The latest casualty is department store chain Nordstrom (JWN). It warned last night that same-store sales at its full-price outlets dropped 3.2% during the holiday season. Pressure on margins and those weak sales drove profit down to $180 million, or $1 a share in the most recent quarter, from $255 million, or $1.32 a share in the year-earlier period.
Analysts were looking for $1.22 a share. In the wake of the disappointment, more than a dozen of Wall Street’s finest cut their price targets on Nordstrom shares. They’ve lost 30% of their value in the last year.
Meanwhile, Wal-Mart Stores (WMT) warned yesterday that sales would miss expectations. The giant retailer said it expects flat sales in the current year, down from the 3-4% growth forecast it issued back in October. Fourth-quarter profit dropped 8% year-over-year.
|Wal-Mart lowered its sales outlook for the rest of the year. The Amazon effect? Or is there a bigger problem for the retail sector?|
What’s more, Wal-Mart said the strong dollar and store closures would continue to weigh on results going forward. Wal-Mart U.S. CEO Greg Foran also said deflationary pressures on pricing would persist through at least 2017.
Finally, clothing supplier V.F. Corp. (VFC) reported weaker-than-expected sales and earnings in the most-recent quarter. The company makes North Face, Lee and Wrangler jeans, jackets, shirts and other products, and its per-share profit of 95 cents missed the average forecast of $1.01. Sales dropped 4.6%.
So what exactly is going on? Is this even more evidence the retail business is getting Amazon-ed? That the online retailer is stealing sales like crazy and traditional mall-based chains just can’t compete?
Or is this a sign that the economy is in worse shape than commonly appreciated? Gas prices have plunged, and government reports suggest wage and job growth remain healthy. The government’s retail sales report for January also showed a 0.6% rise in sales excluding autos, gas, building materials, and food. That was a larger “core” gain than economists expected.
|“Is this a sign that the economy is in worse shape than commonly appreciated?”|
But if that’s the case, why do we keep getting warnings like these? It’s not like Wal-Mart is some tiny company whose updates we can safely ignore. It’s the biggest retailer in the world. And it’s not like buying Amazon and selling Wal-Mart is working anymore; Amazon shares have dropped almost 21% year-to-date, while Wal-Mart shares have bounced by around 5%.
Here’s my read on the situation: The U.S. economy and U.S. consumer aren’t in very good shape … and that the trend is worsening with time. Tighter credit conditions, weaker consumer sentiment, rising costs for non-optional expenses, like health care, housing and more, are really starting to bite.
So it’s not that Amazon is stealing a greater share of the retail pie. It’s that the overall pie is shrinking! If I’m right, it’s going to be another serious negative for the stock market to confront.
Now that I’ve said my piece, what’s your take here? Are consumers in trouble? Or just traditional retailers? Is Amazon.com still a buy because it’s eating everyone’s lunch? Or are the warnings from traditional retailers bad news for the online retailer, too, because they signal broad-based weakening? What does this all mean for stocks? Hit up the discussion board and weigh in when you get a minute.
Many economists and government advisers are calling for increased fiscal spending now that monetary policy is proving ineffective, as I noted in yesterday’s column. So what do you think of that idea?
Reader Lifestudent38 offered this skeptical take: “The government cannot give to anybody anything that the government does not first take from somebody else. You cannot multiply wealth by dividing it.”
Reader Oliver H. also said it would just risk repeating past mistakes. His comments: “The problems we have were caused by overspending by governments. Inflation is a devastating thing, yet the Fed wants more of it.
“They keep saying we need growth. But people don’t need all that excess stuff. Why should business invest more into making more goods and services when people don’t need it, and many don’t have the money to buy more even if they do need it? I don’t see an answer. We are in a jam, and a severe recession may be the only thing to cure it.”
But Reader Gordon suggested there are things governments could invest in here, to the benefit of the economy: “Let’s get out the picks and shovels and start sprucing the country up. Infrastructure is falling apart, and waterlines are contaminated.
“You say people must find a way of working for it, so here it is. Manual labor. We are not all Bill Gates or Warren Buffett. There are so many who depend on society for a hand up.”
Reader Fabian also picked up on that theme, saying: “There are a lot of infrastructure projects in the U.S. that could spark economic activity and yield some good profits for the future. Public transportation, roads, and connectivity come to my mind. However, from Bush to Obama, the debt has grown from $10 trillion to almost $19 trillion. Where did the money go?”
As for monetary policy, Reader Fred W. said he’ll be glad when central bankers just get out of the way: “Living through the end phase of the global central banks (sucking up) world wealth is going to hurt. No way around it.
“But sanity must return to global economics. … Bring on the pain. The sooner we start, the sooner we can come out the other side.”
Thank you for sharing your opinions. If we’re going to see massive government intervention in the economy and the markets, I would at least prefer we get something lasting out of it. New bridges, new roads, better airports, better rail systems, you name it. Pumping up asset prices artificially and stiffing savers out of their wealth, which is all we’ve gotten from the ridiculous amount of central bank intervention over the past several years, doesn’t help anyone in the long run.
Is there any other ground I didn’t cover, or any additional thoughts you want to share? The comment section here is your best outlet.
You know the wave of Chinese takeovers in foreign markets that I mentioned yesterday? The Wall Street Journal puts the tally at $81.5 billion so far in 2016, the strongest start to a year ever.
But unlike offers from companies in other Asian or European countries, offers from China face much more bureaucratic and political opposition. That’s because the U.S. government is worried about China’s military ambitions, and its reputation for stealing U.S. corporate secrets.
U.S. jets struck a terrorist camp in Libya overnight, killing an estimated 30 ISIS personnel. The main target of the air raid was Noureddine Chouchane, an operative suspected of planning attacks on a museum and resort in neighboring Tunisia last year.
I’ve talked about the threat of so-called “hidden sellers” — sovereign wealth funds and other governmental entities that are being forced to liquidate stocks and other investments. Today, Bloomberg reported on a fresh dire warning out of the Norwegian central bank.
The head of the Norges Bank said the government’s earlier forecast that it would need to raid the country’s sovereign wealth fund for only $570 million was entirely off base. Instead, Norway may need to tap the fund for a whopping $10 billion.
This year will be the first time in more than a decade-and-a-half that Norway’s fund will see net outflows. And as I noted earlier, sovereign wealth funds all over the Middle East and in other commodity-sensitive nations are being forced to liquidate assets to support their economies and markets, too.
So what do you think about China’s plans to take over more American and European companies? How about the latest anti-terrorism strike in Libya? And what are your feelings on the “hidden sellers” in the world’s stock markets? Should we be worried about them? Hit up the comments section below and let me hear about these issues.
Until next time,
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