The U.S. consumer is still strong! The U.S. consumer is spending! The U.S. consumer can't be stopped! Long live the U.S. consumer!
If only retail stocks were as tirelessly consistent as American shoppers. Instead, the sector has lately been tugged in more directions than
as investors rotate in and out of tech in favor of -- or to the detriment of -- these so-called Old Economy stocks.
In the past month,
, the world's biggest retailer, saw its shares rise (up 14% at one point) then fall. They're now down 2.4% since mid-March, but still up more than 13% for the year. Got that? Try
, which rose almost 9% towards the end of March, then reversed course and is now down 9.4% over the last month (but still up about 3% for the year).
Why the whiplash? In part, it's a reaction to what the tech stocks -- which have been leading the bull market around by the horns -- are doing. When investors flee tech, they often rotate into more mundane sectors (with the exception of last Friday, when everyone sold everything).
The fundamentals for retailing remain sunny: The U.S. economy continues to power ahead and retail sales (excluding auto sales) rose by 1.4% in March. But that acceleration is inviting a cloud into the picture. The shopping spree by U.S. consumers this spring is another danger sign to inflation hawks at the
Mr. Toad's Wild Retail Ride
If the Fed continues to jack up rates, raising costs of essentials like housing and slowing the stock market gravy train, consumers can quickly stifle that urge to stock up on more fancy jewelry or expensive designer jeans. That helps explain why
shares are down 20% this year, and about 10% down in the past month. Specialty stores, which cater to what people want rather than what they need, are particularly vulnerable to a slowdown in spending.
There's also a very real worry about growth in same-store sales, the monthly figures which illustrate how well a retailer is tapping demand, rather than goosing revenue by opening new stores.
The bar for same-store sales is high this year because retailers had strong sales in the first half of 1999.
shares have fallen almost 20% in the past month, in part because it reported an unexpectedly big drop in March same-store sales (adding to its woes: the departure of a few executives, including its COO). Shares in the once white-hot
Abercrombie & Fitch
are down 30% for the month and a whopping 56% for the year on similar concerns.
Yet into each mall, a few winners must fall. The biggest darling of them all is
, which is in the midst of an East Coast expansion. Its shares have risen more than 9% in the past month and are up 18% for the year.
seems to be turning the corner, and its shares are up 11% since mid-March.
In this iffy environment, companies showing good sales growth and solid earnings will likely attract more than their usual share of investor dollars -- the old "flight to quality" theory. That's good news for the Wal-Marts of the world -- but there aren't too many of those.