Retail Rumble – US-FOREX.US
While economists have been eyeing unemployment figures and gross domestic product for signs the recession is ending, nothing gets the market pumped like Americans hitting the mall. Consumer spending is 70% of the economy; retailers report monthly sales on Thursday, and analysts think revenues will be down again.Barclays Capital analyst Jeff Black tells investors to expect a drop of 5.2% in July sales compared with last year. That’s slightly worse than June’s 5.1% decrease, but investors shouldn’t read too much into the decline since there are some mitigating circumstances. For one, 10 states have moved their annual sales tax-free shopping periods from July to August. Black says that could account for a 2% decline on its own. Retailers are also taking different approaches to dealing with the recession and lower sales. Some chains, like clothing store Abercrombie & Fitch
, have resisted lowering prices in an attempt to preserve their cachet with consumers. As a result, Abercrombie has seen sales fall sharply in the short term and, says Black, could see July sales down by 23% over 2008. Better results are on the horizon, though, and Black recommends the stock.Black also thinks investors should pick up shares of The Gap
, even though he bets sales fell 8% in July. Improving results at the firm’s Old Navy line of stores should boost the stock during the winter holiday season, he says.
American Eagle Outfitters
is also resisting the temptation to mark down merchandise in order to get it off the shelves in time for the back-to-school shopping season, writes analyst Roxanne Meyer of Swiss bank UBS. Urban Outfitters
, on the other hand, has opted to discount heavily, she says. Meyer thinks July sales dropped 8% at both stores.Outside of clothing, Target
is likely to post decent results, thinks Meyer. She predicts sales fell 5% at the giant chain but likes their promotions for back-to-school shopping. Dollar Tree, a chain of discount shops, is likely to see sales grow by 4.5%. Meyer recommends shares of Target and warehouse retailer BJ’s Wholesale Club
. She has a “neutral” rating on Dollar Tree
and warehouse chain Costco Wholesale
.
Shareholders have some reason to cheer ahead of Thursday’s results, though. On Tuesday, the Commerce Department said Americans spent more than economists had predicted, even though their incomes fell. The Associated Press contributed to this report.