Do you like shopping at Target (NYSE: TGT)? Many people do. In fact, investors are hoping that so many people like buying things at the bullseye retailer that the company will beat earnings expectations for the third quarter. Target will be reporting on Monday, November 17. What should we expect?
Shareholders should expect a drop in the bottom line. Now, did we need a source to tell us this? Probably not. The consumer is starting to feel scared, there's no doubt about it. I'm sure everyone has anecdotal evidence concerning the fear that is out there. Consumers are afraid that the job cuts being reported in the papers will eventually reach their cubicle, so they're scaling back on spending. So, if Target merely meets the expectation for $0.49 per share next Monday, I'm sure many shareholders will breathe a sigh of relief, even though that will represent about a 12% drop in per-share profit.
I'm not so sure Target will beat, though. For one thing, Brent Archer recently reported on Target's lousy October sales data. They missed Wall Street's mark. Since Target beat the last two quarters; I figure we're due for a miss considering everything that's been going on. We shall see. I'll be interested to see how the margins are doing and what kind of position the company may be in going into Black Friday. And I'll be looking at the comps, of course.
As a sign of how disconnected one can be, I had to ask my 12-year old about Steve & Barry's. I had not heard of it and it is receiving way too many comments on our site to be ignored. My colleague Zac Bissonnette started blogging about it a month ago Steve & Barry's on the brink of bankruptcy? and the comments are still coming in strong as the story progressed.
Steve & Barry's filed for Chapter 11 bankruptcy on July 9, 2008, and information about its status and answers to frequently asked questions can be found here.
The company has been expanding rapidly and clearly hit a brick wall with consumer budgets severely strained and the economy facing uncertainty in the short term. However, this is supposed to be a discount chain. Perhaps the discounting amounted to selling dollars for ninety cents, and it could not make it up on volume.
This is a relatively small company, but clearly it matters to a lot of people. The number of comments we have received has surpassed most of our recent stories, even those of the Bear Stearns takeover (acquired by JPMorgan Chase (NYSE: JPM)) and the IndyMac (NYSE: IDMC) collapse.
Steve & Barry's might have had an IPO sometime in its future, but that is not likely in the current environment. What is it that makes this story so compelling to our readers? If it is because the stores are so great, what went wrong in your neighborhood?
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of any of JPM.
Today's Wall Street Journal has an article about the cost-cutting measures going on retailer, JC Penney (NYSE: JCP). The article, essentially an interview with CEO and Chairman, Myron "Mike" Ullman III, details Ullman's changing of gears, from aggressive store expansion and online growth to scaling back in the face of a looming recession.
The CEO is expected to announce today plans to merge the buying and marketing operations for store and online sales, cutting as many as 200 jobs.
In the article, Ullman says he may scale back store expansion over the next two years.
Getting more of the consumer's wallet
Ullman says, "Half of the families in the U.S. shopped with us at least once last year. But we only get 7% of their spending. So, our biggest opportunity in the downturn is to make every visit they make to our store, Internet or catalog more productive by offering more innovation."
If you are of the mind that the American economy can't falter much worse than it already has, does that make a case for investing in the dollar right now? I would tend to think so. A weak dollar that has been mercilessly pinned against the floor for so long looks mighty appealing to me right now. The big questions are, how long shall this domestic economic sluggishness continue and what, if anything, are the growing industrial economies willing to do about it? If the undeniable rule of buy low and sell high applies to the dollar as with any other investment, someone is going to start scooping these greenbacks up in large chunks as their value bottoms out.
The World Bank suggests that oil prices shall decline to the middle 70's this year, giving a needed reprieve to currencies the world over. They also envision upwards of 3% economic growth globally for 2008 and history shows that growing economies have always hungered for American consumer dollars. Couple these factors with the reality that phantom value is finally being painfully peeled away from the American economic landscape and you have a recipe for a return to real economic growth here at home.
I've pointed offshore for the past two quarters when discussing my perspective on safety in short term investment, yet one cannot deny that we're still fairly strong here at home. Let no one claim that the dollar has met its doom. I'm expecting some very heartening economic news as we go through Q2 '08, and I might suggest being poised to grasp a dollar that could rebound remarkably then.
Consumers are still willing to run their lives based on credit, so says an Associated Press report. Consumer borrowing increased at an annual rate of 7.4% in November compared to an increase of just 1% in October - ah yes, the faux magic of a consumerist Christmas.
The truth of the matter rests in the cause for the rise. Is it because consumers are still confident in their earning potential? The more likely cause is that consumers are running out of funding options, read that -- they're running out of cash.
So why is it that mortgages are getting harder to write but consumer purchases can still be funded with just a signature? Although they're deflating in value, homes still provide significant backing for lenders to lean their bets on whereas credit cards float in the unknown. With bankruptcies at an all time high, are we setting up for the final crash?
Wal-Mart (NYSE: WMT) instituted a new customer slogan this year: "Save Money. Live Better." Although it was intended to reinforce the retailer's position that it helps families in an age of increasing prices and general inflationary pressure, much of the public didn't get the memo, apparently.
Keep in mind that it's hard to completely trust anything by either the retailer or its watchdog groups like Wal-Mart Watch, the latter released a survey that concluded only 4% of people believe that Wal-Mart saves the average American family $2,500 annually. The same report says that customers may indeed be paying less, but Wal-Mart is not the only company that can help them pad those wallets and fill those purses.
Of course, Wal-Mart Watch says that the study that backs Wal-Mart's "$2,500" claim credits just the retailer's existence with saving the customer that much. Perhaps that's through pricing competition in the area and inflation control more than Wal-Mart customers specifically saving that much by shopping at Wal-Mart? That could certainly be inferred here.
Regardless, does the mere existence of Wal-Mart control the complete, surrounding retail ecosystem, causing prices to remain ultra-competitive? Probably so -- and Wal-Mart's "Save Money. Live Better" might just be a statement of fact rather than a corporate pitch. Either way, there's probably some good truth in there.
Or, what I really wanted to title this post: Why isn't the collapse of the housing market and an inverted yield curve driving the economy into a recession?
Last week's GDP growth of 4% was certainly a shocker. With the housing market suffering some serious weakness, the U.S. fixed income market trading like a complete mess and the yield curve being inverted (short-term rates higher than long-term rates) for more than a year, conventional wisdom would tell us that the US economy should be very close to a recession. However, GDP data is telling us quite the opposite.
With roughly 70% of the U.S. GDP derived from the consumer, the withdrawal of credit from the primary and secondary mortgage markets led many pundits to conclude the consumer is tapped out and therefore the U.S. economy is in for some serious trouble.
However, these proclamations of consumer collapse have failed to materialize. Why is that? The answer is a tight labor market, with wage increases more than offsetting weakness in the mortgage market. Three cheers for labor.
After twenty-five years of open markets, U.S. labor is now very competitive as lower-skilled jobs have moved offshore and jobs requiring higher-end skills have boomed. Most of the leading job creators, NASDAQ companies like Microsoft Corporation (NASDAQ: MSFT), Oracle Corporation (NASDAQ: ORCL) and Cisco Systems (NASDAQ: CSCO), were either just getting started or did not exist when this job growth boom began. Now there are hundreds, if not thousands, of companies that are seeking higher skilled employees.
At the end of the day, last week's GDP data demonstrates that good times are ahead for U.S. labor. After going through a brutal transition from a manufacturing to a service economy, labor appears it has the upper hand once again. The terribly weak mortgage market will be more than offset by the positive effects of a tight market for labor.
Most of the day, the Dow Jones industrial average was in a steady, but slow decline -- the kind of drop where traders figure it's going to be a negative day, but nothing to worry too much about.
But after the much-anticipated minutes of the Federal Reserve Board's Aug. 7 meeting went public around 2 P.M. and investors didn't see the signs they were hoping for that the central bank would be willing to cut interest rates, the selling picked up. The Dow closed down about 250 points. That's less than 2% -- hardly the stuff of panic -- but more indication that a lot of professional investors are counting on the Federal Reserve to lower interest rates, and do it soon.
A decline in consumer confidence reported earlier in the day didn't help. It's becoming increasingly clear that the real danger with the meltdown in the sub-prime mortgage market is not with the financial sector. Sure, hedge funds will shut down, big banks' earnings will suffer. But the really big worry now is that the U.S. consumer could roll over.
That's the view of Robert Loest, senior portfolio manager of Integrity Mutual Funds, who visited AOL's offices today. The housing market is not going to rebound quickly or easily -- especially with so many adjustable rate mortgages still due to reset to higher rates in 2008, he warns. And he suggests investors avoid all consumer plays; not just the luxury goods stocks, but even discounters, like Wal-Mart Stores (NYSE: WMT).
Loest further recommends picking up some counter-cyclical stocks -- like bankruptcy software maker Epiq Systems (NYSE: EPIQ) or collection agency Portfolio Recovery Associates (NYSE: PRAA), both of which he owns. "Those are the kind of stocks that should do well when the economy does poorly and could make a real difference to your portfolio," he says.
Best Buy reported a drop in gross margins, as promotions for higher-end flat panel TVs kick in. Same store sale comps came in at a positive 3% and the company is guiding to 2% to 2.5% growth.
Circuit City warned last quarter that business was deteriorating, with its stock getting hit hard.
Wendy's reported a 3% drop in same store sales and a big miss on its EBITDA line.
Do not expect much of an uptick in consumer spending until the Fed starts dropping rates. Consumer dependency on home equity loans to finance large purchases is over, making year-over-year comparisons hard for the retail industry.
Yesterday I received a pre-approved offer for Washington Mutual's (NYSE: WM) Visa Platinum card. I receive dozens of offers like this every month, even though I've never asked for a single one of them. While I find most of them mildly annoying, this one was particularly presumptuous. On the front of the envelope, this was written: "REMOVE CONTENTS before you discard". Jason, a blogger at Signal vs. Noise posted a picture of an offer he had received (pictured at right) with the same warning, and mused that "They know I'm going to toss it, but they want to give me a good scare first, cause, ya know, someone will definitely steal my identity if I don't take that fake credit card out of there."
The offer he received sounds exactly the one I have in my hand, because I too received a cardboard credit card. But here's my question for Washington Mutual:
Why the (expletive) should I have to open the envelope and remove the contents before I discard a promotional mailing that I didn't ask for and don't want?
Being an investigative reporter/Chris Hansen wanna-be, I called up the number provided in the mailing to try to find out. After sitting on hold for about five minutes (and being told 11 times that the call might be being recorded), I was connected with a lady with a thick accent. After explaining that I didn't want to open an account (although she insisted I give her my reservation number and I had to repeat it five times), I asked her my question. Here's our conversation:
Zac: "Why do I have to open this junk mail before I throw it out?"
Lady: "I don't know sir."
Zac: "Well can I talk to someone who does?"
Lady: "No sir."
Zac: "Well can I just talk to your supervisor?"
Lady: "You can but she won't know either."
Zac: "Do you have a number for someone who might?"
Lady: "No sir."
Zac: "OK. Well thanks anyway, and have a nice day."
Lady: "Do you still want to open an account?"
This is a case of one of two things: Duplicitous marketing or a mass mailing that could possibly be causing identity theft. Either the warning on the envelope is there to make you think your personal information could be in danger, forcing you to open their mailing or they actually are sending me unsolicited junk mail that contains enough information to steal my identity. I have a hunch the first is the right answer, but I still can't decide which would be more evil.
I live on the West Coast, so I wake up to news of the early trends in the market. This morning seemed a bit glum, the kind of day that (if my mood was made entirely of markets) I might have just rolled back over.
Good thing I got up. By the end of the day, the DJIA had surged 187 points to 13,482.35, its biggest one-day gain since the summer of 2006 (ahh, the summer of 06!). The 10-year treasury rate had a lot to do with it -- falling to under 5.2% after a surge to 5.3% in the early hours.
Best of all, according to a quote from Alan Gayle, senior investment strategist at Trusco Capital Management: "the consumer is holding up." Maybe that doesn't seem like a convincing reason to send stocks soaring (I'd love to see "filled with optimism" or "doing better than ever" or even "rolling in unspent greenbacks." That would be nice), but it was enough, and all the photos of traders would make good illustrations for The Wall Street Book of Smiles.
Everyone who's interested in the Dell to Wal-Mart retail scenario wants to get a better idea of just exactly what Dell intends to do over there. We all know that Wal-Mart (NYSE: WMT) is the "Low Price Leader", so how does this play out for Dell (NASDAQ: DELL)? Being that my Dell corporate headquarters spy drones are down for repairs and my Wal-Mart corporate spy cams have been taken off line, I can only speculate on the intended direction which Dell's move is going to take. Over at Engadget the response to this move has been tepid, or leaning towards not well received.
First, let me say that at its root this Dell move is an excellent idea. By that I mean Dell has needed a direct outlet to the consumer for quite some time. Some of the tech sector analysts where aghast when they heard of this move because they had quickly assumed that Dell was changing over their entire marketing strategy to volume by low price but I assure you that's not what's happening here. Dell will still be building the lion's share of its desktop computers to customer order and shipping them direct. Wal-Mart, for the time being at least, shall only be handling a couple exclusive Dimension desktop models and I expect a select few notebook and laptop models. I predict also that as Dell earns Wal-Mart shelf space, there will be other Dell branded consumer electronics moving in there, but probably never their full desktop line.
Wal-Mart is historically demanding in their requirements for wholesale purchasing. They set the prices, the volume and the time tables. It's very much a take it or leave it world when selling to Wal-Mart. To me, it's kind of a sign of desperation that Dell has opted to go this route. I honestly thought that a Radio Shack (NYSE: RSH) scenario would play out to a much greater advantage for Dell than this Wal-Mart strategy. Is this a sign that as consumers we're expected to cheapen our expectations when thinking of Dell? I assure you that is what will happen. I'm expecting to spend about $2000 on a new PC next year. Perhaps it will be a Hewlett-Packard (NYSE: HPQ) after all.
Now, if you'll excuse me, I have to get to work on these spy drones.
One of our editors said she will get to the story after she gets her coffee (Which one? That's a company secret), and it started me thinking that we spend a lot of time complaining about the price of both gasoline and coffee. We certainly have given the oil companies and coffee companies plenty of coverage at BloggingStocks. All of them have been doing quite well the past few years. Currently in the West L.A./Santa Monica area, a Venti Latte (large) at Starbucks (NASDAQ: SBUX) and a gallon of super unleaded gasoline at Exxon-Mobile (NYSE: XOM) cost about the same, $3.50.
But which do you spend more time and money on? I think we all spend more time on coffee. Most people can get by with refueling their car once a week, perhaps twice for long commuters or more for people who drive for a living. Otherwise it's fill-it and go. Coffee on the other hand can be an all-day activity, be it visiting the coffee maker at work, preparing your own coffee, visiting Starbucks three, four, and five (even more for some) times a week. Now that's time consuming. Depending on what your time is worth, that can be costly.
Most of the time I am very content with a large coffee from the local bagel shop for $1.50 ($3.00 with bagel -- still less than Starbucks without the bagel) or making my own at the office ... I am the first one in most of the time.
Even though I spend more time and money on coffee, and even though gasoline prices are not very high historically, I think we still find complaints about vehicle fuel outweigh people fuel by a large margin. The reason is coffee is something we choose to do and gasoline is something we are compelled to do. No one likes to be pushed -- or as some have said, "be held up" -- by oil companies.
So get a cup of Joe and get back to work or whatever. And have a great weekend wherever you are!
Disclosure: I own shares of SBUX.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm.Check out his other posts for BloggingStocks here.
March 18 through 24, 2007, marks National Poison Prevention Week and it comes with some good news.
In the 1970s there were more than 200 child deaths a year attributed to the accidental ingestion of any manner of dangerous household chemicals, personal care products, over-the-counter medications, and cleaning agents. Due to the efforts of multiple agencies, the occurrence of these unfortunate accidents has been reduced to about 36 a year.
In 2005 about 91,000 young children visited hospital emergency rooms do to unintentional poisoning, and poison control call centers fielded more than 1 million calls. By maintaining constant availability and aggressive public awareness, organizations such as the U.S. Consumer Products Safety Commission seek to further reduce accidental poison fatalities.
To prevent these incidents, CPSC recommends the following safety steps:
Wall Street, financial arbiter in the capital of the world, has amassed dozens of adages since the dawn of publicly-traded companies. Adages that -- while not proving to be 100% accurate for every historical case study -- nevertheless do contain substantial amounts of truth.
And one of Wall Street's adages is: "No one ever went broke, holding Coke."
That's The Coca-Cola Company (NYSE:KO), not the bottler. Coke's shares closed Friday at $48.24 up 14 cents.
Sluggish sales, as well as competition from generic colas, and the U.S.'s trend toward the consumption of health-oriented, non-carbonated sports drinks, like Gatorade, have created a substantially different soft drink sector than a generation ago, when KO was dominant both domestically and internationally.
And that sluggishness has been reflected in Coke's stock price, which, for the most part, has been stuck in a $40-$55 range for about 6 years.
Do you like shopping at Target (NYSE: TGT)? Many people do. In fact, investors are hoping that so many people like buying things at the bullseye retailer that the company will beat earnings expectations for the third quarter. Target will be reporting on Monday, November 17. What should we expect?
As a sign of how disconnected one can be, I had to ask my 12-year old about 
If you are of the mind that the American economy can't falter much worse than it already has, does that make a case for investing in the dollar right now? I would tend to think so. A 
Consumers are still willing to run their lives based on credit, so says an 
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Most of the day, the Dow Jones industrial average was in a steady, but slow decline -- the kind of drop where traders figure it's going to be a negative day, but nothing to worry too much about. 
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I live on the West Coast, so I wake up to news of the early trends in the market. This morning seemed a bit glum, the kind of day that (if my mood was made entirely of markets) I might have just rolled back over.
Stock picks and pans for troubled times: RIMM, ED, ISRG, GLW, LEA, SLB, GOOG ...
Is Berkshire Hathaway better than S&P Index?
Closing Bell: Torch Passing on a Friday Rally
