No Light at End of Tunnel for U.S. Retailers Yet

CreditSights’ comprehensive analysis Retail Sales: Dark Days of Winter makes for some depressing reading.

Highlights include:

• January marks the sixth consecutive month that Wal-Mart (NYSE: WMT) has been the only retail name with positive comp results in our universe - and the 21st consecutive month that WMT has achieved its slow but steady campaign of positive comps. Positive comps in February - if achieved - would push WMT’s streak of comp gains to twenty-two months - significantly stronger than Target (NYSE: TGT), which has endured negative comps in ten of the past twelve months. We continue to prefer WMT over TGT given its price leadership and store initiatives, which are likely to result in market share gains in the medium term.
• With the door officially closed on the 2008 holiday selling season, the rating agencies came in for the kill - including a six-name department store warning from Standard &Poor’s. The agency cited potential ratings cuts to Macy’s (M), JC Penney (JCP), Dillard’s (DDS), Nordstrom (JWN), Neiman Marcus (NMG), and Sears (SHLD), leaving both JCP and M barely clinging to high grade status.
• Same store sales comparisons, as measured by the Bloomberg Same Store Sales Composite Index, decreased 1.91% overall in January after a 2.11% decrease in December - marking the fourth consecutive month of declines in the overall index.

• Department stores remained the weakest performers, registering a -11.75% performance in January (after a -6.38% performance in December), and offering sealing in a decline for eleven of the twelve months in the 2008 fiscal year.
• Specialty stores also declined -11.65% in January - the weakest performance in recent history, following a -6.87% drop in December.
• The economically resilient Discounters segment remained the only contributor to retail growth, with sales up 1.09% in January - the highest figure in the past four months.

While a “light at the end of the tunnel” is certainly preferable to the current scenario of “deep unfathomable abyss”, we believe that consumers will continue to be very cautious and reserved in the spending during 2009 - dragging out the low demand scenario for most retailers in our universe. We are maintaining our underweight recommendation on the retail sector as a whole.

For more company-specific analysis on US retailers from CreditSights, see Retail Sales: Dark Days of Winter.

Comments

[Jake Berzon:]

With consumer spending making up disproportion share of US economy for years, is it any wonder that things are finally getting back to equilibrium? America needs to either start producing a whole heck of a lot more, or stop consuming so darned much. It's not so easy to produce, so spending cuts are the only short term solution and no TARP can change that. More bankruptcies in US retail sector are unavoidable and it will involve some majors like JC Penney.

Feb 09 11:52 AM

[The Good Ne...:]

Did you overlook Walgreens (WAG)?

They are well on their way to posting 15-20% growth in their fiscal year 2009...

And Amazon is skyrocketing...
mast-economy.blogspot....

It's not all gloom out there... its just the value chain is getting reshuffled during this dip... that's always the case in any recessionary cycle.

GNE

Feb 09 12:00 PM