So, Supervalu (SVU) had a huge plunge today on a weak earnings report and weak earnings outlook. Frankly, the grocery store sector is a terrible business to begin with and one that should always be stayed away from on a routine basis.
Now, a brief caveat here is that on forward-looking earnings the stock trades at something around 6x earnings, which is cheap even if they had total stagnation ahead of them. However, I think it might be worse than that. The stock has a sickly chart that indicates strong market suspicion of worse things to come. So far, SVU continues to prove the pessimists right.
Showing posts with label Retail Sales. Show all posts
Showing posts with label Retail Sales. Show all posts
Tuesday, January 11, 2011
Saturday, January 8, 2011
Retail Underperforms
I mentioned in a December 16, 2010 post that retail had probably seen its best days as a sector and that one would have to be selective. As it turns out, that was pretty much on the money. The chart above shows the S&P Retail Index (RLX) trailing the S&P 500 as a whole and badly trailing financials (shown here by XLF) over the past month.
I suspect that retail will continue to underperform for a little while here. I'm not sure that this indicates much other than retail's gains were a little overdone. Nearly every leading economic indicator in recent weeks is broadly positive.
Wednesday, January 5, 2011
Family Dollar Miss
http://www.marketwatch.com/story/family-dollar-hit-by-results-forecast-2011-01-05
Steve messaged me about this right about the same time I was reading about it. I think what we saw here was more a function of a stock that had gotten ahead of itself and poorly managed expectations than any kind of clarion call of impending trouble either in the dollar store industry or for consumer spending. Generally, I think retail has mostly seen its best gains, but consumer spending will still rise gradually and at an increasing rate over the next year. However, most of these stocks have already anticipated that.
Family Dollar (FDO), for example, had risen from $29 a share to $49 a share between a year ago and yesterday. Not too shabby. Of course, Family Dollar actually benefits relative to other retailers in a bad economy. However, even they will feel the pinch as many states and local governments reduce social services. Also, even with the unemployment benefits extension, the maximum length of an individual remains 99 weeks, which means that a huge proportion of those laid off in this recession have seen their unemployment benefits expire. When these people have literally nothing to spend, even Family Dollar will suffer.
What will be interesting is if the luxury stores such as Nordstrom's (JWN) and Tiffany (TIF) put some distance between themselves and the dollar stores as well as the discounters. If that happens, and I suspect that it might, I'm not exactly sure what it will mean.
Steve messaged me about this right about the same time I was reading about it. I think what we saw here was more a function of a stock that had gotten ahead of itself and poorly managed expectations than any kind of clarion call of impending trouble either in the dollar store industry or for consumer spending. Generally, I think retail has mostly seen its best gains, but consumer spending will still rise gradually and at an increasing rate over the next year. However, most of these stocks have already anticipated that.
Family Dollar (FDO), for example, had risen from $29 a share to $49 a share between a year ago and yesterday. Not too shabby. Of course, Family Dollar actually benefits relative to other retailers in a bad economy. However, even they will feel the pinch as many states and local governments reduce social services. Also, even with the unemployment benefits extension, the maximum length of an individual remains 99 weeks, which means that a huge proportion of those laid off in this recession have seen their unemployment benefits expire. When these people have literally nothing to spend, even Family Dollar will suffer.
What will be interesting is if the luxury stores such as Nordstrom's (JWN) and Tiffany (TIF) put some distance between themselves and the dollar stores as well as the discounters. If that happens, and I suspect that it might, I'm not exactly sure what it will mean.
Thursday, December 16, 2010
Best Buy and Other Retailers
Suffice it to say that the Best Buy (BBY) warning the other day was a bit of a clarion call for retailers. I've rarely seen a stock in a solid uptrend reverse so suddenly and so severely except in asset bubbles. I would be careful about extrapolating these results across the whole of the retail sector, but I think that the run in retail stocks that we've seen since the middle of the year may have seen its best days.
The sell-off after April was largely based on the incorrect assertion that the consumer was going to lead us back into a recession or at least total stagnation. In absence of that occurring, retailers were largely undervalued. Playing retail as a group in that environment was sensible, but we are now entering a stage where one has to be quite selective. The easy money is definitely already made in this group.
The sell-off after April was largely based on the incorrect assertion that the consumer was going to lead us back into a recession or at least total stagnation. In absence of that occurring, retailers were largely undervalued. Playing retail as a group in that environment was sensible, but we are now entering a stage where one has to be quite selective. The easy money is definitely already made in this group.
Wednesday, September 1, 2010
Another Look at August Consumer Spending
Now that we have auto sales for August in and all of the weekly retail sales reports as well, let's revisit what August held for consumer spending.
Auto sales, which looked to be decent as recently as the 20th, actually came in slightly below July's level, though I will emphasize "slightly" with the change being -0.5%. Still, we have not seen much lift in car sales, which is kind of depressing given that they still are abysmally low. Chain store sales on the other hand seem to have been relatively strong following the weekly retail sales reports this month. Redbook indicates a sales pace that is a full 1.0% above July on a seasonally adjusted basis. ICSC is indicating a similar year on year growth rate of 2.8% vs Redbook's 3.0%, though no indication of whether there was an increase month to month. We'll actually get a sense of that in about ten hours or so when the retailers discuss their August sales.
Of course, home sales were fairly weak and probably didn't increase much from July from the look of things. As we have mentioned previously, the plunge in sales and high inventories (at least relative to these sale rates) will bring down prices. Whether those lower prices will bring down consumer spending with them remains to be seen.
Auto sales, which looked to be decent as recently as the 20th, actually came in slightly below July's level, though I will emphasize "slightly" with the change being -0.5%. Still, we have not seen much lift in car sales, which is kind of depressing given that they still are abysmally low. Chain store sales on the other hand seem to have been relatively strong following the weekly retail sales reports this month. Redbook indicates a sales pace that is a full 1.0% above July on a seasonally adjusted basis. ICSC is indicating a similar year on year growth rate of 2.8% vs Redbook's 3.0%, though no indication of whether there was an increase month to month. We'll actually get a sense of that in about ten hours or so when the retailers discuss their August sales.
Of course, home sales were fairly weak and probably didn't increase much from July from the look of things. As we have mentioned previously, the plunge in sales and high inventories (at least relative to these sale rates) will bring down prices. Whether those lower prices will bring down consumer spending with them remains to be seen.
Sunday, June 13, 2010
Economic Data Summary: Week Ending June 11th, 2010
This was a pretty pathetic week for economic data. There was really only one report of note and that was the monthly retail sales report. That was a fairly anemic report, but I wouldn't be too concerned about it just yet.
May Retail Sales
The headline was weak at -1.2% month to month, ex-auto was weak at -1.1% and ex-auto ex-gasoline was weak at -0.8%. It was a tough month all the way around. Not much more can be said than that. However, this is a volatile series and it actually has had a fairly decent run of late. A quick look at the chart below tells the story:
While we are still not at the pre-recession highs, retail sales have been coming back fairly strongly, albeit from highly depressed levels. If the May weakness spills over into June, I will get pretty concerned, however. I don't suspect that it will from what I have seen elsewhere, but keep your eyes peeled.
April International Trade
The data here suggested some weakness in exports and imports in April, but it is hard to glean much from that tidbit of information. The recovery in trade overall has been fairly strong and leaked Chinese export data suggests that it will continue to be. The widening trade deficit, though it is happening gradually and we are still well below pre-recession levels, suggests that global rebalancing has not occurred. The rapid decline of the euro will only worsen the return to previous global imbalances. In the long run, that will put some pressure back on the dollar, but don't look for that to happen just yet.
One thing I want to point out to some who have been concerned that we are at risk of having serious damage done by an export contraction due to impending disasters in Europe and possibly China is that our exports are a small portion of our overall GDP. On an annualized basis, they are about 12% of GDP. The idea that our economic recovery so far has been dependent on overseas demand is truly laughable. Of that chunk, much goes to Canada and Mexico. China ranks a fairly distant third on that list. The Eurozone overall is fairly important, but it would still take epic declines to derail us solely from an exports perspective. The financial contagion channel is far more important.
Others
Yep, it was a pretty slow week, so let's rip through the rest.
Weekly retail sales were actually pretty good once again. Put a couple more weeks like that together and June could be a decent recovery from May.
Jobless claims were stubborn at 456,000. We've not made significant progress on this front in some time. Ideally, we would start seeing numbers around 420,000 and then 400,000, but that has not happened yet. I would caution against believing that the stagnation at these levels is prelude to a surge in claims, though. There is little evidence that will happen.
Wholesale and Business Inventories showed continued improvement in both sales and inventory growth. The inventory to sales ratios are now at record lows and will probably continue the downward trend that they have been on for years. How low can the ratio get? That is truly difficult to say. Many sectors now have less than a month's inventory in stock. If there was ever a major shipping disruption, things could get ugly. The major inventory adjustments are all behind us for now, though.
May Retail Sales
The headline was weak at -1.2% month to month, ex-auto was weak at -1.1% and ex-auto ex-gasoline was weak at -0.8%. It was a tough month all the way around. Not much more can be said than that. However, this is a volatile series and it actually has had a fairly decent run of late. A quick look at the chart below tells the story:
April International Trade
The data here suggested some weakness in exports and imports in April, but it is hard to glean much from that tidbit of information. The recovery in trade overall has been fairly strong and leaked Chinese export data suggests that it will continue to be. The widening trade deficit, though it is happening gradually and we are still well below pre-recession levels, suggests that global rebalancing has not occurred. The rapid decline of the euro will only worsen the return to previous global imbalances. In the long run, that will put some pressure back on the dollar, but don't look for that to happen just yet.
One thing I want to point out to some who have been concerned that we are at risk of having serious damage done by an export contraction due to impending disasters in Europe and possibly China is that our exports are a small portion of our overall GDP. On an annualized basis, they are about 12% of GDP. The idea that our economic recovery so far has been dependent on overseas demand is truly laughable. Of that chunk, much goes to Canada and Mexico. China ranks a fairly distant third on that list. The Eurozone overall is fairly important, but it would still take epic declines to derail us solely from an exports perspective. The financial contagion channel is far more important.
Others
Yep, it was a pretty slow week, so let's rip through the rest.
Weekly retail sales were actually pretty good once again. Put a couple more weeks like that together and June could be a decent recovery from May.
Jobless claims were stubborn at 456,000. We've not made significant progress on this front in some time. Ideally, we would start seeing numbers around 420,000 and then 400,000, but that has not happened yet. I would caution against believing that the stagnation at these levels is prelude to a surge in claims, though. There is little evidence that will happen.
Wholesale and Business Inventories showed continued improvement in both sales and inventory growth. The inventory to sales ratios are now at record lows and will probably continue the downward trend that they have been on for years. How low can the ratio get? That is truly difficult to say. Many sectors now have less than a month's inventory in stock. If there was ever a major shipping disruption, things could get ugly. The major inventory adjustments are all behind us for now, though.
Saturday, June 5, 2010
Economic Data Summary: Week Ending June 4th, 2010
Well, this week was quite a week for economic data. Strangely enough, it was quite solid outside of the employment report. As I will discuss in a moment, the employment report was not quite as bas as it looked either when you look at it from more of an economic perspective and less from a journalistic perspective.
May Employment Report
On the surface, this looked good. Just below the surface it looked awful. Into the core it actually looked alright. How is that all possible?
The headline number of 431,000 jobs looks good until you realize almost all of that was from the Census workers. Only 41,000 private payrolls. That's not particularly encouraging. This is a big relapse from March and April where we grew by an average of 183,000 a month in private payrolls. The 183,000 pace is not great, but it is much better than out of the prior two recessions. Still, it needs to be better and I suspect it will be as the year grinds on. Still, the diffusion indices indicated that most industries were hiring in May, though it had fallen back from April's very strong reading.
Now, the actually good parts of the report were found further into the bowels of data tables. Specifically I am talking about aggregate weekly hours for private industries. Here we saw the index tick up 0.4% after a 0.4% increase in April and a 0.5% increase in March. On an annualized basis, that is right north of 5% growth in aggregate weekly hours. Aggregate weekly payrolls, which is (hours*payroll employment*wages), increased a still better 0.6% after 0.8% in April and 0.3% in March.
For a comparison to the prior two recessions here is a graph:
This once again is the better measure than the headline payrolls number because it indicates the actual amount of labor demand in the economy as measured by hours. So long as this continues to increase, jobs will be created. Now, it is not bouncing back as quickly as it did from 1981-82, but on the other hand no one expected it to. This was a different kind of recession. It would have been nice if it was as simple as being caused by 21.5% interest rates to break inflation.
May Manufacturing ISM Survey
May Employment Report
On the surface, this looked good. Just below the surface it looked awful. Into the core it actually looked alright. How is that all possible?
The headline number of 431,000 jobs looks good until you realize almost all of that was from the Census workers. Only 41,000 private payrolls. That's not particularly encouraging. This is a big relapse from March and April where we grew by an average of 183,000 a month in private payrolls. The 183,000 pace is not great, but it is much better than out of the prior two recessions. Still, it needs to be better and I suspect it will be as the year grinds on. Still, the diffusion indices indicated that most industries were hiring in May, though it had fallen back from April's very strong reading.
Now, the actually good parts of the report were found further into the bowels of data tables. Specifically I am talking about aggregate weekly hours for private industries. Here we saw the index tick up 0.4% after a 0.4% increase in April and a 0.5% increase in March. On an annualized basis, that is right north of 5% growth in aggregate weekly hours. Aggregate weekly payrolls, which is (hours*payroll employment*wages), increased a still better 0.6% after 0.8% in April and 0.3% in March.
For a comparison to the prior two recessions here is a graph:
This once again is the better measure than the headline payrolls number because it indicates the actual amount of labor demand in the economy as measured by hours. So long as this continues to increase, jobs will be created. Now, it is not bouncing back as quickly as it did from 1981-82, but on the other hand no one expected it to. This was a different kind of recession. It would have been nice if it was as simple as being caused by 21.5% interest rates to break inflation.
May Manufacturing ISM Survey
Sunday, May 16, 2010
Economic Data Summary: Week Ending May 14th, 2010
The economic data this week were once again fairly positive so the general story of a moderately strong economic recovery remains in place. I will editorialize a bit here to say that compared to the expectations of many 8-12 months ago, we are having a much stronger recovery than projected.
April Industrial Production
My personal favorite coincident indicator as it is the proxy for determining the demand for goods. Manufacturers will not produce if they do not think that there is a market for their goods. The one wrinkle in this is that inventory trends can be a short term driver of the industrial production index, making it unclear how much growth is due to restocking of inventories and how much is actually because of growing end-demand. Industrial production is released by the Fed right about the middle of the month every month.
In line with what we have been seeing out of the manufacturing diffusion indices, industrial production showed strong growth in April with 0.8% growth on the headline number. Below the surface, business equipment grew 1.0% and construction supplies 2.8%. March and January were revised higher, February lower. The diffusion indices also showed broad based growth.
Here's a look at the manufacturing index subset (does not include utilities and mining):
Yes, we are still far below the peak, but the pattern of recovery remains firmly intact. There are not even signs of wheezing at this moment.
April Industrial Production
My personal favorite coincident indicator as it is the proxy for determining the demand for goods. Manufacturers will not produce if they do not think that there is a market for their goods. The one wrinkle in this is that inventory trends can be a short term driver of the industrial production index, making it unclear how much growth is due to restocking of inventories and how much is actually because of growing end-demand. Industrial production is released by the Fed right about the middle of the month every month.
In line with what we have been seeing out of the manufacturing diffusion indices, industrial production showed strong growth in April with 0.8% growth on the headline number. Below the surface, business equipment grew 1.0% and construction supplies 2.8%. March and January were revised higher, February lower. The diffusion indices also showed broad based growth.
Here's a look at the manufacturing index subset (does not include utilities and mining):
Yes, we are still far below the peak, but the pattern of recovery remains firmly intact. There are not even signs of wheezing at this moment.
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