Dismal Retail Numbers
The Commerce Department announced Thursday that retail sales fell by 2.7 percent in December, more than double the 1.2 percent decline that Wall Street expected.
The shortfall in December sales comes on the heels of a November drop which was recently revised downward to 2.1 percent.
It was a record sixth straight monthly decline. By all accounts it was the worst holiday shopping season since at least 1969.
For all of 2008, retail sales were down 0.1 percent, the first time the annual sales figure has fallen since 1992.
Retailers aren’t the only ones in the doldrums, but suppliers as well. Businesses cut their inventories by 0.7 percent in November in an effort to reduce stockpiles as they try to shore up their balance sheets in the wake of the reduced consumer spending.
Regional department store chains Gottschalks Inc. and Goody’s LLC both filed for bankruptcy on Wednesday. Gottschalks said it will try to reorganize under bankruptcy protection while Goody’s will seek to liquidate its 282 stores.
Liz Claiborne (LIZ), maker of the Kate Spade and Juicy Couture brands in addition to its namesake line and an operator of 600 retail stores, said on Tuesday its fourth-quarter loss could be as much as 15 cents per share because of markdowns and slow sales. The company had said previously it was expecting earnings of 19 to 24 cents per share.
A Game of Survival
“It was a very promotional season,” said CEO William McComb who said it resembled a game of Russian roulette. Once department stores marked down product, Claiborne had to cut prices at some of its own retail stores. Now retailers and their suppliers are negotiating over “markdown money,” or what suppliers provide to retailers to help cover their shortfall in profits resulting from the discounting. It’s cheaper than taking the merchandise back.
For now though, liquidity is the name of the game. One investment banker said he’s advising clients “to worry about nothing else for the next year” but maintaining adequate liquidity. To that end, LIZ this week successfully renegotiated its credit facility, reducing it to $600 million from $750 million and extending it to May 2011 from October 2009.
That deal was expensive, but necessary. LIZ will pay lenders Libor plus 500 basis points versus the old rate of Libor plus 95 basis points. Investors initially cheered the news as a victory against the credit crunch. The shares reversed course though as the realities of the economic slowdown again reared their head.
Analysts believe the retail sector will be weak for at least another six months. With the stock near $2 per share, a bevy of popular brands, low inventories in stores and the federal government doing everything it can to get the economy moving again, these shares could be appealing for aggressive investors.
Navellier’s PortfolioGrader rates LIZ a D or sell. That is no surprise giving the stalled earnings momentum or more specifically a lack of earnings. At the moment, LIZ is a turnaround play and not a growth stock, but that could change.
Stay tuned.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
