Surprisingly Strong Back-to-School Sales
We moved to much larger quarters yesterday, and I am somewhat out of the loop, as we await Verizon to hook up our big fat pipes, office furniture, etc. Hence, this quick, Starbucks-sourced, caffeine-fueled update.
I was not expecting very much in terms of back-to-school sales, but so far, most of what we have heard from the retailers was rather robust.
Wal-Mart reported a higher-than-expected 3.1 percent rise in August sales, almost double the 1.6% expectations. While some of the gains may be attributable to food inflation, the world's largest retailer has been very aggressive about price cuts. Reuters noted that since July, Wal-Mart "announced price cuts of as much as 50 percent on 16,000 items -- including school supplies and backpacks, to jump-start back-to-school sales."
The big winners in the same-store-sales data were Saks (plus 18.2%), Zumiez (plus 17.4%), American Eagle Outfitters (plus 9%), Target (plus 6.1%), and Abercrombie & Fitch (plus 6%).
I mentioned a few weeks ago on Kudlow that this would be a telling sign of the strength of the U.S.consumer -- and on first glance, its much better than I expected.
~~~
Good sortable table from the (free) WSWJ
click for sortable table
Sources:
Retailers Post Generally Strong Sales During Back-to-School Period
KEVIN KINGSBURY
WSJ, September 6, 2007 8:48 a.m.
http://online.wsj.com/article/SB118907726101519242.html
Wal-Mart August sales beat expectations
Reuters, September 6, 2007
http://news.yahoo.com/s/nm/20070906/bs_nm/walmart_
sales_dc_3;_ylt=Av47HcqZZala.P3o84EGQr0E1vAI
AUGUST RETAIL SALES
WSJ, Back to School
http://online.wsj.com/public/resources/documents/retro-070906sales.html
Thursday, September 06, 2007 | 11:30 AM | Permalink
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Comments
what remains to be seen is the profit margin on all of it, at least at Wal-Mart.....
% increases are great fodder for PR releases...can Wal-Mart make any money on consistently undercutting prices on electronics?? or on the food it sells (like the costs have not gone up on those as well.
As we've said before Wal Mart's numbers (for the last q) were basically a celebration of higher food costs.....so have those costs increased in that time period.....I bet they have..
Ciao
MS
Posted by: michael schumacher | Sep 6, 2007 11:44:12 AM
ANF explanation was from a calendar shift of the tax breaks in TX and FL. Otherwise their SSS would have been only +1%.
Posted by: Owner Earnings | Sep 6, 2007 12:27:24 PM
Michael Schumacher
With inventories very lean and headcounts flat to down from a year ago, retail profits should be very good.
The winners still seem to be at the extremes of consumer income distribution with Saks, Nordstrom, Coach, Tiffany doing well at the top, and WMT doing well at the bottom.
Posted by: daisycolorado | Sep 6, 2007 12:47:34 PM
Congrat. Barry on your Million+ viewers.
Gross Margins will be hurting. Yes I know ,its not a game of brains, its a game of muscle.
Posted by: dh | Sep 6, 2007 12:59:04 PM
I'm not sure very many people consider spending for their kids' education discretionary. And if you just put off buying a car spoiling the kids a little probably isn't a big concern.
Your average Joe gets a bigger truck when times are good. You average Joe doesn't drive that truck to Nordstrom.
If fact, increased spending on stuff people actually need might be a reflection of the return of prudence.
Posted by: KirkH | Sep 6, 2007 1:02:30 PM
Two words...CHARGE IT. More liquidity I guess.
Posted by: SPECTRE of Deflation | Sep 6, 2007 1:04:04 PM
Now is the time to take advantage of nothing, "Puts" are already expensive in the retail sector. Now what does that tell'ya? A bunch of dumb Bears thinking that the market is tanking. Break out the honey!
Posted by: Justin | Sep 6, 2007 1:11:43 PM
Oh, you didn't notice the gas price drop in August? ;^)
Put a few bucks back into consumer pockets.
Posted by: donna | Sep 6, 2007 1:34:03 PM
Saks sold off its department stores. Half of its stores are now outlet stores. That might explain why the same-store sales are way up as the outlet mall in Leesburg was packed. Great place to buy clothes for 20-30 percent off the regular stores.
Posted by: Les | Sep 6, 2007 1:46:11 PM
If we are handicapping Wal-Mart's stock, then net vs gross and all that jazz is what matters. From the look of Barry's original comment, he was aiming at a broader perspective - how are we (consumers) doing? The answer in the near term seems to be that we are doing better. Chain store sales and car sales were better in August than in July and better than expected.
A look at Costco sales does suggest that Wal-Mart got a lift at others' expense in August, but otherwise sales were pretty good. ICSC puts the total for same store sales at up 2.9% y/y vs 2.6% in July, so we aren't talking about a roaring success, but maybe enough to boost retail sales estimates.
Posted by: kharris | Sep 6, 2007 2:18:10 PM
Seems like the Fed is signalling no cut.
Economy is super strong. Home equity lines might have shut down -- but just blow the dust off the old Mastercard -- and voila -- instant discretionary income.
Long live the consumer.
I mean wtf - Are parents really going to tell their kids you can't get any pencils, daddy's bankrupt?
Posted by: ari5000 | Sep 6, 2007 2:32:25 PM
I'm not sure if these retail numbers show the strength of the enonomy or simply the resilience of consumers to spend to the very end.
The key numbers to watch going forward should probably be revolving credit and whether late payments are mounting.
However, good consumer spending all but guarantees the Fed will not cut. That's going to disappoint a lot of hopefuliacs.
Posted by: Winston Munn | Sep 6, 2007 2:58:59 PM
"I mentioned a few weeks ago on Kudlow that this would be a telling sign of the strength of the U.S.consumer..."
I'm sure if had more time to think about it, you would have used the word, rationality, instead of "strength."
Thanks for the piece...
Posted by: The Financial Philosopher | Sep 6, 2007 3:12:27 PM
You're absolutely correct Barry, the consumer is still hanging in there and they are getting more for their money. The question is how long. When does Mr. Fist meet Mr. Face....?
I believe that we are still early in the cycle as it relates to the consumer, I'm anticipating a seizure in 1Q08. However with prices being slashed it's bound to effect the earnings. 50% price cuts vs. 3% increase in sales. Anecdotally, this math does not add up...
Econolicious
Posted by: ECONOMISTA NON GRATA | Sep 6, 2007 3:26:32 PM
The only problem is, September is already showing signs of reversing. I think it was a one month blip.
I agree, the BIG drop in consumption occurs in Q108. Much like Q3 90.
Everybody from us meaningless drones to the big IB's are muttering this.
Posted by: ac | Sep 6, 2007 3:43:44 PM
Maybe the federal government will legislate lower interest rate caps on credit cards. By making debt *cheaper* to consumers, the government can encourage more consumption and create a substitute for MEW or at least prevent rising CC interest rates from knocking out another leg of the stool.
Just wondering how they can keep people spending...
Posted by: wunsacon | Sep 6, 2007 3:44:29 PM
>> I mean wtf - Are parents really going to
>> tell their kids you can't get any pencils,
>> daddy's bankrupt?
Ari5000, it's easy: pencil-less kids should beat up the kids who have *2* pencils.
Posted by: Flaming Moe | Sep 6, 2007 3:52:44 PM
if consumer stops spending....FED will definitely roll the interest rate all the way to 1% like BOJ.
inflate your way out of this debt.
Posted by: techy2468 | Sep 6, 2007 4:23:41 PM
how is cutting rates going to spur spending?
I guess you wouldn't want to have any savings since your money would quickly become worthless... causing a huge rise in energy and food and everything else...
A big rate cut will clobber Joe American via hyperinflation. It will be a bonanza to hedge funds / etc. who will make a killing in the Weimar like stock rally.
I think cuts at this point -- without allowing for some of the air out of the balloon -- is completely out of the question. The markets are up 5 - 15%. YTD.
I think everyone thinks they'll inflate because that's what Greenspan has always done... but Greenspan has done nothing so far. The discount rate is not the same and an appropriate move to stop a freeze.
But I don't think he'll protect Wall Street. I think they're thinking of someone else.
Posted by: ari5000 | Sep 6, 2007 7:15:15 PM
No renos, save 5K.
So at at least 1K more on clothes!
Posted by: D. | Sep 6, 2007 10:57:02 PM
wunsacon - 'cap credit card rates'
thats a good one
but how can the root problem make a living?
how about a better operating system
get real jobs - stop pushing money piles as a job
Posted by: Greg0658 | Sep 7, 2007 9:31:34 AM
