Retail Is For Stockpickers
Since September 2004, the S&P Retail Index has been caught inside a sideways consolidation channel at between 400 and 500, unable to establish a sustainable trend in a single direction or the other. Throughout that time, the monthly retail numbers are already largely mixed. But in January, the retail data (excluding auto) was impressive, showing growth of 2.20% versus the estimate of 0.8%. It was the strongest reading in years.
Yet the initial optimism appears being fading right after seeing mixed reports from the nation’s retailers on Thursday. The early data suggests that same-store sales growth will be sub par compared to what we saw in January.
The reading in January might happen to be an aberration since of warmer than expected temperatures. The surfacing of cold weather in February apparently sent a chill through the pocketbooks of consumers. Also, the strong January sales may possibly have taken away from spending in February.
The reality may be the absence of your positive trend in retail makes committing in retail shares more of the chance. You must pick the proper organization. Even bellwether stocks for instance Wal-Mart Stores (WMT) are struggling as far as its share cost in spite of some decent sales outcomes and same-store sales growth. However the current valuation deserves a look.
Youth oriented clothes retailer Gap (GPS) is a business that’s clearly struggling at the money register. Its February same-store sales crashed 11% year-over-year, nicely above the Street estimate calling for a decline of 6.80%. This followed about the heels of an 11% decline in the company’s Q4 earnings along having a FY07 forecast that was short of Wall Street expectations.
GAP expects comparable-store sales to become negative inside the very first half and turn moderately positive for the remainder with the year. Same-store sales are widely viewed because the finest indicator of your retailer’s health.
For investors, GAP is clearly a turnaround play that could spend off if it can somehow figure out the best way to attract shoppers. The fact could be the organization has excellent brand awareness and this counts for some thing in this brand conscious globe we live in.
On the upside, you might have a business like Greatest Purchase (BBY), a dominant marketplace leader in consumer electronics. The investment is just below its 52-week high, up 69% from its yearly low.
The reality is retail spending might be impacted by the higher financing costs associated while using rising debt loads across America. The personal savings rate is declining and was negative in January. Consumers are eating into their savings and you realize this can’t be good for retail.
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