It's a good two weeks before the first of retailers' 3rd-quarter earnings are formally announced, but then most of us don't exactly need a crystal ball to know the real news on retail sales -- weak to middling.
Buy-side analysts covering publicly traded retail company stocks have already weighed in on the just-released September numbers, and many are giving guidance on the 3rd quarter as well. More importantly, they're now dropping clues about what's to come in the critical 4th-quarter period, which includes Thanksgiving and the holidays.
Most analysts are expecting a modest bounce-back in sales during October, mainly due to forecasts of colder weather to come during the month, which could drive more apparel sales (if you believe such things). But the bounce won't be bouyant for long, as November and December sales taper off just in time for the holidays.
"It would be easy to write off September as a one-month aberration based on the unusual weakness shown by industry leaders like Wal-Mart, Target and Kohl's," says Bob Gordman, who produces the much-watched monthly Meridian Retail Trending Report. "The real news coming out of this month's report is the 12-month deteriorating growth trend for some industry leaders. Almost every general merchandise retailer that is considered to be a market leader has a clearly declining comp-store growth trend over the past 12 months. Even Kohl's, the industry leader, has seen its comp-store growth weaken from 8.6% over the past 12 months to 2.3% during the past 90 days. This same trend holds true for Target, Wal-Mart, Dillard's, May and Marshall Fields."
Gordman argues that many specialty retailers, though, are doing well, including Chico's, Hot Topic, Limited, Circuit City, Bed Bath & Beyond, Linens 'N Things and Michael's. "We could be seeing the emergence of a clear trend favoring segment-focused retailers vs. broader general merchandising retailers."
Also looking ahead, Merrill Lynch has named its "defensive dozen," a basket of 12 S&P 500 retail stocks as having high earnings momentum. They include Auto Zone, Bed Bath & Beyond, Costco, CVS, Dollar General, Family Dollar, Kohl's, Lowe's, JCPenney, Sysco, Walgreen and Wal-Mart.
Discounters and deep discounters look set to maintain their winning ways as consumers are attracted to lower-priced merchandise. "American consumers have seen too many friends and family lose their jobs to feel comfortable paying up for goods," says Merrill Lynch managing director Clare D. Schiedermayer. "The prospects of war with Iraq and the absence of signs for meaningful relief ahead have the consumer feeling more stick than carrot going into the fourth quarter."
SunTrust Robinson Humphrey (STRH) analyst Patrick McKeever is projecting October comp-store sales growth of 3%-5% for Dollar General Corp. And while he's trimming his 3Q and 4Q same-store sales projections from 6% to 5% in each quarter, McKeever is maintaining his earnings-per-share estimates of $0.18 (vs. $0.16) and $0.33 (vs. $0.31), respectively. McKeever also thinks Family Dollar's October same-store sales will increase 4%-5%, building on its 4.1% gain in September.