Some say we're heading for a double-dip recession. Some say we're in the early stages of a depression. Whatever you want to call it, the economic situation here in the U.S. is just plain ugly, as today's abysmal jobs claim data emphasizes.
Now, similarly dire quarterly data from discount retailers makes me wonder whether even well-known discounters can adequately cope with "the new normal" consumer environment.
Wal-Mart's same-store sales gave investors pause. Comps decreased 1.8% at its U.S. Wal-Mart brand locations, while its Sam's Club unit reported a 1% increase in comps (without fuel).
On the more optimistic side, Wal-Mart raised its earnings guidance for the full year to a range of $3.95 to $4.05 per share, from its previous guidance for earnings of $3.90 to $4.00.
Still, although Wal-Mart's earnings beat analysts' expectations for $0.96 per share, it missed analysts' expectations for $105.5 billion in revenue.
In its press release, Wal-Mart stated, "The slow economic recovery will continue to affect our customers, and we expect they will remain cautious about spending." That certainly does imply that despite its price-cutting advantage, folks in Wal-Mart's core customer base are still hurting.
Rival discounter Target
However, once again, revenue was an issue. Target failed to rake in the $15.6 billion in sales that analysts expected.
In addition, Target said it's shuttering its 262 garden centers because they didn't prove profitable. It's hardly alone in the list of retailers that have shut down ancillary concepts or underperforming stores when financials show flagging demand. Just this week, Abercrombie & Fitch
Don't dismiss the value proposition
Elsewhere in the discount retail space, warehouse rival BJ's Wholesale
So far, these light second-quarter revenues only fuel well-founded fears that consumers just aren't flush with money these days. Retailers are steeling themselves for a nasty second half of this year, paying close attention to inventory levels and cost controls.
Stocks in retailers that offer discounts to discerning shoppers are far safer than stocks in high-end retailers such as Saks
As much as our nasty environment still hurts discounters such as Wal-Mart, Target, and Costco, I still consider them safer than stocks of many retailers that count on consumers' free-spending ways. Many, many consumers will be on strict budgets for a long time, and the Wal-Marts of the world help them stick to that fiscal discipline. Dismissing discounters or value-oriented retailers seems like a mistake.
What do you think? Is it high time to ditch discount retail stocks, or are they safe havens for worried investors? State your case in the comment box below.
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