By Bob Blandeburgo
When it comes to the recession-ridden U.S retail sector, discounters are king.
Heading into the all-important back-to-school and holiday shopping seasons, U.S. retailers as a group are struggling. Same-store sales among the that report such figures fell an average of 6.4% in the month of July, as the worst downturn since World War II continues to savage consumer confidence.
"You still have a picture of the consumer remaining under pressure and having fewer dollars to spend," Michael Dart, senior partner at Kurt Salmon Associates, said in a Reuters interview. "Every consumer group is being more practical and more budget-conscious."
The two leading indicators of U.S. consumer sentiment – the Reuters/University of Michigan index of consumer sentiment and the Conference Board's confidence index –show that consumers are not yet ready to return to the level of extravagance that helped keep the economy humming before last year's financial meltdown.
However, instead of creating an environment in which all retailers are wheezing – with the sickest patients on the financial sector's equivalent of life support – there's been a major divergence of fortunes for two main types of retailers. The discounters are faring relatively well – especially given the dour backdrop. But the high-end retailers – including some of the U.S. economy's heavyweights – are struggling badly.
The bottom line: The retailers with the best "value proposition" have fared the best throughout the recession. With the prospect of a jobless recovery looming, that trend will likely continue for at least the remainder of the year.
Expect the health of the retail sector to be a key topic this week as the next round of corporate earnings are released – this time for Macy's Inc. (NYSE: M), Nordstrom Inc. (NYSE: JWN), J.C. Penney Co. Inc. (NYSE: JCP), and Wal-Mart Stores Inc. (NYSE: WMT). And retail sales for July will be reported in what may otherwise be considered a relatively light week on the economic calendar.
In advance of those reports, here's a look at five retailers who have performed admirably in this adverse economic climate.
Wal-Mart Stores Inc. (NYSE: WMT): Wal-Mart is the No. 1 retailer and the No. 1 grocer in the United States.
The Bentonville, Ark-based retailer's "Save Money, Live Better" ad campaign began in September 2007, two months before the recession officially started. To emphasize this message, Wal-Mart has set up a "Save Money, Live Better" website (complete with testimonials of what people are doing with the money they save by shopping at Wal-Mart) and a "Live Better Index," which includes an interactive map of the United States, and that show how much money people have saved in each state by shopping at Wal-Mart.
The result of Wal-Mart's efforts? Holiday sales grew 7% last year, according to the Advertising Research Foundation. With the all-important back-to-school and holiday shopping seasons just ahead, the heavyweight retailer is clearly hoping to replicate that magic this year.
While Wal-Mart ceased giving monthly same-store sales results after April, its last reported quarter which ended April 30 showed a gain of 3.7% in that category. That compares with a 2% increase for the same period last year. Wal-Mart's results for the quarter ended July 31 will be reported this Thursday.
Dollar Tree Inc. (Nasdaq: DLTR): So-called "dollar stores" are nothing new. But when a bad economy dominates the headlines, 401ks get gutted and credit tightens, stores that sell everything for $1 are bound to attract business. Dollar Tree is one of the few retailers where same-store sales are increasing. Last week it said its same-store sales for the quarter ended Aug. 1 grew 6.8%, up from 6.5% a year ago. Its stock, which closed at $46.76 on Friday, is up about 21% in the past year.
Family Dollar Stores Inc. (NYSE: FDO): Another dollar-store star, Family Dollar last year posted the largest percentage gain of any stock in the Standard & Poor's 500 Index, Barron's reported. Its same-store sales for the quarter ended May 30 grew 6.2%, while profit skyrocketed 36% year-over-year. The company upped its guidance for the fourth quarter, with an earnings per share (EPS) estimate of between 39 cents and 43 cents. Since reporting that quarter on July 8, Family Dollar's shares have jumped 13.19%.
Additionally, the discounter is adding the ability for its customers to use credit cards and food stamps in the quarter ending Aug. 29, which could erode its margin. Still, until consumer confidence gets back on track, Family Dollar is positioned to do well.
The TJX Companies Inc. (NYSE: TJX): Best known for its and Marshalls discount apparel stores, TJX is succeeding in a market where premium retailers such as Macy's Inc. (NYSE: M) and J.C. Penny Company Inc. (NYSE: JCP) are not. TJX's stores had the reputation of a discount clothier before the recession began, and it's keeping the pressure on. The company's same-store sales grew 4% in July.
Ross Stores Inc. (Nasdaq: ROST): Ross' "Dress for Less" slogan is so important to its business, that the company displays it under the main entrance sign of each of its stores. Same-store sales in July grew 4%, after analysts forecasted just a 0.8% gain, according to Thomson Reuters. The discount apparel retailer upped its earnings guidance 52%, and now expects to earn 81 cents to 82 cents a share. It reports its results for the quarter on Aug. 18.
News and Related Story Links:
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- Money Morning:
Jobless Recovery Category
Save Money, Live Better Website
Live Better Index
- Advertising Research Foundation:
Ogilvy Award Case Study: Walmart Stays a Step Ahead of the Economy
Ross Same-Store Sales Climb 4%