Retail Industry Trends

[HenryTo]

Retailiers already bracing for the worst. The $64 billion question is, as always, how bad will this get and how much of this has already been factored into retail stocks?
-----------------------------------------------------------------------------------
Retail Holiday Season May Be Modest
Tuesday October 30, 5:15 pm ET
By Betsy Vereckey, AP Business Writer
Sluggish US Economy May Weigh on Holiday Sales for National Retailers

NEW YORK (AP) -- U.S. retailers are bracing for a difficult holiday season, some industry watchers say, as higher gas prices and a sluggish housing market are expected to continue crimping consumer spending.

At a conference on Tuesday hosted by the Retail Marketing Society, a membership-based organization focused on the retail industry, some industry executives said holiday sales may be sluggish.

"This holiday season will be somewhat Grinch-like," said Carl Steidtmann, chief economist at Deloitte Research.

Steidtmann said retailers are preparing for the worst, especially given tightening credit and problems in the housing market. Steidtmann said it will be at least 18 months to two years before the housing market bottoms.

Merrill Lynch analyst Jaime Sheinheit said higher energy costs will weigh on consumer spending, noting that retailers have had trouble getting customers in the door. However, it's hard to tell whether the sluggish traffic is related to softening consumer spending or warm weather, Sheinheit said.

"Cold weather may spark shopping," she said.

In the luxury sector, Sheinheit said handbag maker Coach Inc. has warned of sluggish traffic in its U.S. stores. The company recently issued a fiscal second-quarter same-store sales outlook it called "conservative." Same-store sales are sales at stores open at least a year, and the industry metric is considered a key barometer of a retailer's health.

David Wolfe, creative director at Doneger Group, a buying office, said Coach has reached its saturation point with aspirational customers, who may not have the money to spend on these handbags but still want quality at a price.

Meanwhile, wealthy customers may help other luxury retailers this season, like Tiffany & Co., as spending patterns among the affluent tend to stay the same, regardless of changes in the economy.

Sectors that might fare better include teen retailers, Sheinheit said, noting that the income of their main customer, teenagers, usually stays the same. Companies in this sector include American Eagle Outfitters Inc. and Abercrombie & Fitch Co.

One company that may emerge stronger, Sheinheit said, is AnnTaylor Stores Corp., which has leaner inventory and a new product assortment at its lower-priced Loft division. In August, the company said it increased markdowns to reduce inventory heading into fall seasons at both its Ann Taylor and Loft stores.

"There is a lot of opportunity for Loft to improve margins this holiday season," Sheinheit said. "As always, what it comes down to is having the right product."

[HenryTo]

Brace for some bankruptcy filings - followed by liquidation - in the retailing industry before the Christmas shopping season:
-----------------------------------------------------------------------------------
Some retailers may choose bankruptcy before Christmas
Fri Oct 24, 2008 5:39pm EDT

By Caroline Humer and Jessica Wohl - Analysis

NEW YORK/CHICAGO (Reuters) - The conventional wisdom for retailers having financial difficulty has been to stave off bankruptcy until after the holiday season, but cracks in that thinking are starting to show and fewer companies may make it past the new year.

Tumultuous financial markets, flagging consumer confidence and cautious lenders are undermining the efforts of struggling retailers to stay in business, restructuring experts say. And many retailers hoping to ride out the storm face tough choices about store closings, and ways to raise cash.

Industry experts say some of these companies may even find themselves going straight to liquidation rather than restructuring.

"There are five or six public companies that are teetering right on the brink and given this credit environment frankly they could go away any moment. Anything can happen," said Howard Davidowitz, chairman of retail consulting and investment banking firm Davidowitz & Associates.

By this time of year, most retailers have their stock for holiday shopping, which enables them to hold out against financial pressure until after the season.

"Orders have long since been placed and shipments have been made. Inventories have been built up for the holidays," said Craig Johnson, president of Customer Growth Partners, a consumer consulting and research firm.

But that inventory build-up depletes cash, giving retailers few options if they run into trouble.

As a global financial crisis deepens, and consumers spend less over the holidays, this year could be different.

"My own opinion is that we will see more store closures before the holidays and more bankruptcy filings before the holidays," said Walter Jones, a turnaround consultant at J.H. Cohn LLP in New Jersey.

If they are facing bankruptcy, retailers must focus on keeping only their best stores going, he said. "By closing more stores, they produce more cash from the inventory in those stores, which would generally give them more options," Jones said.

Retailers' cash positions typically peak just before the new year, putting them in the strongest position to file for bankruptcy protection and reorganize, experts said.

"The way the game is played is to suck in the suppliers, build up your cash, then file. That puts you in the best position to come out on the other side," Davidowitz explained. "It buys you more time."

TOUGHER DIP

If retailers manage to come out on the other side of the holidays, the next hurdle will be finding sources for debtor-in-possession financing to get through bankruptcy. Many of those sources have dried up as credit markets tightened and banks became more risk averse.

Companies will have to turn to their existing lenders for a shot at securing increasingly pricey DIP funding, giving their current bankers a larger role in how those bankruptcies proceed.

"It's unclear to me whether existing lenders will think they are better off to wait until after Christmas," said David Heiman, a bankruptcy attorney at Jones Day. That is particularly true if loans are based partly on inventory, which will be reduced by holiday sales, he said.

But some merchants may not be able to take in as much stock as they would like to so they can compete during the holiday season, Johnson said.

He cited consumer electronics retailer Circuit City, which has been facing stiff competition from Best Buy and Wal-Mart. A Circuit City spokesman declined to comment.

Some retailers have come under pressure from credit rating agencies ahead of the holiday season. Standard & Poor's has assigned a "B-" or lower credit rating to Eddie Bauer Holdings, Claire's Stores Inc, Guitar Center, Loehmann's and Oriental Trading Co, meaning their debt is regarded as highly speculative or with substantial risks.

Department store group Gottschalks Inc recently said its stock would no longer be traded on the New York Stock Exchange, but that it had been working to shore up its liquidity.

"It's a safe bet to say that there is going to be some shakeout in the industry," said National Retail Federation spokesman Scott Krugman. "But at the end of the day, it's healthy. It's healthy because it creates a more nimble economy and from a retail industry perspective it creates an industry that's better poised for recovery."

[rffrydr]

Set up for a Chrismas surpise (at the very least the EEM shoppers will turn out):


http://www.freep.com/apps/pbcs.dll/article?AID=/20080918/BUSINESS06/809180412/1019/BUSINESS06
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Note that retailers - as exemplified by the RTH - actually made a new YTD earlier this month:

http://finance.yahoo.com/q/bc?s=RTH&t=1y

[rffrydr]

· COST said that California continued to lag the rest of the country basis comp sales, but it did improve relative to several months ago.



· noted that the dollar was starting to hurt international comps. International comps were +8% in local terms but +6% on a dollar basis.



· reported strength in food, but also noted that gasoline sales were very positive to sales by 350 bps.



· average transaction was up by more than 5% helped by gasoline, and traffic was up slightly more than 3%.
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Latest web traffic data at luxury retail stores:

http://blogs.abcnews.com/click/2008/08/luxury-retail-h.html

[HenryTo]

ICSC expecting the slowest sales growth for the Holidays since 2001 - but my guess is that even a 3.6% growth forecast is too optimistic. We shall see.
-------------------------------------------------------------------------------------
U.S. holiday sales seen slowest since 2001 -- ICSC
Wed Aug 27, 2008 5:00pm EDT

NEW YORK, Aug 27 (Reuters) - U.S. holiday sales are expected to grow at the slowest rate since 2001 as consumers pull back spending in a weak economy, according to a survey by the International Council of Shopping Centers.

For the holiday season, the biggest sales period of the year for retailers, nominal sales growth is forecast at 3.6 percent compared with a 4.2 percent gain last year, ICSC's chief economist Mike Niemira said on Wednesday during a call with analysts.

"No matter how you cut it, the indications suggest there is likely to be continued sluggish ... trends in spending," Niemira told analysts.

The slowdown in holiday spending would follow back-to- school trends now unfolding, as consumers are also expected to spend the least since 2001.

The ICSC expects that an average $400 will be spent on back-to-school items this year, compared with an average of around $470 last year, as consumers stick to the basics such as clothes and supplies and shop at discount stores instead of malls.

"The consumer is not necessarily just not shopping at the mall, they're just not shopping as much everywhere," Niemira said.

While tax rebate checks issued early this summer by the U.S. government helped prod consumers to the store, they spent less when they got there, hurt by higher food prices that are canceling out easing gas prices, Niemira said.

"The consumer faces tough times ... we also expect these tough times will linger even in the face of easing of gasoline price pressure on consumer spending," Niemira said.

The ICSC expects chain store back-to-school sales to be up 1 percent this year to $38.5 billion, the smallest gain since 2001. (Reporting by Sarah Coffey; Editing by Andre Grenon)

[HenryTo]

A brief update on the retail industry here in SoCal:

http://www.latimes.com/business/la-fi-retail21-2008aug21,0,128650.story

[HenryTo]

J.C. Penney guides lower for 3Q and see its stock price rise by 6%:
-----------------------------------------------------------------------------------
J.C. Penney's 2Q profits fall 36 percent
Friday August 15, 9:21 am ET
By Anne D'Innocenzio, AP Business Writer
J.C. Penney's 2Q profits fall 36 percent amid tough economy

NEW YORK (AP) -- J.C. Penney Co. reported a 36 percent drop in second-quarter profits Friday and issued a downbeat outlook for the current quarter as shoppers cut back on clothing spending in a tough economy.

The Plano, Texas-based department store chain said it earned $117 million, or 52 cents per share, in the three-month period ended Aug. 2, compared with $182 million, or 81 cents per share, a year earlier.

Total net sales fell 2.5 percent to $4.28 billion from $4.39 billion. Same-store sales, or sales at stores opened at least a year, fell 4.3 percent. Same-store sales are considered a key indicator of a retailer's health.

Analysts polled by Thomson Reuters expected earnings of 50 cents per share on revenue of $4.28 billion.

Penney said it expects third-quarter earnings to be in the range of 70 cents to 75 cents per share. A poll by Thomson Reuters projects 76 cents per share. The company also predicted that total sales would drop by a low-single digit percentage and that same-store sales would drop in the mid-single digits in the same period.

"In this difficult consumer environment, we have continued to focus on tightly controlling all aspects of our business, and our second-quarter results show the benefits of our approach," said Myron "Mike" Ullman, chairman and chief executive, in a statement.

The company reported that comparable-store inventory levels at the end of the second quarter were below last year, and it remains on track for total inventory to be below 2007 levels by the end of the back-to-school season.

Penney and other apparel chains have been hard hit in a challenging economy as customers, aiming to save money for gas and food, focus their buying on necessities and shop at discounters and warehouse clubs that offer a breadth of merchandise. High-end department store chain Nordstrom Inc. reported a 21 percent drop in second-quarter profit on Thursday and cut its full-year forecast. Meanwhile, Kohl's reported a 12 percent drop in profits but upgraded its full-year outlook to reflect stricter inventory control that boosted profit margins.

In response to the slowing economy, Penney announced in June that it would further slow the pace of new department store openings and cut capital spending next year because of the weak economy. It now plans 20 new or relocated stores next year, down from the 36 it expects to open in 2008. Penney had once planned 50 new stores a year through 2011.

Meanwhile, Penney is expanding its repertoire of exclusive offerings. For the back-to-school season, it introduced six new lines aimed at teens and young adults, compared with only one last year. Earlier this year, Penney unveiled American Living, an exclusive collection that is part of an alliance with Polo Ralph Lauren Corp. The collection is the biggest brand launch in Penney's history. Ullman noted in a statement that the back-to-school launches had "good initial customer response."

[HenryTo]

Macy's missed estimates and lowers full-year outlook but the stock is only trading down 2% as I am typing this:
------------------------------------------------------------------------------------
Macy's says 2Q profit falls, cuts outlook for year
Wednesday August 13, 10:43 am ET
By Anne D'Innocenzio, AP Business Writer
Macy's posts 2Q profit decline amid challenging economy; cuts full-year outlook

NEW YORK (AP) -- Macy's Inc.'s saw its second-quarter earnings drop slightly and warned on Wednesday that full-year profits will be below Wall Street expectations as shoppers are more cautious about spending.

The department store operator earned $73 million, or 17 cents per share, in the quarter ended Aug. 2, compared with $74 million, or 16 cents per share, a year earlier.

This year's results include two unusual items that cut earnings by 12 cents per share. Excluding those items, Macy's earned 29 cents per share from continuing operations.

Revenues fell 3 percent to $5.7 billion from $5.9 billion. Macy's says that same-store sales, or sales at stores opened at least a year, dropped 2.1 percent. Same-store sales are considered a key indicator of a retailer's health.

Analysts surveyed by Thomson Reuters had expected earnings of 19 cents per share on revenue of $5.75 billion.

Macy's results came as the Commerce Department reported that July's retail sales were the weakest in five months as economic problems, from high gas prices to tighter credit and a weaker job market, combined to blunt the impact of billions of dollars in government stimulus payments to U.S. households. The monthly report showed that sales at department stores and other general merchandise stores rose by 0.3 percent, just half the 0.6 percent June increase.

"Our organization rose to the challenge and delivered strong second-quarter earnings and cash flow, despite the poor economic environment," said Terry J. Lundgren, Macy's chairman, president and chief executive in a statement. "While we are never fully satisfied when sales are down, we continued to outperform most of our major competitors in same-store sales and to gain market share with a combination of differentiated merchandise, current fashions and great value."

The company has seen disappointing sales and resistance from shoppers in some markets, where the Macy's name replaced local favorites it absorbed when it bought May three years ago. The company is aiming to fix the problems. A reorganization, announced in February, means the concentration of more managers in local markets where they will make more decisions.

Macy's unusual items this year related to that consolidation of three of the company's regional divisions announced in February, which is expected to save $100 million per year beginning in 2009. It also wrote down by $50 million the value of the private brands acquired in its acquisition of The May Department Stores Co. in 2005.

Like other apparel chains, Macy's is confronting a slowdown in clothing sales as shoppers focus increasingly on basics and not on discretionary splurges like skinny jeans.

Lundgren noted that he expects to see "a positive impact" on sales beginning in spring amid new merchandising initiatives. Starting this fall, Macy's will be the exclusive department-store retailer for Tommy Hilfiger U.S.A. men's and women's sportswear. In May, it announced a partnership with toy retailer FAO Schwarz, and plans to open toy stores in close to 700 Macy's department stores over the next two years. About 75 full-size FAO toy stores will open across the country this fall, along with about 200 smaller shops.

But Macy's acknowledged that it was difficult to forecast financial results with any level of certainty given the sour consumer confidence, which is at a 16-year low, and the slowing economy. The company said, however, that it expects earnings per share for the year to be in the range of $1.70 to $1.85. Analysts polled by Thomson Reuters had expected $1.86 per share for the full year.

Macy's also said that it currently expects same-store sales in the fall season to be anywhere from unchanged to down 1 percent, which would result in same-stores sales declines of as much as 1.6 percent for the year.

Shares in Macy's slipped 45 cents to $19.82 in morning trading Wednesday. They have traded from $35.76 to $14.33 over the past 52-week period.

[HenryTo]

From Briefing.com:

[HenryTo]

Boscov's the latest retailer to file for bankruptcy:

http://www.retailingtoday.com/story.aspx?id=75605&section=General

[rffrydr]

Some stats from Mastercard and trends:

http://www.cnbc.com/id/15840232?video=813842263&play=1
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

A Madman's observation:

[HenryTo]

Mervyn's restructures. This would've been bullish for other retailers if Mervyn's had liquidated instead - but alas, there is still enough capital sitting on the sidelines for the game to roll on:

http://www.bizjournals.com/losangeles/stories/2008/07/28/daily15.html

[HenryTo]

Another major retailer set to go under, as Mervyn struggles to stay open. According to the WSJ, the company could file for bankruptcy as early as later this month. The article says the PE firms made a bundle on the real estate - but who's going to buy the real estate given the tremendous slowdown we're seeing (and store closures) across the retail sector?

http://online.wsj.com/article/SB121659710322668977.html?mod=googlenews_wsj