If the American way is to save very little and spend on gambling, hamburgers, diamond rings and five-star hotels, then U.S. consumers appear to be feeling very little patriotism lately. A weak job market, brutal housing realities and record-high oil prices have prompted many to cut back on discretionary items.
The health of the once-mighty U.S. consumer is topic No. 1 this week at the Oppenheimer Consumer Growth conference in Boston. And factoring heavily in the discussions is the stubbornly high price of oil, which is ravaging profits in nearly every sector of the U.S. economy -- especially those dependent on healthy consumers.
Consumer discretionary stocks have been a rough ride this year, as investors rightly fret about sales growth trends weakening further.
Red Robin Gourmet Burger
set the tone for the retailers presenting Wednesday when the restaurant chain reported sales were trending to the low end of its previous guidance of 2.5% to 4% same-store sales growth this year. The company has been hurt because of weak sales in California, Nevada and Arizona -- some of the hardest-hit housing markets in the country. Shares tumbled 11.5% in recent afternoon trading.
Restaurants are facing volatile food commodity prices -- with wheat and corn rising sharply over the past year -- along with wage pressures (from inflationary forces and the new federal minimum wage laws).
So far, restaurants have responded by raising their prices in order to preserve margins and fight off cost inflation, but it is questionable how long this trend can last.
"Pricing coupled with rising gas prices and a weak consumer environment, keep us concerned as to how much price companies can take before they begin to lose traffic," says Oppenheimer analyst Matthew DiFrisco.
Cost inflation is also showing up in the luxury jewelry business at
Over the past three years, Tiffany and its competitors have been able to raise prices to keep pace with the rising cost of metals and gems, says Tiffany CEO Michael Kowalski.
"We've yet to see substitution effects from people not buying jewelry and buying something else," Kowalski said at the conference.
Tiffany's U.S. same-store sales so far this year have been roughly flat, as the company benefits from the weak dollar that helped boost tourist spending in its New York City stores.
In other interesting news,
( DBRN) CEO David Jaffe says he is eyeing the situation at
. He thinks some of the individual business lines are gems that he may be interested in buying.
Charming Shoppes' CEO, Dorrit Bern, stepped down on Wednesday. She had been under pressure from dissident shareholders. Charming owns Lane Bryant and other retail stores.
also presented this afternoon. The company, along with
American Eagle Outfitters
, are the specialty retailers facing the most earnings risk for its second quarter results, says Oppenheimer analyst Roxanne Meyer.
This is partially because neither retailer was able to introduce its fall clothing line until July 4, so benefits won't be gained from these products until coming quarters. Chico's said earlier today that comp sales fell 12.9% in June from a year ago.
Tomorrow, the casino and lodging companies -- some of the most ravaged among any stock sectors -- will be presenting. And I'll be providing an update when they do.
One large hedge fund investor at the conference says he remains short the entire lodging sector. The results from
will be released Thursday morning. If the company revises its guidance down then the entire sector could come under pressure again tomorrow.