Daily Gains Letter

retail sector


Muted Retail Growth to Move Higher? How to Play the Sector Minus Risk

By for Daily Gains Letter | Feb 27, 2015

Retail Growth to Move HigherRetailers continue to fight for the limited dollar of the consumer. The retail sector is extremely competitive and success is contingent on the right strategy of attack, which means offering the right product mix, competitive pricing, and in the ultra-competitive apparel sector, it means keeping on top of the trends and consumer sentiment.

A good product today could be passé a year from now, as consumer sentiment changes rapidly.

Why Target Failed in Its Canadian Expansion

Target Corporation (NYSE/TGT) beat Wall Street estimates on Wednesday, despite recording a massive $5.1-billion charge after deciding to exit Canada in what has to be one of the biggest blunders in retail history. The reality is that it wasn’t the Canadian consumer sentiment that choked Target, but the company’s mistake in its expansion plans, the first outside of the United States.

Other major retailers, such as Wal-Mart Stores Inc. (NYSE/WMT), The Home Depot Inc. (NYSE/HD), Lowes Companies, Inc. (NYSE/LOW), The Gap, Inc. (NYSE/GPS), and Best Buy Co., Inc. (NYSE/BBY) to name a few, have managed to expand successfully in Canada after understanding the consumer sentiment there.

Target simply did a bad job in not only its expansion after buying up locations via its purchase of troubled Zellers, but also its exit. The company operated poorly in Canada and failed to grasp the consumer sentiment there. My view is that Target should’ve kept some of its own developed stores in good locations and made the experience better for the Canadian shopper. It didn’t, so here we are. Projected sales growth of 1.6% for FY16 doesn’t offer much comfort.

Retailers Stalling, but Could Edge Higher

The … Read More


My Early Black Friday Retail Sector Outlook

By for Daily Gains Letter | Nov 24, 2014

Early Black Friday Retail Sector OutlookRetailers will be getting the aisles set to go when the big—and at-times legendary—Black Friday begins in four days’ time. This is the most important day of the year for the retail sector: it could be the difference between having a good year or a marginal one.

I have heard some retail pundits say this Friday could generate as much as 30% of the total year’s sales—on just this one day.

Why “Black” Friday? The “black” refers to the fact that it could potentially turn a year of losses into a year of profits based on this day’s sales. This is why the retail sector is pumped to go. We have already heard about an early start to Black Friday with some retailers opening prior to the traditional midnight, which of course entails shopping on Thanksgiving Day.

The battle for your dollars is competitive. Merchants need to try to get a leg up on their rivals in the retail sector in whatever way they can, whether it means earlier and longer hours or heavy discounting. Retailers will likely have to initiate deep discounting to win your wallet.

And the trip to the mall or stores will be made easier this year, given the major decline in gasoline prices at the pumps. Money saved here could help drive consumer sentiment.

If you want evidence of how important Black Friday is to retailers, take a look at the facts:… Read More

About 92.1 million shoppers were out at the stores on Black Friday in 2013
On the weekend, a whopping 248.7 million shoppers were at the stores and online
Cyber Monday is becoming an


Darker Clouds Ahead for Retail Space…But Not for Retail Investors

By for Daily Gains Letter | Aug 15, 2014

Muted Retail SectorThis past week, as many of my readers may recall, I discussed the slowing that’s occurring in the global economy as demonstrated by consumer spending at both McDonalds Corporation (NYSE/MCD) and Wal-Mart Stores Inc. (NYSE/WMT).

Now, my concerns have just picked up following Wednesday’s retail sales reading. The core reading excluding automotive and food sales grew a mere 0.1% in July, according to the U.S. Department of Commerce, which was below the 0.3% estimate and the weakest reading since way back in January, when Old Man Winter was blamed for everything.

But with the winter excuses over, it still appears consumers are hesitant on wanting to spend. Not only is consumer spending on everyday items drying up, but spending on durable goods, such as furniture, appliances, and electronics, is curtailing.

Department store operator Macy’s, Inc. (NYSE/M) reported a mere 3.3% year-over-year increase in its second-quarter sales. The company’s key comparable store sales managed to rise 3.4% in the second quarter, but things are looking somewhat soft for the whole of 2014, with Macy’s estimating growth in comparable store sales of only 1.5%–2.0%, versus its previous 2.5%–3.0% estimate.

These numbers, along with those from the discounters and big-box stores, show some darker clouds on the horizon for the retail sector, as retailers across the board try to keep afloat.

I don’t expect a sell-off in retail, but the upside looks to be limited for the foreseeable future, as the economy and jobs look to sort things out.

Take a look at the SPDR S&P Retail ETF (NYSEArca/XRT), which reflects the current sideways moves in the retail sector, with this exchange-traded fund … Read More


Shift in Consumer Spending Habits Sure to Reward This Stock

By for Daily Gains Letter | Aug 6, 2014

How a Few Clicks Could Reward This Company BigThere was a time in the past when Wal-Mart Stores, Inc. (NYSE/WMT) was the top retail stock for investors and the go-to place to find a bargain. I used to refer to the retailer as the “Death Star” of the retail sector, killing off smaller rivals via its expansion.

But as my stock analysis points out, that was yesterday. The shopping environment is much more competitive now; it’s almost akin to a bowl of piranhas, where there are multiple retailers vying to snap up fewer consumer dollars.

According to my stock analysis, Wal-Mart doesn’t only have the big-box stores like Costco Wholesale Corporation (NASDAQ/COST) and the multitude of discount stores to fend off. As my stock analysis indicates, we are also seeing a marked shift to online spending as consumers search everywhere for the best selections and prices.

Cheaper goods are no longer found by simply venturing out to the stores. And to add to the savings, most of the major online retailers are offering free shipping. The convenience of shopping from home or even on the go via your mobile device appears to be more attractive to consumers, as my stock analysis indicates.

One of the top online retailers that I feel has the wherewithal to succeed based on my stock analysis is Amazon.com, Inc. (NASDAQ/AMZN).

Under the leadership of its CEO, Jeff Bezos, Amazon.com has ambitions to make the company a one-stop shopping place for online consumers. Whether it’s books, music, clothes, electronics, or online movie streaming, Amazon.com offers it all.

Amazon.com Inc Chart

Chart courtesy of www.StockCharts.com

The company is also experimenting with an online grocery branch in several major … Read More


A Compelling Case for This Retail Discounter

By for Daily Gains Letter | Aug 1, 2014

While Others Flee This Discounter, It Tops My ListThere is a lot of hurt out there in the retail sector as consumers have yet to come back in full force. The soft consumer sentiment has impacted retailers across the board, from the specialty retailers to department stores. Even the discount and big-box stores, which are pretty resilient when spending declines, are hurting at the register.

Consequently, we saw a consolidation in the discount sector after Dollar Tree, Inc. (NASDAQ/DLTR) decided to snap up rival Family Dollar Stores, Inc. (NYSE/FDO) in a cash and stock deal valued at $8.5 billion, or about $74.00 per share.

I last talked about picking up a company like Family Dollar Stores in April as an investment opportunity when the stock was trading at $58.31.

Now for both companies, the merger makes a whole lot of sense, especially at a time when consumers are tighter with their spending habits. The merger will likely mean eliminating overlapping stores in the same vicinity, since there will be 13,000 stores in the network.

At the smaller end of the spectrum, a discounter that is an investment opportunity and worth a look is Five Below, Inc. (NASDAQ/FIVE), which has a share price of $35.27 and a market cap of $1.94 billion. The stock debuted on July 19, 2012 at $26.05, but has reported several soft quarters, which drove some investors to the exits. Yet at just above its 52-week low of $33.94, the stock offers a decent contrarian investment opportunity for speculators.

With Five Below down over the past 52 weeks, compared to a 17.39% advance by the S&P 500, there could be a good investment opportunity here…. Read More


What the World Cup and the Stock Market Have in Common This Year

By for Daily Gains Letter | Jul 14, 2014

How to Make Some Premium Income This SummerLast Wednesday, I had fun watching the World Cup game between Argentina and the Netherlands. As strange as it may sound, I actually found that the tension and apprehension throughout the match reminded me of the stock market.

Despite the Dow Jones Industrial Average recently trading above 17,000 and the S&P 500 at another record-high, I still sense the stock market is vulnerable to selling. I think this will be especially true if the second-quarter earnings season pans out as expected, devoid of any major growth in earnings or revenues.

Alcoa Inc. (NYSE/AA) offered up a nice report, but I’m not sure how much it counts, as the company really is not a major bellwether as to the health of the global economy.

The reality is that consumer spending drives the economy and the stock market. I would rather look at what’s happening at bellwether global retailer Wal-Mart Stores Inc. (NYSE/WMT) than Alcoa. The “Death Star” of the retail sector is struggling for growth around the world—and that cannot be good news. Even discount stores, which tend to be more immune to slowing, are showing signs of weakness.

In other words, while the stock market has edged higher, I still wouldn’t get too comfortable at this time. I think we could see another minor stock market correction should earnings tank. Of course, this would provide us with an investment opportunity to buy shares on weakness in the stock market.

Now there’s some optimism following the Federal Reserve’s dovish remarks from its June meeting, as there’s a sense that interest rates will not ratchet higher until after mid-2015, depending on the … Read More


“Discount Aisle” Retailer the Best Investment Opportunity?

By for Daily Gains Letter | Jun 6, 2014

Underpriced Retailer for the Contrarian Investor's RadarThe retail sector is hurting at this time from the discounters to the luxury brands, with just a few exceptions. Even the dollar stores are facing slower growth.

Yet with the sector down, it’s time to look at picking up some of the damaged retail stocks as an investment opportunity.

A retailer that I feel has declined to an attractive level as an investment opportunity is small-cap Texas-based Stage Stores, Inc. (NYSE/SSI). A seller of reasonably priced brand and private-label apparel, accessories, cosmetics, and footwear to women, men, and kids, Stage Stores is languishing just above its 52-week low, where I see an investment opportunity.

Stage Stores runs approximately 883 stores that are situated mainly in small and mid-sized towns in 40 states. The stores’ sizes vary, from as small as 5,000 square feet to as large as 54,000 square feet. Small towns comprising fewer than 50,000 people account for 65% of the company’s store locations; mid-sized towns with between 50,000 and 150,000 people account for 18%; and the remaining 17% are found in large cities.

I view Stage Stores as a contrarian investment opportunity, given the stock is down 21.4% over the last 52 weeks versus a 16.26% advance by the S&P 500. The stock price should rally if the company can deliver better, consistent results.

Stage Stores reported higher sequential fiscal sales growth from FY05 to FY08 and FY11 to FY13. Sales growth is estimated to continue into FY14 and FY15.

The company does make money, with profits in nine of the last 10 fiscal years. The growth is estimated to continue into FY14 and FY15.

The stock … Read More


Conservative Investor? Why Now Is Your Time

By for Daily Gains Letter | May 19, 2014

Conservative InvestorThe best way to make money in the stock market at this time is to avoid growth and technology stocks while you take some profits off the table.

The reality is that, despite the failure of the Dow Jones and S&P 500 to hold after establishing new record-highs last Tuesday, the stock market wants more reasons to bid stocks higher. The first-quarter earnings season saw about 70% of the S&P 500 companies beat earnings-per-share (EPS) estimates, but the results were largely based on lowered estimates by Wall Street.

Investors took the opportunity to take some profits following the rally last week. This indicates to me that there’s definitely still some vulnerability in the stock market.

Bellwether retailer Wal-Mart Stores Inc. (NYSE/WMT) reported soft results that suggest the global economy is still hesitant to spend after the company fell short on revenues and EPS. And to make matters worse, the company also revised its second-quarter estimates to below consensus. Clearly, the retail sector is struggling, and this will impact gross domestic product (GDP) growth.

On the charts, technology and growth stocks are risky. The Russell 2000 fell back below its 200-day moving average (MA) after failing to hold for the second time in just over a week.

We are seeing some selling capitulation in the small-cap area of the stock market and it could grow deeper.

Companies in the technology sector, specifically the high-momentum stocks, also remain under pressure, helping to drag the broader stock market lower. I don’t expect this to change anytime soon, so this is an area that you need to avoid, liquidate, or protect with put options…. Read More


My Investing “Shopping List” for a Tough Retail Environment

By for Daily Gains Letter | May 16, 2014

The Diamonds Dogs Current Retail SectorThe retail sector is clearly undergoing some duress early on in 2014 as there is a worrisome feeling that the country’s economic growth may be stalling.

The first quarter’s gross domestic product (GDP) growth was muted. Retail sales were also soft in April. The core reading showed spending contracted by 0.1% in April after 1.3% growth in March. Of course, economists are not concerned, suggesting the first-quarter retail sales will rise.

The winter weather may have wreaked havoc with consumer spending in the retail sector, but it’s now show time; the retailers need to begin to deliver as the weather warms up.

My top rates in the retail sector continue to be the discounters and, oddly enough, the high-end luxury-brand stocks, given the amount of wealth created among the top one percent.

In the luxury area, vying for the “Best in Breed” are Michael Kors Holdings Limited (NYSE/KORS) and Tiffany & Co. (NYSE/TIF). I also like Coach, Inc. (NYSE/COH) as a contrarian pick in the retail sector.

In the discount segment, Costco Wholesale Corporation (NASDAQ/COST) is one of the top stocks. I also like discount stocks Family Dollar Stores, Inc. (NYSE/FDO) and Dollar General Corporation (NYSE/DG). The discount area has also been impacted by the weather, but it remains a top area in the retail sector.

If you are looking at the department stores, the top stock is Macy’s, Inc. (NYSE/M), which is probably the best-managed and top-performing company among the department stores in the retail sector.

Macy’s just reported a first quarter in which it beat on earnings per share but fell short on sales. The results show the … Read More


My Favorite Pick in the Retail Sector Is Not What You’d Think

By for Daily Gains Letter | Apr 14, 2014

Variables Aligning for Retail to Outperform 2013The retail sector can return some amazing gains as we have witnessed since the recession ended—but it can also provide periods of anxiety.

How the retail sector performs is dependent on many variables, including the economy, jobs, housing, consumer confidence, interest rates, and even the weather, as we witnessed this winter.

There is no tried-and-tested rule on what areas of the retail sector do well. For instance, if you think discount and big-box stores always fare the best, while high-end luxury-brand stocks underperform during times of economic uncertainty, then you are likely off the mark.

The reality is that the past years of massive wealth creation in the stock market and a rebounding housing market have helped to create wealth, and with this comes the desire to spend. There have been some 300,000 new millionaires created in the country in 2013, and that means a propensity to want to spend specifically on higher-end goods and services.

The rationale supports why luxury stocks, such as Michael Kors Holdings Limited (NYSE/KORS) and Tiffany & Co. (NYSE/TIF), have done so well over the past few years. In the luxury retail sector space, Michael Kors continues to be one of my favorite retail sector stocks.

KORS Michael Kors Holding Ltd Chart Chart courtesy of www.StockCharts.com

Meanwhile, the bottom end of the retail sector, which includes the discount and big-box stores, has provided mixed results; albeit, these stocks have made investors a lot of money.

One of my favorite discount stocks in the retail sector is Family Dollar Stores, Inc. (NYSE/FDO). But the company recently reported a soft fiscal second quarter, in which same-store sales fell 3.8% in the quarter; year-over-year, … Read More


Three Stocks to Profit from New and Old Cars Alike

By for Daily Gains Letter | Mar 25, 2014

Stocks to Profit from New and Old CarsSpring is finally here, but that certainly doesn’t mean corporate America will cease to use the cold weather as an excuse for abysmal corporate earnings. Throw a dart at any sector, and you’ll find CEOs blaming the weather in some capacity—well, save for the utilities companies.

One sector that might be able to (on some level) justifiably blame the weather for a weak start to the year is the auto sector. Overall, U.S. auto sales were up eight percent year-over-year, while Canadian auto sales were up four percent. (Source: Isidore, C., “Car sales make a strong comeback in 2013,” CNN Money web site, January 3, 2014.)

In 2013, U.S. auto sales topped 15 million for the first time since 2007. While auto sales of 15.6 million were below the 16.0 million forecast by analysts, it was still an encouraging sign for the auto industry. Ford Motor Company’s U.S. sales were up 11%, while Chrysler Group LLC saw its sales climb by nine percent, and General Motors Company reported a 7.3% increase.

The 2013 auto sales data is encouraging in light of the disappointing December sales numbers; this also happened to coincide with the start of the dastardly winter of 2014. The weak end-of-the-year auto sales sentiment skidded over into 2014. Auto sales missed both their January and February expectations.

So far, 2014 has been good for global auto sales. Global sales hit record territory in February, climbing seven percent year-over-year. Auto sales in China climbed 22%, while car sales in Western Europe climbed year-over-year for the sixth consecutive month. Spain led the way with an 18% jump in auto sales. … Read More


This Sector Sure to Benefit as Online Retail Sales Grow

By for Daily Gains Letter | Mar 10, 2014

consumer spendingThe feeling is mutual: consumers are failing retailers, and retailers are disappointing consumers.

First, let’s look at consumers; apparently, we’re not spending as much as we need to.

During the first month of the year, new orders for manufactured durable goods slipped by one percent, or $2.2 billion, to $225.0 billion—the third decrease in the last four months. Core durable goods (excluding transportation), on the other hand, rose 1.1%. That’s not a huge leap when you consider core durable goods slipped a further-than-expected -1.9% in December.

Retail numbers aren’t any better. U.S. retail sector sales for January fell by the most since June 2012. January retail sector and food services sales for January fell 0.4% month-over-month to $427.8 billion. In December, retail sector sales slipped 0.1% month-over-month to $429.5 billion. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” United States Census Bureau web site, February 13, 2014.)

Of the 13 sectors the U.S. Census Bureau looks at, nine reported month-over-month declines. The biggest retail sector drops were in motor vehicle & parts dealers (-2.1%); sporting goods, hobby, book, and music stores (-1.5%); department stores (-1.5%); and clothing & clothing accessories stores (-0.9%). Necessities like food and gas experienced month-over-month gains.

As a nation, we expect consumer spending to generate roughly 70% of our gross domestic product (GDP) growth. These retail sector numbers do not point to sustained economic growth. Though you can hardly blame us, initial claims for jobless benefits rose more than forecast and wages remain pretty flat.

Now, let’s look at retailers. For an industry that needs consumers to buy its products or services, they … Read More


Two Retail ETFs to Get Your Portfolio Through the Last of This Winter

By for Daily Gains Letter | Mar 10, 2014

retail sectorEveryone is blaming the poor economic numbers we have been seeing on the misery of the horrific winter.

Federal Reserve Chair Janet Yellen suggested that the winter was to be partly blamed for the somewhat lousy economic readings in December through to February. With the fierce winter, people are hesitant to venture out to look for work, buy groceries, eat at restaurants, go and watch a movie, or even travel.

While I do agree the harsh winter has impacted the economy somewhat, you can’t blame everything on the weather. If this were true, then we would be starting to witness pent-up demand for goods and services in the upcoming months as the snow and cold dissipate.

Or maybe it’s just because the economy is stalling to some degree.

The jobs market is lousy and will need to pick up some momentum. Maybe with the warmer weather to come, job seekers will venture out and look for work, or perhaps companies are just not hiring as much as the government wants to see, given all of the monetary stimulus that has been spent on driving consumer spending in the country.

The one area that looks pretty fragile at this time is the retail sector. Consumers simply appear to be holding back on expenditures and waiting for deep discounts.

In January, the retail sector reported a 0.4% decline in sales, representing the second straight month of declines on the heels of a revised 0.1% decline in December, according to data from the U.S. Department of Commerce. It’s likely the extreme bad weather conditions in January and February contributed to the soft results—at … Read More


Four Top High-Momentum Stocks to Watch

By for Daily Gains Letter | Feb 27, 2014

High-Momentum Stocks to WatchThere is a lot of money trading the stock market each day, and this is especially true with the momentum stocks that are making many traders rich.

While anyone can trade momentum stocks, to make the real big money, you need to be trading big positions on these momentum stocks and be willing to assume the risk that the trade could go the other way. The key to trading momentum stocks is to make sure you are closely monitoring the price action and the volume on the bid side, especially. A major upward push in bids could foreshadow a pending upward move in the stock. The same can be said for rising volume on the ask side that could suggest traders are exiting the stock.

While there are numerous momentum stocks, the following are examples of momentum stocks that I believe offer the best opportunities as these companies are also leaders in their areas.

Facebook, Inc. (NASDAQ/FB) has been one of the top performers and momentum stocks since bottoming out in 2013. The social media company, with more than one billion subscribers, is managing to drive up its mobile advertising business and monetize its enormous user base. Facebook also made waves last week after the company announced it would be paying a whopping $19.0 billion in stock for four-year-old mobile messaging company WhatsApp. The company was clearly overpriced, but given that the stock price of Facebook has also risen extraordinarily, the $19.0-billion price tag doesn’t seem so bad.

At the low end of Facebook’s stock price at around $17.00 a share, the deal would have been valued at around $4.75 … Read More


Retail Sales Decreasing? Not in These Retail Sector Stocks

By for Daily Gains Letter | Feb 26, 2014

Retail Sector StocksEchoing the overall sentiments of the U.S. economy, U.S. retail sector sales fell (apparently) unexpectedly in January by the most since June 2012, as initial claims for jobless benefits rose more than forecast.

The United States Census Bureau announced that advance estimates of U.S. retail sector and food services sales for January decreased 0.4% month-over-month to $427.8 billion. In December, retail sector sales slipped 0.1% month-over-month to $429.5 billion. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” United States Census Bureau web site, February 13, 2014.)

Not surprisingly, analysts everywhere were blaming the cold weather for the weaker-than-expected results, noting that components that depend on foot traffic—including auto dealers, department stores, and restaurants—were hindered by the unusually cold weather. But on closer inspection, I think our energy would be better spent blaming the economy for the poor numbers rather than the weather.

For starters, the U.S. Census Bureau considers retail sector sales at 13 different kinds of businesses, including motor vehicle and parts dealers, furniture and home furnishing stores, electronics and appliance stores, food and beverage stores (which includes grocery store stocks), and clothing and clothing accessories stores. Of the 13 different sectors, nine reported month-over-month declines.

The biggest declines in the retail sector were from motor vehicle and parts dealers (-2.1%); sporting goods, hobby, book, and music stores (-1.5%); department stores (-1.5%); and clothing and clothing accessories stores (-0.9%). These four industries are more representative of discretionary spending than essential services, like food.

Having said that, at the other end of the spectrum, essential retail sector services, like food and beverage stores (which include grocery store … Read More


Weak Retail Environment an Investment Opportunity in Cash-Based Businesses?

By for Daily Gains Letter | Feb 18, 2014

Investment Opportunity in Cash-Based BusinessesFor an economy that relies on consumer spending to fuel the vast majority of its economic growth, ongoing weak retail sector sales and increased jobless claims cannot be part of the equation. But they are. And have been.

In January, U.S. retail sector sales fell by 0.4%—the most since June 2012. Economists had predicted that January’s retail sector sales would be unchanged in January after falling by a revised 0.1% in December. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau, web site, February 13, 2014.)

January retail sector sales, excluding automobiles, gasoline stations, and restaurants, showed the worst year-over-year growth since 2009. And with the harsh winter weather, January’s sales reflect the sometimes unpredictable, cyclical nature of our spending, from discretionary (e.g., cars) to non-discretionary (e.g., heating).

At the same time, more Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250. Many economists continue to blame the cold weather for both weak retail sector sales and increased jobless claims. (Source: “Unemployment Insurance Weekly Claims Report,” United States Department of Labor web site, February 13, 2014.)

Fortunately, there is a silver lining to all of this. They suggest we’ll start to see an acceleration in hiring and retail sector sales in the spring and summer seasons—meaning they have written off the entire first quarter of the year, a quarter most economists initially predicted would be bullish. Myself and the financial editors here at Daily Gains Letter, on the other hand, have been warning … Read More


Are Retail Sales Indicators Really as Positive as They Seem?

By for Daily Gains Letter | Jan 16, 2014

short-term economic dataDepending on who you ask, sales in the retail sector may be either brisk or failing to gain traction. Like most things in the stock market, when it comes to the retail sector, it’s all about perspective.

According to the U.S. Department of Commerce, December retail sector sales advanced 0.2% month-over-month, beating analyst forecasts that expected a one-percent increase. Auto sales fell 1.8%, pulling total retail sales numbers down. Not surprisingly, the weak December auto sales numbers are considered more of a reflection of the bad weather than a weak economy. (Source: “U.S. Census Bureau News: Advanced Monthly Sales for Retail and Food Services December 2013,” United States Census Bureau web site, January 14, 2014.) Excluding auto sales, December retail sector sales climbed 0.7% after a 0.2% increase in November.

Are these retail sector sales numbers the latest indication that the economy is getting stronger as we begin 2014?

Well, that depends on how you look at it. Month-over-month, the retail sector sales data looks encouraging. But if you step back a bit and look at the last few months—or even year-over-year numbers—the retail sector and, by extension, the U.S. economy don’t look so bright.

Overall sales of furniture, sporting goods, building materials, garden equipment, electronics, and appliances fell month-over-month. Electronics and appliance stores, two key gift-buying outlets during the holiday season, tripped in November and December. Year-over-year, electronics sales were up a paltry 0.7%.

Department store revenues were essentially flat in November compared to October and were down slightly in December. Overall 2013 department store sales were down 4.7% from 2012.

So now I ask you, will the good … Read More


Four Profitable Ways to Play the Retail Sector

By for Daily Gains Letter | Dec 12, 2013

Retail SectorWell, unlike many retailers, it looks like Starbucks Corporation (NASDAQ/SBUX) knows how to boost sales—at least momentarily. The company managed to sell 1,000 limited edition metal gift cards at $450.00 a pop via Gilt.com in a matter of seconds. Apparently, this high level of demand and consumers’ reactions to the rare gift card were a repeat of last year, when the company offered a similar product.

Now, this gimmicky kind of sales strategy, while working for Starbucks, likely won’t work for many other companies in the retail sector. Instead, I think these companies could face a margin squeeze over the final weeks of the year, which have proved critical for the retail sector in the past.

The problem is that the retail sector didn’t report strong results on Black Friday and the subsequent key shopping days, despite retailers’ attempts to attract consumers by pulling out all the stops, including longer shopping hours (earlier store openings, later closings), heavy advertising, and steep discounts.

Of course, the operators in the retail sector will soon need to clear out their winter merchandise, and that means great discounts for consumers ahead but pressure on sales margins for the retailers. The end result will likely be sales and earnings coming in lower than expected. And this means we could see more retailers hurting when they present their fourth-quarter results.

For the retail sector, the next few weeks will be a battle between the retailers for consumers’ limited spending dollars. This means that heavier discounting to clear inventory will likely take place.

As an investor, I would be hesitant to buy retail stocks at this time. … Read More


Not Much for Retailers to Be Thankful for This Past Thanksgiving

By for Daily Gains Letter | Dec 3, 2013

Thankful for This Past ThanksgivingDespite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.

In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)

Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.

Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.

But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) … Read More


This Sector the Only Bright Spot in October Retail Sales

By for Daily Gains Letter | Nov 22, 2013

October Retail SalesOctober U.S. retail sector sales numbers are in, but are they worth getting excited about?

The Census Bureau announced on Wednesday that October retail sector sales increased 0.4% month-over-month and 3.9% year-over-year to $428.1 billion. From a shorter-term perspective, the 0.4% increase really isn’t anything to get excited about; that 3.9% year-over-year increase, though, looks pretty good. (Source: “Advance Monthly Sales for Retail and Food Services October 2013,” U.S. Census Bureau web site, November 20, 2013.)

Or does it? Take a step back, and you can see we’ve been in a downtrend for the last few years.

In October 2010, U.S. retail sector sales were up 6.9% month-over-month. This isn’t a big surprise when you consider the so-called economic recovery only began in mid-2009. In October 2011, U.S. retail sector sales were up 7.6% year-over-year, another strong gain on the back of ongoing optimism that the economy would rebound. (Source: “Retail and Food Services Sales,” Federal Reserve Bank of St. Louis Economic Research web site, November 20, 2013.)

But then we realized the economic recovery wasn’t much of a recovery at all. In 2012, October retail sector sales were up just 4.4%, almost half the gain of the previous year, and in October 2013, U.S. retail sector sales were up just 3.9%. Looking at it from a longer-term perspective, even the recent October year-over-year numbers aren’t anything to get worked up about.

Today, we’re more than 50 months and $3.0-plus trillion into the Federal Reserve-guided recovery, and we really don’t have much to show for it. In fact, you could argue that the economy might have done better without any … Read More


Back-to-School Season Disappointing for Retail Sector

By for Daily Gains Letter | Sep 9, 2013

Retail SectorStudents aren’t the only ones unhappy this back-to-school season. U.S. companies in the retail sector, which rely on back-to-school shoppers to propel their mid-year sales, are also despondent. Perhaps not surprisingly, August’s bearish consumer sentiment reading of 80.0 has translated into tepid spending on everything back-to-school, including clothing, backpacks, shoes, notebooks, and laptops. (Source: “U.S. consumer sentiment weakens in August,” Reuters, August 16, 2013.)

August sales in U.S. chain stores climbed a modest 3.7% year-over-year; that’s up a sliver from July’s 3.5% gain, but down significantly from the six-percent gain reported in August 2012. While some U.S. retail sector stocks reported stronger-than-expected August sales, many had to resort to slashing prices to get there. The Gap, Inc. (NYSE/GPS), one of the biggest apparel metrics, said August sales were up three percent. (Source: “August Chain-Store Sales Post Gain of 3.7%,” ICSC.org, September 5, 2013.)

Next to the winter holidays, the back-to-school season (which runs from mid-July to mid-September) is the second-biggest period for shopping. And in an effort to boost mediocre revenues in the third quarter (ended September 30), many stores in the retail sector are expected to continue offering even steeper discounts.

While back-to-school sales are not the most reliable predictor for how the American retail sector will do during the November and December shopping seasons (which can account for 40% of annual sales), they are a good reflection of ongoing consumer confidence—and the American economy as a whole.

Sure, the average American homeowner has (apparently) seen their personal wealth increase as a result of a slightly improving housing market, but that’s all on paper. Most Americans are faced with … Read More