The Dow Climbs, but Retailers Continue to Struggle

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) continues to forge slowly higher as tensions maintain between Ukraine and Russia and economic data continues to be good but not great. The big economic news for the day was a 1.8% rise in productivity for U.S. worker, which is down from 3.5% in the third quarter. 

Productivity is a key driver of economic growth, because as workers become more efficient, they can produce more per hour worked without adding to the workforce. But there are limits to how much managers can squeeze from workers, and after years of asking employees to do more with less, we may be reaching that limit. Keep an eye on what this means for employment, because if productivity can't be improved, companies will have to hire more to grow, which may not be all bad for the economy.

Retailers continue to struggle
On the company side, retailers continue to report weak holiday-season results. We've seen Wal-Mart (NYSE: WMT  ) and Target struggle during the holiday season, but today it's surprising to see Costco's (NASDAQ: COST  )  earnings decline as well. Costco has long been one of the best-performing retailers in a cutthroat industry because its memberships, bulk sizes, and low prices keep customers coming back even as online retail takes share. But last quarter's net income fell 15% to $463 million, or $1.05 per share. 

While the bottom line is struggling, Costco remains stronger than most retailers. Membership fees were up 4.1% to $550 million, and same-store sales were up 5% last month, compared to falling same-store sales at Wal-Mart.

Conditions are even worse at Staples (NASDAQ: SPLS  ) , which reported a 7% drop in same-store sales on both lower traffic and order sizes. The office products retailer is still profitable with $212.3 million in earnings for the quarter, but a 3.8% drop in overall sales isn't a good sign that the company is healthy.  

When competitors are offering similar or lower prices and shipping straight to your door, it's hard to grow sales or earnings in retail. Costco seems to be holding up reasonably well because it has a differentiated offering with memberships and jumbo product sizes, but even that isn't resulting in impressive figures.

It's a time to be cautious in retail, especially if a company isn't offering products that are somehow differentiated from customers.

How should you be playing retail right now?
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2867145, ~/Articles/ArticleHandler.aspx, 9/15/2014 11:22:03 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement