Monday, July 9, 2007

Retails Sales Preview: Yawn

On Thursday this week retailers are expected to announce June numbers and economists project sales to fall 0.3%, with weaker spending on vehicles, gasoline, building materials and clothing.

In their weekly preview, Brian Bethune and Nigel Gault, U.S. economists for Global Insight wrote, "Consumer spending will conclude the second quarter with a whimper" and Leslie Preston, an economist for CIBC World Markets, said "Consumption is looking anemic"

Macy's (M), J.C. Penney (JCP), Kohl's (KSS) and Saks (SKS) all have forecast a decline in June same-store sales. Sears Holdings (SHLD) does not announce numbers.

The assumption seems to be that consumer spending, which jumped at a 4.2% pace in the first quarter, slowed to about a third of that rate in Q2. Excepting the quarter that followed hurricane's Katrina and Rita, it would be the weakest quarterly spending in more than four years.

The past weeks reports on retail chain store sales were weak and the results showed the slowest growth since the recession ended in late 2001. Further, The International Council of Shopping Centers expects year-over-year growth of 1.5% to 2% for same store sales in June, 1/2 the growth rate seen earlier in the expansion.

Let's also not forget that last year had the Memorial Day shopping weekend in June and it was in May this year. What we will really need to do is average the two months together to get a more accurate number.

So, what happens? Who cares. Expectations are low so if they do not do well, we expected that. If they surprise to the upside, shares run up on the news. If they completely disappoint, because expectations are not that hight to begin with, the downside is not that far. The perverse reality is that any further downside will only stoke already simmering merger and buyout rumors which will buoy shares, the old "bad news is good news scenario".

Just sit tight, a lot of people have lost a lot of money over the years betting against the consumer. Will there be a blip sooner or later? Sure, there has to be, but long term, the trend is up.

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