With client spending sapped over the past year by a sinking economy, massive layoffs, and tanking home prices, investors have been involved with the financial health of retail stores. At the start of the second quarter earnings report season, conventional wisdom believed that off-worth retailers would fare well while luxury retailers would be hit as consumers centered on value and necessities.
Second Quarter Report Card
Most retailers have now reported their fiscal second quarter earnings. Much to the relief of investors, earnings haven't been as unhealthy 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 industry profits declined for the ninth straight quarter, the eight% decline in year-over-year second quarter earnings was less than 0.5 the magnitude estimated at the depth of the recession in late March.
There have been some surprises too. Discounter Wal-Mart (WMT) reported ho-hum results while competitor Target (TGT) exceeded analysts' forecast by nearly twenty%. In high-finish retailing, Nordstrom (JWN) reported profits in line with analysts' forecast while Saks (SKS) lost less than feared.
Among building materials retail stores, Lowe's (LOW) disappointed whereas Home Depot (HD) did not. In department stores, Kohl's (KSS) reported a profitable quarter whereas 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 12th straight quarter.
What is Ahead for Retailers and Retail Stocks
Retailing business revenues appear to have stabilized albeit at a coffee level. Retail stocks as measured by the S&P Retail Index (RLX) are up nearly 24% since Jan. two outpacing the S&P five hundred's twelve% gain.
Many retail trade chiefs are cautious in their outlook. There are few signs that buyers will quickly increase their discretionary spending. In contrast to previous recessions, consumers don't seem to be hoping on credit cards to finance their spending. For one, customers are de-leveraging and saving a lot of of their income. Second, monetary institutions have raised lending standards and lowered credit limits.
The back-to-college searching season has been comparatively subdued thus far. There might be some hope here however as several states persist 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 within the months ahead. Retailers will not have to measure up against sales boosted by last summer's stimulus checks. More, the steep fall in retail sales cratered during last year's fourth quarter ought to help comparisons.
Following positive earnings surprises in second quarter, analysts have been raising their full-year earnings forecasts for many retailers.
Investors with a healthy dose of risk appetite will notice some enticing opportunities in the retailing landscape.
Two Mutual Funds
Mutual fund investors can examine no load funds like Fidelity Select Retailing (FSRPX) and Rydex Retailing (RYRIX).
Three ETFs
Within the ETF house, SPDR S&P Retail (XRT) is a common alternative among investors. Other options include PowerShares Dynamic Retail (PMR) and Merrill Lynch Retail HOLDRS (RTH). Technically, RTH is a unit trust that trades on the exchange.
2 Stocks
Investors trying for stocks ideas will take into account furniture retailer Kirkland's (KIRK) and discount retailer ninety nine Cents Solely Stores (NDN). Each firms that have place together an spectacular string of positive earnings surprises during a challenging retail environment. KIRK and NDN are retailers that make it through Zack's stock screen for '2 in a Row 10% or a lot of Positive Surprises'. KIRK trades at a forward P/E of about fifteen whereas the less-volatile NDN shares modification hands at a 19X forward P/E.
Author Resource:
Howard 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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