the greatest indicator of a retailer’s health.
For investors, GAP is clearly a turnaround play that could pay out off if it can somehow figure out how to attract shoppers. The fact could be the company has excellent brand awareness and this counts for something in this brand conscious world we live in.
On the upside, you have a company like Greatest Acquire (BBY), a dominant market leader in consumer electronics. The stock is just below its 52-week substantial, up 69% from its yearly lower.
The reality is retail spending might be impacted by the greater financing costs associated with the rising debt loads across America. The personal savings rate is declining and was negative in January. Consumers are eating into their savings and you understand this can not be excellent for retail.
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