With client spending sapped over the past year by a sinking economy, large layoffs, and tanking home costs, investors have been concerned with the monetary health of retail stores. At the start of the second quarter earnings report season, typical wisdom believed that off-worth retailers would fare well while luxury retailers would be hit as consumers targeted on worth and necessities.
Second Quarter Report Card
Most retailers have currently reported their fiscal second quarter earnings. A lot of to the relief of investors, earnings have not been as dangerous as feared. Offsetting steep declines in sales with store closures, inventory cuts, and other value reduction measures most retail stores beat second quarter earnings forecasts.
While business profits declined for the ninth straight quarter, the 8% decline in year-over-year second quarter earnings was less than [*fr1] the magnitude estimated at the depth of the recession in late March.
There were some surprises too. Discounter Wal-Mart (WMT) reported ho-hum results whereas competitor Target (TGT) exceeded analysts' forecast by nearly 20%. In high-end retailing, Nordstrom (JWN) reported profits per analysts' forecast while Saks (SKS) lost but feared.
Among building materials retail stores, Lowe's (LOW) disappointed while Home Depot (HD) did not. In malls, Kohl's (KSS) reported a profitable quarter while J. C. Penney's (JCP) results broke-even. Dillard's (DDS) bled red ink at a lower rate than forecasts as the same-store sales declined for the twelfth straight quarter.
What is Ahead for Retailers and Retail Stocks
Retailing trade revenues seem to have stabilized albeit at a coffee level. Retail stocks as measured by the S&P Retail Index (RLX) are up nearly twenty four% since Jan. two outpacing the S&P five hundred's twelve% gain.
Several retail business chiefs are cautious in their outlook. There are few signs that consumers will quickly increase their discretionary spending. Unlike previous recessions, consumers don't seem to be hoping on credit cards to finance their spending. For one, shoppers are de-leveraging and saving more of their income. Second, financial establishments have raised lending standards and lowered credit limits.
The rear-to-school searching season has been relatively subdued so far. There may be some hope here however as several states go on a 'tax vacation' this weekend.
On the brighter side, retail shares conjointly have some factors going for them.
Year-over-year sales comparisons for retailers stand to become easier in the months ahead. Retailers can not have to measure up against sales boosted by last summer's stimulus checks. Further, the steep fall in retail sales cratered throughout last year's fourth quarter should facilitate comparisons.
Following positive earnings surprises in second quarter, analysts have been raising their full-year earnings forecasts for several retailers.
Investors with a healthy dose of risk appetite will find some attractive opportunities within the retailing landscape.
2 Mutual Funds
Mutual fund investors will look at no load funds like Fidelity Choose Retailing (FSRPX) and Rydex Retailing (RYRIX).
Three ETFs
Within the ETF house, SPDR S&P Retail (XRT) could be a in style alternative among investors. Other options include PowerShares Dynamic Retail (PMR) and Merrill Lynch Retail HOLDRS (RTH). Technically, RTH could be a unit trust that trades on the exchange.
2 Stocks
Investors wanting for stocks concepts will consider furniture retailer Kirkland's (KIRK) and discount retailer 99 Cents Solely Stores (NDN). Each corporations that have put along an spectacular string of positive earnings surprises in a very challenging retail environment. KIRK and NDN are retailers that build it through Zack's stock screen for '2 in a Row 10% or more Positive Surprises'. KIRK trades at a forward P/E of concerning 15 whereas the less-volatile NDN shares change hands at a 19X forward P/E.
Author Resource:
William Evan has been writing articles online for nearly 2 years now. Not only does this author specialize in Retail, you can also check out his latest website about:
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