Macy's, Target, Wal-Mart: Watch Them For State of Retail - Holiday Central

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It's a make-it or break it time for retailers. The holiday selling season is always a critical time for retailers, but this year this may be even more true. With several retailers already falling victim to a drop in consumer spending, and filing for bankruptcy, retailers will be navigating through some tricky waters. Consumers are strapped for cash due to high energy and food prices, and unemployment is rising. The recent credit crunch has made it more challenging for retailers and consumers to borrow.

This blog will look at the winners and losers in the retail space. Who has the right strategy to capture consumer dollars? It also will look for trends in consumer spending and how that will impact the economy.

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Jul.09

2:29 PM ET

Monday, 9 Jul 2007

Macy's, Target, Wal-Mart: Watch Them For State of Retail

Posted By:Margaret Brennan

The Children's Place
CNBC.com
It's spring cleaning in the summertime for retailers right now and profit taking time for investors in retail stocks (it would seem.) From what I'm hearing, the disappointing sales we saw today from Children's Place may be setting the tone when it comes to retail sales results. Same store sales declined 4% in June coming in below expectations. CEO Ezrah Dabah cited continued declines in mall traffic--NOT the weather, NOT high gas prices, NOT inventory management issues--for causing sales to fall off at the start of the summer.

Given that we're seeing a customer base that has been dealing with higher gas prices for awhile now and consumers who aren't confused as to what they should be purchasing due to weather shifts, the month of June may provide some indication of how consumer spending and retail strength is trending.

Of course, there are also a number of executives at the top of retail firms who will tell you to write off the entire summer and not pay attention to comps. After all, June, July and August same store sales are really just laying the ground work for "Back to School" sales. Stores are looking beyond these summer months toward the next full-price selling season which will be the all-important back to school sales period. With that in mind, retailers are prepping the floors by trying to clear out inventory via markdowns.

A number of retail industry investors that I've spoken with have been closely watching store inventory levels and low levels of mall traffic. Bottom line: they are worried that the expected-to-be-weak same store sales results that we'll see this Thursday may be even worse than estimated. This means that already low expectations may see even more disappointing results from apparel companies.

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Retailer to Transfer Most of Limited

Brean Murray, Carret Analyst Eric Beder is keeping his eyes trained on margins not comps due to gauge just how retailers are faring during this weak summer season. THIS IS A KEY POINT: Beder says that he's looking at June as a test of the strength of corporate management. Don't be fooled by some positive same store sales results from otherwise weak retailers: "Solid companies, which have been aggressively limited their inventory exposure and quickly selling off fashion losers will have less product exposure and, potentially the ability to inject some level of limited full margin newness," compare that to some poorly controlled chains that will be "forced to aggressively clear out product, which may lead to positive same store sales, but material margin declines." He's positive on: Wet Seal [WTSLA Loading... () ] (exp. comps of +1-3%) and Aeropostale [ARO Loading... () ] (exp. comps of +2-4%.)

Specialty Retail Analyst Brian Tunick of J.P. Morgan is also honing in on inventory/sales growth. The retailers that came into the quarter with high inventory/sales growth ratios include Aeropostale, Limited, Talbots, Citi Trends, Zale, Tween Brands and Ann Taylor. The names with the most relative "fear" when it comes to June comps are New York & Company, Zales, Childrens Place and Charlotte Russe. Tunick differs from consensus on two companies: Abercrombie & Fitch consensus is down 3%, JP Morgan says 7%. Pacific Sunware is expected to be up 3%, JP Morgan says up 5%.

Richter's Tickers

The names that I'm most interested in watching are Macy's [M Loading... () ] , Target [TGT Loading... () ] , Wal-Mart [WMT Loading... () ] and the department stores. More on the Macy's buyout rumors and Target's unexpected stock price runup over the past week. Keep an eye on this blog for more inside scoop this week.