Is the American Consumer Making a Comeback?

by David Gibbs

With earnings due to come out this week from several large-scale brick-and-mortar retailers, we are sure to get a better look into whether success stories at the likes of Amazon (AMZN), Priceline (PCLN) and Abercrombie & Fitch (ANF) are specific to those companies or are indicative of a larger shift towards increased consumer spending and, therefore, a strengthening economy.

Home Depot (HD)

Home Depot, a DJIA component, is set to report Tuesday before the bell. In August, “the Company confirmed that it believes that fiscal 2009 sales will be down approximately 9 percent from fiscal 2008. Based on its year-to-date performance, the Company lifted its fiscal 2009 EPS guidance and now expects earnings per share from continuing operations to be flat to up 7 percent from last year. On an adjusted basis, the Company now expects earnings per share from continuing operations to decline by 15 to 20 percent.”

Further, CFO Carol Tome stated in a Nov. 13 interview that Home Depot’s business isn’t picking up, and that “Home Depot hasn’t benefited yet from government stimulus money that should be filtering down to the housing sector.” Any turnaround, she says, “will be very slow.”

HD is up 6.2% since July 31 and 54% since the March lows.

Analyst Estimates (High / Mean / Low): .40 / .357 / .31

Target (TGT)

Also reporting Tuesday before the bell is big-box retailer Target Corp. While the economic downturn has unquestionably sent more families to the bargain bin, tense competition between Target, Wal-Mart (WMT) and Amazon will likely eat into TGT’s profits.

For what it’s worth, shares of competitor Wal-Mart traded mostly sideways after a slight pop following their earnings release last Thursday. We might expect to see shares of TGT trade similarly following their release Tuesday.

Analyst Estimates: .59 / .502 / .45

The Gap (GPS)

Unlike HD and TGT, when The Gap releases quarterly results Thursday after the bell, we’ll get a good glimpse into the health of mid-level apparel chains. This should be interesting, as many presumed consumers are trading down from the likes of The Gap over to the large, multi-faceted retailers like Wal-Mart and the aforementioned Target.

However, Abercrombie & Fitch, which operates at a higher price-point that The Gap, blew away analyst estimates last week to the tune of a 14% pop, from approx. $37 to $42.

Clearly, some retailers have been able to continue doing business at a high level throughout our economic near-collapse, but the question remains whether GPS is going to be a winner or a dud.

Analyst Estimates: .45 / .438 / .42

Hot Topic (HOTT)

Teen retailer Hot Topic is set to release earnings Wednesday after the close, and in doing so will help inform us as to whether the niche teen retailers that have had so much success in the past have been able to weather this economic storm.

Interestingly, HOTT is trading below its March lows, having dropped from a 52-week high of $13.87 on April 22 to about $7 by mid-May. It’s currently trading at about $6.87, and saw its price target decreased from $9 to $8 at Friedman, Billings & Ramsey last week.

Still, we should keep an eye on HOTT because they sell to an important market with heavy potential spending power. So, if nothing else, HOTT’s quarterly report should be worth delving into merely to give us a clue as to where those dollars are going.

Analyst Estimates: .14 / .128 / .12

Author's Disclosure: No positions in the companies mentioned.

Comments

[chris coonan:]

Answer to headline.....NO.

Nov 17 04:26 AM

[chris coonan:]

American consumers have too much debt, not enough jobs, and those that have one have had whatever credit line they had left, cut.....

Consumers are not back in any form.

Government buying, and printing money does not count.

Nov 17 04:27 AM

[chris coonan:]

The trend to watch, is US Retailers laying off staff in the first quarter of 2010. After a bad Christmas, they will be forced to look at more bottom line cutting, since there is no top line to look forward to.

Nov 17 04:30 AM

[Dave Wrixon:]

Yeah, the other problem is that if American Banks are impotent to generate credit, then the central banks of the Mercantile hoards are not going to input the seed Money in the first place. Why should they. They will get more bang for Yuan elsewhere.

Nov 17 05:18 AM

[User 295337:]

>Still, we should keep an eye on HOTT because they sell to an
> important market with heavy potential spending power.

i just wonder where this 'heavy' spending power will come from, considering the unemployment rate for teens is far above the average rate...have you looked at the stats for unemployment lately?

Nov 17 12:32 PM

[Gregman2:]

The short answer is: not in reality.

Nov 18 02:14 AM