Retail's Slowdown Creeping Upscale

Rob Zenilman submits: In today's Wall Street Journal, Justin Lahart & Amy Merrick's Consumers Curb Upscale Buying As Gasoline Prices, Housing Bite discusses how $3 a gallon gasoline and a weak housing market is causing more headaches for retailers & restaurants - only now it's hitting the middle class. Examples include:

• Boat builder Brunswick (BC) and upscale sandwich shop (PNRA) have both seen their stocks hit after reporting disappointing sales.
• P.F. Chang's China Bistro (PFCB), Applebee's (APPB) and The Cheesecake Factory have all issued sales warnings.
• Williams-Sonoma's (WSM) Pottery Barn recently lowered its Q2 revenue forecast from $842mm-$856mm to $823mm-$837mm.

In contrast, higher-end retailers like Nordstrom (JWN), Neiman Marcus and Coach (COH) are still reporting strong sales.

Comment: Until now concerns were limited to the lower end retailers, such as Wal-Mart (WMT) and Target (TGT). July's retail sales figures showed that the stronger gains were at the higher-end stores, at the expense of the lower end. Sustained high priced gas and a slow housing market will accelarate the trend, with only the high end remaining immune to its effects.

Comments

[Steven Towns:]

From a "long" investment standpoint an important point to mention is that the highest-end retail co's also can remain immune if there is support from a relatively strong global economy. Remember companies such as Coach (COH), Estee Lauder (EL), and Tiffany (TIF) sell a not insignificant amount of their products outside the U.S. and a weak dollar can be a bonus when overseas net earnings are repatriated.

2006 Aug 21 08:54 PM