A Compelling Case for This Retail Discounter
By George Leong for Daily Gains Letter | Aug 1, 2014
There is a lot of hurt out there in the retail sector as consumers have yet to come back in full force. The soft consumer sentiment has impacted retailers across the board, from the specialty retailers to department stores. Even the discount and big-box stores, which are pretty resilient when spending declines, are hurting at the register.
Consequently, we saw a consolidation in the discount sector after Dollar Tree, Inc. (NASDAQ/DLTR) decided to snap up rival Family Dollar Stores, Inc. (NYSE/FDO) in a cash and stock deal valued at $8.5 billion, or about $74.00 per share.
I last talked about picking up a company like Family Dollar Stores in April as an investment opportunity when the stock was trading at $58.31.
Now for both companies, the merger makes a whole lot of sense, especially at a time when consumers are tighter with their spending habits. The merger will likely mean eliminating overlapping stores in the same vicinity, since there will be 13,000 stores in the network.
At the smaller end of the spectrum, a discounter that is an investment opportunity and worth a look is Five Below, Inc. (NASDAQ/FIVE), which has a share price of $35.27 and a market cap of $1.94 billion. The stock debuted on July 19, 2012 at $26.05, but has reported several soft quarters, which drove some investors to the exits. Yet at just above its 52-week low of $33.94, the stock offers a decent contrarian investment opportunity for speculators.
With Five Below down over the past 52 weeks, compared to a 17.39% advance by the S&P 500, there could be a good investment opportunity here…. Read More
Consumer Spending Growth in February Bad Sign for Investors?
By Moe Zulfiqar for Daily Gains Letter | Apr 1, 2014
The United States Census Bureau reported consumer spending in the U.S. economy—adjusted for price fluctuation—increased by 0.2% in February from the previous month. In January, consumer spending increased by 0.1% after seeing a decline in December. (Source: “Personal Income and Outlays, February 2014,” United States Census Bureau web site, March 28, 2014.)
This sent a wave of optimism through the markets. We heard consumer spending is going higher; therefore, the U.S. economy will improve. Buy and buy some more, or you will miss out on future gains was what we were told.
However, I don’t think much thought was given to the increase in consumer spending compared to the previous years. Please look at the chart below. It shows the percentage change in the personal consumption expenditure each February over the last four years.
Change from Previous Month
Data source: Federal Reserve Bank of St. Louis web site,
last accessed March 28, 2014.
There’s a clear trend. The percentage change in consumer spending this past February is the lowest since 2011. But if we were to extend this chart to include the change in consumer spending from December to February, this February saw the lowest percentage change since the same period in 2009 and 2010. This shouldn’t go unnoticed.
Going forward, it looks like consumer spending might even decline further. You have to understand that consumers have to be willing to spend; they have to be optimistic to buy. I look at consumer sentiment as one indicator of consumer spending, and it’s not looking very promising at … Read More
This Sector Sure to Benefit as Online Retail Sales Grow
By John Whitefoot for Daily Gains Letter | Mar 10, 2014
The feeling is mutual: consumers are failing retailers, and retailers are disappointing consumers.
First, let’s look at consumers; apparently, we’re not spending as much as we need to.
During the first month of the year, new orders for manufactured durable goods slipped by one percent, or $2.2 billion, to $225.0 billion—the third decrease in the last four months. Core durable goods (excluding transportation), on the other hand, rose 1.1%. That’s not a huge leap when you consider core durable goods slipped a further-than-expected -1.9% in December.
Retail numbers aren’t any better. U.S. retail sector sales for January fell by the most since June 2012. January retail sector and food services sales for January fell 0.4% month-over-month to $427.8 billion. In December, retail sector sales slipped 0.1% month-over-month to $429.5 billion. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” United States Census Bureau web site, February 13, 2014.)
Of the 13 sectors the U.S. Census Bureau looks at, nine reported month-over-month declines. The biggest retail sector drops were in motor vehicle & parts dealers (-2.1%); sporting goods, hobby, book, and music stores (-1.5%); department stores (-1.5%); and clothing & clothing accessories stores (-0.9%). Necessities like food and gas experienced month-over-month gains.
As a nation, we expect consumer spending to generate roughly 70% of our gross domestic product (GDP) growth. These retail sector numbers do not point to sustained economic growth. Though you can hardly blame us, initial claims for jobless benefits rose more than forecast and wages remain pretty flat.
Now, let’s look at retailers. For an industry that needs consumers to buy its products or services, they … Read More
What Retailers Are Saying That Makes Me Believe Economic Growth Is Slowing
By Moe Zulfiqar for Daily Gains Letter | Feb 20, 2014
Conditions in the U.S. economy are deteriorating fairly quickly. The economic data suggests it’s slowing down. We already saw the U.S. economy decelerate in 2013 compared to 2012; now, investors are asking if this is going to be the case in 2014 as well.
All sorts of businesses in the U.S. economy are worried. This is not a good sign when you are hoping for robust growth.
Homebuilders in the U.S. economy have become very skeptical. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) witnessed a massive drop in February. The index, which looks at the confidence of homebuilders in the U.S. economy, plunged from 56 in the previous month to 46. Any reading below 50 on the HMI means homebuilders expect market conditions to be poor. (Source: “Poor Weather Puts a Damper on Builder Confidence in February,” National Association of Home Builders web site, February 18, 2014.)
Unfortunately, homebuilders aren’t the only ones who are worried and suggesting the U.S. economy isn’t going in the desired direction.
Retailers with major operations in the U.S. economy are feeling the same. Wal-Mart Stores, Inc. (NYSE/WMT)—one of the largest retailers—lowered its profit guidance for the fiscal fourth quarter, ended on January 31, 2014. The CEO of the company, Charles Holley, said, “We now anticipate that our underlying EPS [earnings per share] for the fourth quarter of fiscal 2014 will be at or slightly below the low end of our range of $1.60 to $1.70.” He added, “For the full year, we expect underlying EPS to be at or slightly below the low end of our range of $5.11 to … Read More
How to Profit When Consumer Spending Is in Jeopardy
By Moe Zulfiqar for Daily Gains Letter | Feb 18, 2014
Consumer spending is critical when it comes to growth of the U.S. economy. It makes up a significant portion of the U.S. gross domestic product (GDP)—about 70%. So, if consumer spending declines even by a little, it can really impact the trajectory of the U.S. economy.
Since late last year, there’s growing evidence that suggests consumer spending is in jeopardy. The economic data that tells the level of enthusiasm among American consumers is flashing warning signs. Investors who own retail stocks need to be very careful.
For example, retail sales in the U.S. economy declined 0.4% in January from the previous month. But this isn’t the only troubling news. The previous reported number—the change in retail sales from November to December—was revised lower from 0.2% to negative 0.1%. (Source: “Advance Monthly Sales for Retail and Food Services January 2014,” U.S. Census Bureau web site, February 13, 2014.)
The U.S. Census Bureau looks at retail sales of about 13 different kinds of businesses. In January, nine of those kinds of businesses—including furniture stores, health care and personal care stores, clothing stores, and sporting goods stores—reported a decline in their sales from the previous month.
Sadly, retail sales aren’t the only indicator that suggests consumer spending in the U.S. economy is grim. Other indicators like the U.S. manufacturer and trade inventories say the very same; they increased to $1.7 trillion in December, up 0.5% from November 2013 and 4.4% from the same period a year ago. (Source: “Manufacturing and Trade Inventories and Sales December 2013,” U.S. Census Bureau web site, February 13, 2014.)
When inventories increase, it means consumers aren’t buying as … Read More
Record Online Cyber Monday Sales Suggest this Major Shift
By John Whitefoot for Daily Gains Letter | Dec 5, 2013
The holiday shopping season officially kicked off this year…in the American living room. Tired of being shoved, pushed, stomped on, and punched in the quest for the best deals, many consumers turned their attention to their laptops, smartphones, and tablets and clicked their way to record sales.
After reporting record online sales on Thanksgiving day and Black Friday, online shoppers continued the trend, making this past Cyber Monday the most lucrative online shopping day in U.S. history.
On Black Friday, mobile shopping accounted for almost 40% of all online traffic, a 34% increase over last year’s Black Friday numbers. Overall, Black Friday e-commerce sales climbed 18.9% year-over-year and the average order value increased 2.2% to $135.27. Black Friday online purchases at Amazon.com, Inc. (NASDAQ/AMZN) were up 34.7% year-over-year, while sales at eBay Inc. (NASDAQ/EBAY) soared 38.7%. (Source: “Holiday 2013 – Cyber Monday and Cyber Five FINAL,” eBay Strategies Blog, December 3, 2013.)
Following record online sales on Black Friday, retailers waited impatiently for Cyber Monday to see if the good times would continue to roll—and roll they did: Cyber Monday was the fifth consecutive day of record-breaking online sales.
Online sales on Cyber Monday were up 16% year-over-year at a record $2.29 billion. On top of that, a record 18.3% of all online sales came from mobile devices, an 80% increase over Cyber Monday 2012.
While Black Friday was all about eBay, on Cyber Monday, the online sales crowd went to Amazon. At Amazon, Cyber Monday sales were up 46.2% year-over-year, while eBay had to contend with sales growth of 32.0%.
How did online retailers fare over the five cyber … Read More
Not Much for Retailers to Be Thankful for This Past Thanksgiving
By John Whitefoot for Daily Gains Letter | Dec 3, 2013
Despite the retail sector’s every attempt to generate sales this Thanksgiving, from sharp discounts to being open earlier than ever, their efforts fell flat. It’s further evidence that the U.S. economic recovery is not as entrenched as many think it is, and once again shows the economic disconnect between Wall Street and Main Street.
In spite of high unemployment, stagnant wages, consumer confidence at a seven-month low, and a smaller number of people forecast to hit the shops over the Thanksgiving weekend, the National Retail Federation still predicted sales to grow 3.9% from last year. (Source: Banjo, S., “Holiday Sales Sag Despite Blitz of Deals,” Yahoo.com, December 2, 2013.)
Over the Black Friday weekend in 2012, U.S. shoppers spent roughly $60.0 billion in the retail sector, but this year, it was a different story altogether. While the final numbers have yet to be tallied, early indicators show that total U.S. retail sector spending over the Thanksgiving weekend fell to $57.4 billion. It’s also the first time that retail sector spending over the Thanksgiving weekend has dipped in at least four years.
Even during the worst of the recession and the beginning of the so-called economic recovery, U.S. shoppers were willing to spend, buoyed by optimism. Five years into the so-called economic recovery, and shoppers are tightening their belts, weighed down by pessimism.
But it didn’t start out that way; in fact, most U.S. retail sector stocks were initially quite enthusiastic about their prospects. Wal-Mart Stores, Inc. (NYSE/WMT) had originally planned to open its doors at 8:00 p.m. Thursday night, but instead opened its doors at 6:00 p.m. Target Corporation (NYSE/TGT) … Read More