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CHICAGO--(BUSINESS
WIRE)--Zacks.com releases the latest Zacks Industry Rank. Stocks featured in
this week’s analysis includes as by Autonation
(NYSE: AN), BJ's Wholesale Club (NYSE: BJ), CarMax (NYSE: KMX),
Family Dollar Stores (NYSE: FDO), The TJX Companies (NYSE: TJX).
To see the Zacks Industry Rank and the trend in earnings estimates revisions for
more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior
Market Analyst for Zacks.com.
This week: Consumers Becoming Thriftier
Key Points:
- Consumers are spending, but they are looking
for bargains
- Cheaper gasoline prices are helping to boost
store traffic at BJ's Wholesale Club (NYSE: BJ)
- Plunging trade-in values for SUVs are making it
more difficult for consumers to afford new cars
Lackluster Retail Sales
Yesterday, the Department of Commerce said retail sales rose just 0.1%. Had
stimulus checks not been distributed, there would have been a large decline
instead.
Auto sales skidded 3.6% and furniture sales fell 1.4%. Electronics, building
materials and restaurants also saw lower sales.
All other retail categories showed improvement, however. Not surprisingly,
gas stations showed the biggest increase with a 4.6% rise in sales.
Unfortunately, higher crude prices are not allowing the gains to translate into
profits for the gas stations or the refiners that supply them.
Consumers Actively Seeking Discounts
Though the numbers show that consumers are continuing to spend, other data
suggests Americans are being more selective about where they shop. This shift
has benefited discount retailers, such as Family Dollar Stores (NYSE:
FDO).
Last week, FDO claimed that same-store stores sales surged 8% in June, well
above its internal forecasts. CEO Howard Levine observed that the strength was
broad-based and included improvement in both apparel and seasonal items.
FDO guided for fiscal-fourth quarter profits of 30 cents to 35 cents per
share, when it reported fiscal-third quarter profits at the start of July. The
guidance led all of the covering brokerage analysts to raise their quarterly
forecasts by 3 cents to 32 cents per share.
Notably, the consensus earnings estimate for fiscal 2009 was revised higher
as well. The average forecast now stands at $1.65, 7 cents higher than the
consensus estimate of a month ago.
It's not just FDO that is doing well in the current environment. BJ's
Wholesale Club (NYSE: BJ) and The TJX Companies (NYSE: TJX) also
reported a significant increase in June same-store sales.
Gas Prices Attracting Consumers
BJ enjoyed an 8.3% increase, excluding gasoline. Store traffic rose 6% and
the size of the average transaction was approximately 2% higher. These metrics
show that not only were more people coming to the store, but that they were
spending more once they walked in the door.
It is worth noting that the impact of gasoline sales extends beyond just the
numbers. Wholesale clubs typically are one of the cheapest places to fill up.
Therefore, the store traffic numbers are likely receiving a boost from shoppers
who are walking in simply because they drove over for the gas. Nonetheless, the
increase in transaction size suggests that consumers are shopping when the price
is right.
About one-fourth of the covering brokerage analysts have raised their 2008
profit projections on BJ. The revisions have pushed the consensus earnings
estimate 2 cents higher to $2.14 per share.
Discounts Are Helping Too
TJX realized a 5% jump in same-store sales last month. CEO Carol Meyrowitz
credited summer weather for helping demand, though if it was just the weather
other retailers would have thrived as well. In other words, TJX's lower prices
were probably the primary driver behind the better sales.
Meyrowitz believes the positive momentum for her company will continue
throughout this month and raised her second-quarter profit guidance to between
44 cents and 45 cents per share. Subsequent revisions by many of the covering
brokerage analysts caused the consensus estimate to reach 45 cents, up 4 cents
from a week ago.
The average forecast for the full-year was also revised higher. The 2008
consensus earnings estimate of $2.24 is 2 cents higher than the average
projection of a week ago.
FDO is a Zacks #1 Rank ("strong buy") stock. BJ and TJX are Zacks #2 Rank
("buy") stocks. All three are classified in Retail-Discount Variety (http://at.zacks.com/?id=4724). This group contains four other
Zacks #2 Rank stocks.
SUVs Sitting On Dealer Lots
Last month's 3.6% skid in auto sales reflected several factors. The sluggish
economy has made consumers thriftier, which means lower demand for new cars.
Tightened credit standards and falling home equity means financing a car
purchase is more difficult for some buyers. Then, there is the cost of gas,
which makes lower-priced, more fuel efficient vehicles attractive to a broader
audience.
Demand for SUVs has plunged and that has caused reverberations for auto
dealers. SUVs carry higher margins and therefore create more profits for dealers
on a per vehicle basis. Slackened demand means lower profit.
The drop in demand has also caused SUV prices to plunge. Thomas J. Folliard,
CEO of CarMax (NYSE: KMX) observed on his company's fiscal first-quarter
conference call that "the rapid depreciation across this large product segment
has been unlike anything I've seen in my career".
Falling prices for SUVs not only hurt car dealer margins, but they also
directly impact sales. Many consumers faced with lower trade-in values and a
slack economy have difficulties coming up with the additional cash required to
buy a new car. In such instances, they are either forced to scale back their
purchase plans or continue to drive their current vehicles.
Given these factors, it is not surprising to see brokerage analysts cutting
full-year profit projections on multiple companies within Retail/Wholesale
Auto/Truck (http://at.zacks.com/?id=4725). This group contains three Zacks #5
Rank ("strong sell") stocks and four Zacks #4 Rank ("sell") stocks, including
KMX and Autonation (NYSE: AN).
The interactive Zacks Industry Rank List allows you to see all of the
companies, and their Zacks Rank, within more than 200 industries. See the list
at http://at.zacks.com/?id=3208.
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