Retail Therapy

What do Wal-Mart, Family Dollar Stores, Lumber Liquidators and the Container Store have in common? CEO’s from all of these retailers lamented the tepid pace of consumer spending. One even labeled the condition a “retail funk” that has infected the US economy. Let’s start with the biggie: Wal-Mart President and CEO Bill Simon told both Reuters and CNBC that shoppers have not returned to world’s largest retailer at the pace one might expect five years after the recession ended, because “middle-class and lower-class are still economically challenged, only spending during holidays and for family occasions." Despite gains in employment, Simon predicted it would take six months to a year for retailers to start seeing a sales boost from job growth. “We’ve reached a point where it’s not getting any better but it’s not getting any worse – at least for the middle (class) and down." The numbers bear out those sentiments: sales at Wal-Mart's U.S. stores have fallen for five straight quarters, and traffic has dwindled for a year and a half.

Family Dollar Stores reported disappointing quarterly earnings last week and CEO Howard Levine said, "Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment." Similarly, Lumber Liquidators’ CEO Robert Lynch said that earnings were weaker in the first quarter due to bad weather, but the much-hoped for spring-awakening did not occur and “Customer traffic to our stores was significantly weaker than we expected.”

But it was The Container Store’s CEO Kip Tindell (check out this 2011 CBS Sunday Morning segment about The Container Store and CEO Tindell), who actually diagnosed the problem: “Consistent with so many of our fellow retailers, we are experiencing a retail 'funk'…we continue to experience slight traffic declines in this surprisingly tepid retail environment. While consumers are buying homes and automobiles and even high ticket furniture, most segments of retail are, like us, seeing more challenging sales than we had hoped early in 2014 – so we’re not alone in this."

Investors will be eager to see whether other retailers have felt the pinch. The June Retail Sales report will be released on Tuesday and many economists are keeping a keen eye on the results. Sales have been inching up, but there has yet to be a broad-based, consistent gain among a variety of retailers. Despite the woes at the companies noted above, carmakers have enjoyed big gains and high-end retailers, like Tiffany’s and Burberry Group have been racking up the sales.

One thing is clear: until more Americans feel confident enough in the economy to spend more money, we are likely to see mixed results and sub-par growth. We’ll hear a little more about the nation’s progress this week, when Fed Chair Janet Yellen testifies before the Senate Banking and House Financial Service Committees. After minutes from the central bank’s recent policy meeting revealed that the Fed is planning to wrap up its bond buying program in October, lawmakers are likely to ask when the Fed will begin to raise short term interest rates. Based on the economic projections submitted at the most recent policy meeting, officials expect the first rate hike will occur around the middle of next year.

MARKETS:

  • DJIA: 16,943, down 0.7% on week, up 2.2% YTD
  • S&P 500: 1967, down 0.9% on week, up 6.5% YTD
  • NASDAQ: 4,415, down 1.6% on week, up 5.7% YTD
  • 10-Year Treasury yield: 2.52% (from 2.64% a week ago)
  • August Crude Oil: $100.83, down 3.1% on week (4th consecutive weekly loss)
  • August Gold: $1337.40, up 1.3% on week (4th consecutive weekly gain)
  • AAA Nat'l average price for gallon of regular Gas: $3.62 (from $3.55 a year ago)

THE WEEK AHEAD: The financial services sector will headline earnings reports in the week ahead. Analysts predict it will be a tough quarter, with revenue declining by 5.6 percent from a year ago and profits down by 10.3 percent. Investors will pay special attention to Citigroup’s report, after it was reported that the bank and the Justice Department were nearing a $7 billion dollar deal to settle a civil investigation into the sale of mortgage investments.

Mon 7/14:

Citigroup, Barclay’s

Tues 7/15:

Goldman Sachs, JP Morgan, Johnson & Johnson, Yahoo, Intel

8:30 Retail Sales

8:30 Empire State Manufacturing Index

8:30 Import/Export Prices

10:00 Business Inventories

10:00 Janet Yellen testifies before Senate Banking Committee

Weds 7/16:

Bank of America, eBay, Yum! Brands

8:30 Producer Price Index

9:15 Industrial Production

10:00 Housing Market Index

10:00 Janet Yellen testifies before House Financial Services Committee

2:00 Fed Beige Book

Thurs 7/17:

Morgan Stanley, Google, Schlumberger

8:30 Weekly Jobless Claims

8:30 Housing Starts

10:00 Philadelphia Fed Survey

GE CEO Mary Barra and general counsel Mike Millikin testify before a Senate subcommittee on why it took so long to recall cars with faulty ignition switches.

Fri 7/18:

General Electric

9:55 Consumer Sentiment