September retail sales figures came out this week, and the numbers weren’t pretty. It is now clear that the credit crisis is having a very real effect on the economy.
The Commerce Department said retail sales fell 1.2 percent last month, far more than the 0.7 percent that had been expected. Automobile showrooms were a big casualty as consumers struggled to find financing resulting in fewer than 1 million units being sold during the month.
Furniture store sales fell 2.3 percent while sales at appliance stores fell 1.5 percent. Department store sales also fell 1.5 percent which comes on the heels of a 1.6 percent decline for July.
Economists were expecting retail sales to be down in September as rising unemployment, the continued deterioration of home prices and the stock market meltdown played on consumers’ psyche. The landscape is full of struggling retailers.
One mid-priced retailer, J.C. Penney Co. (JCP), has seen its shares slashed by investors from its 52-week high of $61.38 to today’s beaten down price of $21.28. Of course there’s good reason for this.
The operator of over 1,000 department stores said last week its September same-store sales dropped off a cliff to the tune of 12.4 percent which was well below its previous forecast of a decline in the mid- to high-single digits. It also said it expects profits (yes, profits) for the third quarter to be in the 50 to 60 cents per share range, down from its prior outlook of 70 to 75 cents per share.
Naturally, investors sold on that piece of news but the question one needs to ask now is: Did they overdo it? I don’t think so. The market is adjusting to an environment whereby future sales and profits may struggle for some period of time.
How long?
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That part of the equation is still debatable. As such companies like JCP may see their shares cut even further. That will be especially true if the recession lasts for a long period of time. Another 20% haircut is not out of the question.
If the recession is short lived, JCP may see a huge rally. The company does offer discounted good and that should protect investors on the down side. Shoppers at Nordstrom or Macy’s or Bloomingdales may give JCP a try. (See also: "Winners & Losers of the Bailout.")
If the economy does recover, I doubt the new frugal nature of the consumer will dissipate anytime soon. The company is positioning itself to capture some of the "trade down" shoppers, and that is a wise strategy.
Earlier this year JCP launched American Living, a line of apparel, accessories and home furnishings designed by Polo Ralph Lauren. It was greeted with mixed success as it designs didn’t lure higher-end shoppers into the stores—prices were slashed quickly.
I’m reluctant to commit to JCP with the odds of a longer and deeper recession being fairly high. That being said, JCP is on the list of stocks to buy when the dust settles. If you don’t want to time the market, establishing a position over time may make sense.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com and check out:
