The verdict is still out on whether the U.S. is headed into a recession, at least on Wall Street. But one sector is sending out a serious warning: Retail.
Just consider the long list of retailers who have missed sales or earnings targets, or warned about future weakness: Macy’s (M), Nordstrom (JWN), Kohl’s (KSS), Target (TGT), Gap (GPS), DSW (DSW), Tiffany & Co. (TIF), Best Buy (BBY), L Brands (LB), Express (EXPR), and Fossil Group (FOSL).
That list covers everything from general merchandise to clothing to shoes to jewelry to electronics to watches and wallets. Shares of those companies are all trading at or near two-year, three-year, or even seven-year lows.
Meanwhile, Aeropostale, Quiksilver, Pacific Sunwear and Sports Authority have all filed for bankruptcy. The latter will start liquidating all of its merchandise, and closing all of its 460 locations, over the next several weeks.
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With their merger blocked by government regulators, could Office Depot (ODP) and Staples (SPLS) be headed for serious trouble as well? Absolutely. The two companies are already in the process of closing a few hundred stores, and neither has indicated they’re going to change course.
|Home Depot’s same-store sales jumped from a year earlier in Feb., but the growth rate slowed in March and April.|
Even one of the strongest retailers over the past few years, Home Depot (HD), cautioned that momentum was slowing. Same-store sales jumped 10.2% from a year earlier in February. But that growth rate slowed to 6.7% in March, then 4.3% in April.
We all know Americans have historically been good at one thing – spending. And we all know that our country’s growth is dependent on that spending, with consumers accounting for about 70% of U.S. GDP.
But judging from the reports I’m seeing across a wide-ranging swath of American retailers, things aren’t that rosy anymore. Whether it’s slowing job growth … a spring resurgence in gasoline prices … lackluster wage increases … soaring insurance and tuition costs … or all of the above … something is bothering U.S. consumers.
That doesn’t guarantee that we’re staring a recession in the face. But it sure does raise the risk, especially this late into the business and credit cycles.
As a matter of fact, billionaire Sam Zell calls this the “ninth inning” of the economic expansion, and I see no reason to argue with the man. So stick with a cautious investing approach, emphasizing “safe yielders” in sectors like utilities, consumer staples, and telecoms … maintain an elevated allocation of cash … and stay alert for additional recommendations designed to preserve your wealth in uncertain economic times.
Until next time,