Despite the Media Spin and the Bernanke trying to explain it all away, it seems that 2 of the largest and most important retailers seem to think that higher gas prices and financially pressured customers are hurting results.
From CBSmoneywatch.com
“Over the past two days, both Walmart and Target reported disappointing first-quarter earnings. The mega retailers pretty much had the same explanation: rising gas and food prices squeezed out other purchases by their moderate-budget clientele. “We’re simply not converting enough of our grocery customers to shop apparel,†explained William S. Simon, president of Walmart’s U.S. division in a conference call with investors.
Walmart and Target also are hurting from less foot traffic in their stores, as the high price of gas has reduced how often shoppers swing by the stores. The less you’re in the store, the less opportunity for you to spend, especially on indulgences and sales items strategically placed to catch your eye. In fact, a Gallup poll out this week reports that nearly one-third of Americans say they are driving less and hanging out at home more due to the spike in gas prices. Moreover, 12 percent of Americans say they are spending less on groceries and other expenses because of the rising cost of gas.â€
Things aren’t much better for small business if the reports from Staples, Office Max and Office Depot are to be believed. All delivered very poor results and Oppenheimer cut their ratings on Staples and Office Max stock. Oh, by the way, small business is credited with creating 70% of all new jobs.
Dick’s Sporting Goods and Lowe’s also delivered poor performance and had relatively poor outlooks going forward. Clearly they believe that the average American consumer is having a rough go of it.
Hewlett Packard also “missed†significantly and with much of their business coming from the retail consumer that doesn’t bode well for some areas of consumer tech.
Advance Auto, well, here’s the headline: Advance Auto Parts Q1 misses estimates, shares slide‎ – Reuters
One of the few areas that has fared well is “luxury†space which makes things pretty clear: The relative few that are unaffected by the economy are acting as if nothing has really changed while the large majority of folks are suffering and its only getting worse as prices rise and job creation lags greatly.
YET, despite all this, our retail position has YET to work for us! The XRT ETF is roughly about where it was when we entered as we write.
As you know, we were expecting a lot of poor retail performance and that’s by and large exactly what we’ve seen this week. We highlight this case because this is “part†of active investing. Sometimes realities can be ignored and for a good, long time. We’re not sure if we simply need to wait longer to see the downside movement we believe we should have seen or if our “friends†that move and hold stock prices at times will actually try to move the XRT higher!
You just never know what is planned and what is possible. Given the nearly across the board disappointment, it is possible that a short squeeze could be in the works. We look at it on the surface and see that Q1 GDP was far below what was originally projected. We now see that the key retail earnings have been in line with that poor GDP number. If inflation weren’t actually helping to boost GDP and sales figures, the results would even be worse than reported. However, we know from experience that the “players†let things move on “their†time and it doesn’t have to make sense. Bubblevision will point to whatever factors they need to in an effort to keep the markets propped up. This week they’ve been trying to focus on overpriced IPOs and how that is a key factor to support current prices. This is historically a very poor reason to buy stocks. This type of IPO mania has been a precursor to key market highs over the past 2 decades but still, despite all the poor “reality†that’s unfolded, the market is merely a few hundred points away from the recent highs in the DOW.
These are some of the things that we follow and “weigh†as we monitor and manage our hypothetical positions. We’re always evaluating the risk/reward profiles and the validity and staying power of certain events and prices moves and of course always keeping an eye on our charts.