Retail shares were generally and in some case sharply higher Thursday following a string of fourth-quarter earnings that showed an all-too familiar pattern: The high-end is doing just fine while stores tailored to low- and middle-income Americans continue to struggle.
In sharp contrast to the uptrend in share prices Thursday, Howard Davidowitz of Davidowitz & Associates is extremely downbeat on a number of big box retailers, including:
- Sears (SHLD): "Terrible. An absolute train wreck." (And, yes, the stock is surging today on hopes Eddie Lampert's latest restructuring plan will turn the ship.)
- Target (TGT): "Better than expected but earnings are still down."
- Dillards (DDS): "Not doing so terrific."
- Kohl's (KSS): Ditto
- Bon-Ton (BONT): "On life support."
- J.C. Penney (JCP): "Reinventing themselves. I think it'll be another train wreck." (For the other side of the story, see: J.C. Penney CEO: We Can Become America's Favorite Store)
In addition, he notes a string of specialty retailers, including The Gap, Abercrombie & Fitch, Charming Stores, Pacific Sunwear and Talbot's are closing hundreds of stores. While retail closings has been a trend since the crisis of 2008, this is "only the beginning," according to Davidowitz.
Even supermarket chains like Safeway, SuperValu and Kroger are struggling, he observes.
"The high end is terrific and as long as the capital markets continue strong, high end will continue to be strong," he says. "But again, for most of retail...some are doing great [but] most are doing poorly."
While the top 10% of Americans, who account for 35% of consumer spending, are "doing dandy," Davidowitz dismisses the idea -- and some macro economic data -- suggesting the economy is improving for the rest of us. "80% of America is in either a recession or a depression: Their incomes are down, their pay is down and they don't have a job."
Wal-Mart: A Stumbling Giant
This is not a new story and certainly not a new theme for Davidowitz, as longtime viewers well know. (See: Howard Davidowitz: Consumers In TERRIBLE Shape and "It's Going to Get Worse" (Reprise)
What's notable, and perhaps hasn't received as much attention as it deserves, is how Wal-Mart (WMT) has failed to capitalize on the harsh realities facing U.S. consumers.
The world's-biggest retailer reported a 1.5% increase in same-store sales, a second-straight rise after nine-consecutive quarterly declines. However, revenue of $122.3 billion missed expectations as did earnings per share, excluding a one-time tax benefit; plus the firm's guidance for the first-quarter and fiscal 2013 were at the low end of consensus.
"Wal-Mart does 11% of U.S. sales and they can't make their margins because we're down-trading," Davidowitz observes.
Even worse, Wal-Mart "lost their low-price image," he says, referring to an ill-fated attempt to move up market earlier this decade to better compete with Target. "That was catastrophic."
As Wal-Mart tried to go upscale, "they let Family Dollar, Dollar Tree and Dollar General eat their lunch," Davidowitz says. "It was self-inflicted [and] I don't see the light at the end of the tunnel for Wal-Mart."
Perhaps investors are coming to the same conclusion: In recent trading, Wal-Mart shares were up 0.4%, badly lagging gains among competitors like Target and Dillard's, as well as the broader S&P Retail SPDR (XRT), which was recently up 1.4%.