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Target, Saks, and Home Depot Wobble

Written By Brian Hicks

Posted August 20, 2008

Here’s more evidence of a consumer led recession as the housing ATM shuts down and wallets across the country slam shut.

The Christmas season is starting to look like one that only a scrooge could love.

From the Financial Times by Johnathan Birchall entitled: Leading stores suffer from US slowdown:

“The breadth of the slowdown in discretionary US spending was underlined on Tuesday by quarterly results from Home Depot, the home improvement store, Target, the mass discounter, and Saks, the luxury fashion retailer.

Saks saw its shares fall over 8 per cent to $10.29 at the New York close after it reported a $31.7m loss on softening demand for its luxury ­clothing, shoes and

Saks also predicted flat or falling comparable sales for the second half of the year.

Over the first six months of the year Saks comparable store sales have increased just 2.7 per cent, compared to the high-single digit growth it saw before the economic slowdown started to hit higher-end consumers at the end of last year.

Steve Sadove, chief executive, said that the retailer had “experienced a softening across nearly all geographies and merchandise categories” during the quarter.

At the other end of the retail spectrum, Home Depot, the world’s largest home improvement store, reported a 5.4 per cent fall in total sales, and a 7.9 per cent fall in comparable stores, as sales of products from paint to electrical goods fell.

Comparable sales of stores in California and Florida – the areas in the US most hit by the housing slump – fell by more than 10 per cent, mirroring results at Home Depot’s rival, Lowe’s.

Carol Tome, Home Depot’s chief financial officer, said that, while statistics suggested that the decline in home improvement spending should be bottoming out, other factors such as the uncertain mortgage market and rising costs for consumers were continuing to weigh on the sector.

“We should be getting towards the bottom, but there’s all this other ­uncertainty that cause us to remain cautious not just for the back half of 2008, but also into 2009,” she said.

Target, the mass ­discounter which aims at a more prosperous customer than its market rival, Wal-Mart, also reported a fall in profits and sales, with net earnings down 8 per cent to $634m.

While new store openings pushed total revenues to $15bn, sales at stores open at least a year fell 0.4 per cent.”


So much for those stimulus checks. Of course, can you imagine how much worse these numbers might have been without all of that “free money”?

Either way,three months from now we will really know just how bad the story is in retail—just in time for the holidays.

Until then, go short the Consumer Discretionary SPDR (XLY:AMEX) or even long the Consumer Staples Select Sector SPDR (XLP:AMEX). After all, cutting back has its limits.

By the way, here’s a chart of the XLY, it’s not one for the squeamish.