With shopper spending sapped over the past year by a sinking economy, huge layoffs, and tanking home prices, investors are concerned with the money health of retail stores. At the start of the second quarter earnings report season, conventional wisdom believed that off-value retailers would fare well while luxury retailers would be hit as shoppers targeted on worth and necessities.
Second Quarter Report Card
Most retailers have currently reported their fiscal second quarter earnings. Much to the relief of investors, earnings haven't been as unhealthy as feared. Offsetting steep declines in sales with store closures, inventory cuts, and alternative price reduction measures most retail stores beat second quarter earnings forecasts.
While business profits declined for the ninth straight quarter, the eight% decline in year-over-year second quarter earnings was less than half the magnitude estimated at the depth of the recession in late March.
There were some surprises too. Discounter Wal-Mart (WMT) reported ho-hum results while competitor Target (TGT) exceeded analysts' forecast by nearly 20%. In high-end retailing, Nordstrom (JWN) reported profits per analysts' forecast whereas Saks (SKS) lost less than feared.
Among building materials retail stores, Lowe's (LOW) disappointed while Home Depot (HD) did not. In department shops, Kohl's (KSS) reported a profitable quarter while J. C. Penney's (JCP) results broke-even. Dillard's (DDS) bled red ink at a lower rate than forecasts as the identical-store sales declined for the 12th straight quarter.
What's Ahead for Retailers and Retail Stocks
Retailing industry revenues appear to own stabilized albeit at an occasional level. Retail stocks as measured by the S&P Retail Index (RLX) are up nearly 24% since Jan. 2 outpacing the S&P 500's twelve% gain.
Many retail trade chiefs are cautious in their outlook. There are few signs that consumers will quickly increase their discretionary spending. Unlike previous recessions, consumers are not counting on credit cards to finance their spending. For one, consumers are de-leveraging and saving more of their income. Second, financial institutions have raised lending standards and lowered credit limits.
The back-to-college looking season has been comparatively subdued therefore far. There might be some hope here but as many states go on a 'tax holiday' this weekend.
On the brighter aspect, retail shares conjointly have some factors going for them.
Year-over-year sales comparisons for retailers stand to become easier within the months ahead. Retailers can not have to live up against sales boosted by last summer's stimulus checks. Any, the steep fall in retail sales cratered during last year's fourth quarter should facilitate comparisons.
Following positive earnings surprises in second quarter, analysts have been raising their full-year earnings forecasts for many retailers.
Investors with a healthy dose of risk appetite will notice some attractive opportunities in the retailing landscape.
2 Mutual Funds
Mutual fund investors will have a look at no load funds like Fidelity Select Retailing (FSRPX) and Rydex Retailing (RYRIX).
Three ETFs
Within the ETF house, SPDR S&P Retail (XRT) is a widespread choice among investors. Different options include PowerShares Dynamic Retail (PMR) and Merrill Lynch Retail HOLDRS (RTH). Technically, RTH could be a unit trust that trades on the exchange.
Two Stocks
Investors looking for stocks ideas can think about furniture retailer Kirkland's (KIRK) and discount retailer 99 Cents Only Stores (NDN). Both corporations that have put together an spectacular string of positive earnings surprises in a very challenging retail environment. KIRK and NDN are retailers that make it through Zack's stock screen for 'Two in a Row ten% or additional Positive Surprises'. KIRK trades at a forward P/E of regarding fifteen while the less-volatile NDN shares amendment hands at a 19X forward P/E.
Author Resource:-
Bob has been writing articles online for nearly 2 years now. Not only does this author specialize in retail,you can also check out his latest website about:
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