Recently, not just one, but three major retail outlets announced disappointing third quarter sales numbers, and MoneyShow's Jim Jubak, also of Jubak's Picks, wonders if this might be indicating shoppers' sentiment this holiday season.
Nobody expects Sears Holdings (SHLD) to report earnings growth—and the company didn't disappoint last Thursday, when it announced a $534 million loss for the three months that ended on November 2 and a 3.1% drop in same store sales.But last Thursday, Target (TGT) and Abercrombie & Fitch (ANF) also reported disappointing third quarter sales.
Which certainly suggests that the better-than-expected retail sales growth for October, reported by the Census Bureau earlier last week, is going to turn out—at best—to be very spotty indeed. At 0.4% growth in October, this isn't a tide running strong enough to lift all boats.
Target, at least, has a one-time excuse. The company's expansion into Canada is proving to be really, really rough going. Costs for expanding into Canada, and discounts Target had to offer to move excess inventory at its 124 Canadian stores, took 29 cents a share out of earnings for the quarter.
This excuse doesn't explain, however, why the company reduced guidance in the fourth quarter for US same store sales to flat, which would put results below Wall Street expectations.
Abercrombie & Fitch looks like it may have lost its fashion edge, just when it needs that boost to carry it through a tough holiday retail season. For the third quarter, US same store sales fell 14% year over year. You can see the company's problems in its inventory numbers for the quarter. Total inventory rose 22% from the third quarter of 2012. This continues a pattern of over-buying, leading to inflated inventories, and to subsequent price-cutting and promotions that eat into profit margins.
A comment from the Credit Suisse analyst report on Abercrombie earnings nails the problem at the company—but also suggests a wider problem for the retail sector (and the economy as a whole). “We believe,” the analyst wrote, “the company can no longer sell jeans at a $70-160 price point to teen consumers who have comparable options at $30-50.”
And if teens are now price-conscious, I'm left wondering who isn't in this economy.
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of Abercrombie & Fitch, Sears Holdings or Target as of the end of June. For a full list of the stocks in the fund as of the end of June see the fund's portfolio here.