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Retail - Q1 Recap, Q2 Outlook
Most retailers have reported first quarter results.
- Investor expectations were at extreme lows coming into 2009, and retailers were able to beat those low expectations. This enabled retail stocks to outperform the broader market.
- The upside on the bottom line was due primarily to cost cuts. Gross margins were still unimpressive.
- For most of the industry, sales were down significantly year-over-year. But, the decline in sales was at a slower rate than in the second half of 2008.
- Retailers that actually increased sales were Carter's (CRI - Snapshot Report), which sells baby apparel; O'Reilly (ORLY - Analyst Report), which sells auto parts; and 99 Cents Only (NDN - Snapshot Report), which is a discount store.
- The retail stocks that outperformed within the group were the lowest priced stocks with the worst-looking balance sheets.
- The laggards were the defensive retailers like supermarkets and wholesale clubs and those with the best balance sheets.
- The stock market action was bullish for companies that reported good news, and it was forgiving of those companies with disappointing results or soft guidance.
- The primary theme on retail conference calls was caution. Management's second quarter guidance -- if offered at all -- was conservative. Several retailers indicated that sales in the first half of May was trending weaker than April.
- As a group, retailers do not expect the consumer to rebound in the second half of the year. Retailers are reducing inventory levels to accommodate a lower level of sales.
- There seems to be a general feeling that consumer spending will not return to levels of a few years ago anytime soon.
- Unemployment is climbing and wages are not. That is not a recipe for higher consumer spending.
- Year-over-year comparisons in the second quarter will be difficult because of the last year's stimulus checks.
- While gasoline prices are down 36.5% from last June, gas prices have increased 44% year-to-date, including 22% in the last month. Retailers will not perform well in an environment of rising gasoline prices.
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| Market Summary | Nov 07, 2009 21:51 pm ET |
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