By Karen Talley
Whether induced by the economy or self-inflicted, retailers'
fourth-quarter results brought front and center issues that will
continue to plague the sector well into 2013.
While consumers are modestly increasing spending despite having
lower take-home pay, the overall sluggishness of the economy and
escalating gasoline prices are countering a higher stock market and
housing prices.
U.S. incomes fell the most in two decades in January as higher
tax rates kicked in; personal incomes tumbled 3.6% in January, the
Commerce Department said Friday. And gross domestic product, a
measure of all goods and services produced in the economy, advanced
at just a 0.1% annual rate between October and December, the
Commerce Department said Thursday.
Despite those numbers, consumer spending inched up 0.1% in
January with inflation factored in.
Gap Inc. (GPS) sees consumers being more accepting of the curves
that are being thrown their way. "I think it's fair to say that our
consumers now after so many years of a tough economy are sort of
getting probably thicker skinned about any of these moves in
particular," Chief Financial Officer Sabrina Simmons said.
While several retailers spoke of operational problems when
delivering fourth-quarter results--issues that will stay with many
of them for the year--the overarching theme was their customers'
crimped spending.
"Overall the biggest headwind for retailers will be the economy,
instead of individual issues," said Brian Yarbrough, retail analyst
at Edward Jones. "When virtually every call you listen to the
retailer said people weren't spending as much, it looks like an
overarching theme."
Mr. Yarbrough expects the difficulties to last. "The late income
tax refunds will be tempered, but high gas (prices) and the payroll
tax increase I feel will be more lasting."
Earlier this week, Target Corp.'s (TGT) Chief Executive Gregg
Steinhafel offered investors "a tempered view of the near-term
sales environment," saying during the company's earning call: "As
we enter 2013, we will plan appropriately as the U.S. economy is
growing at a painfully slow rate and unemployment remains
persistently high. While there are some encouraging signs in the
housing market, volatility and consumer confidence, a payroll tax
increase and rise in the price of gas all present incremental
headwinds."
At the high end, Saks Inc. (SKS) Chief Executive Steve Sadove
said he expects the external environment "to remain somewhat
volatile," with several factors including "higher tax rates on the
more affluent and the unknown resolution of pending fiscal matters
that could create additional uncertainty, particularly in the first
half of the year."
"Across the board--luxury, discretionary, specialty--the
lingering uncertainty in the economy is going to have a potential
impact on sales (during the first half of the year)," Matthew Shay,
chief executive of the National Retail Federation, told Dow Jones
Newswires. However, "as we get later in the year, some of this
should shake out."
The financial pressures people are under appears to be working
in favor of Dollar Tree Inc. (DLTR).
"The consumer is under pressure, burdened and concerned...but at
Dollar Tree we think we are part of the solution for the cash
strapped customer," Chief Executive Bob Sasser said on a conference
call. "We believe today we are more relevant than we ever have
been," including to people that may migrate to Dollar Tree as they
trade down. "Consumers' demand for value will continue to grow and
intensify," Mr. Sasser said.
Some retailers, in addition to contending with the economy, are
dealing with their own woes.
Saks, for example, saw its revenue rise, but its fiscal
fourth-quarter earnings fell 45% because of higher expenses. The
company is in the midst of a transformation that will last well
into 2013 as it overhauls its information technology systems.
J.C. Penney Co. (JCP) is another retailer dealing with it own
issues, seeing sales fall 28.4% from a year earlier in the fourth
quarter, which spans the crucial holiday selling period. The
company reported a fourth-quarter loss that capped a year of
declines for the once-traditional department store that is trying
to reinvent itself as non-discount, boutique-filled retail
experience.
At Sears Holdings Co. (SHLD), Chairman Eddie Lampert says the
struggling retailer still has a lot of work to do and that it is
transforming itself by embracing the Internet and other networking
channels.
"We are living in a hyper-connected world," he wrote in a letter
to shareholders. "Customers are looking for convenience and they
are more networked than ever. They want to get what they want, when
they want it and where they want it--on their own terms."
Kohl's Corp. (KSS) may also spend the early part of this year
continuing to deal with inventory issues, says Wayne Hood, retail
analyst at BMO Capital Markets. There "appears to be still-elevated
inventory that will likely present markdown risk in the first
quarter," Mr. Hood said.
Kohl's Chief Executive Kevin Mansell called 2012 a
"disappointing year for the company," noting that while "sales grew
for the year in total, there were a number of categories where
growth was not at the rate we planned and some where we lost market
share."
Some of the lost market share may have found a new home over at
rival Macy's Inc. (M), which posted another quarter of strong sales
growth.
Macy's has stuck to a three-pronged strategy that is paying off.
The retailer tailors merchandise to local tastes, is making a big
push in "omnichannel" selling--the use of the Internet, stores and
warehouses to quickly provide merchandise --and has stepped up
staff training. Macy's also successfully uses a combination of
outside vendors, exclusive merchandise and in-house brands.
Write to Karen Talley at karen.talley@dowjones.com
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