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Something's Gotta Give: Rising Retail Profits Meet Falling Consumer Confidence

Posted Feb 25, 2010 09:14am EST by Aaron Task in Investing, Recession
Related: RTH, WMT, TGT, TJX, SKS, M, SHLD
With the notable exception of Wal-Mart, the past week has brought a string of stronger-than-expected fourth-quarter results from major retailers. Stores such as Saks, Target, Sears, TJX and Macy's reported sharp year-over-year profit increases.

The results would seem to justify the roughly 40% rally in the retail sector in the past year. But if the stock market really is forward looking, the future is not looking as bright; most retailers were dealing with very easy year-over-year comparisons and and several offered cautious guidance after reporting "blowout" fourth-quarter earnings.

"Longer term you have to be concerned about deleveraging [and the] lack of credit availability," says Barry Ritholtz, CEO of Fusion IQ and author of Bailout Nation.

The combination of consumers actively "getting out of all the excess credit they took on," plus stagnant wages means continued downward pressure on retail sales, Ritholtz says. In addition, the kind of sharp decline in consumer confidence as reported this week is generally "not pretty for the stock market," he says. (Still, the blogger and money manager maintains a generally bullish bias for the near term, as discussed here.)

"Things are not in that frozen wasteland what we saw [a year ago] but people are dealing with difficult times," he says. "People are doing a little more spending but there's little evidence of a V-shaped recovery."

On that subject, check the accompanying video for Ritholtz's thought-provoking and highly entertaining answer to the "what shape will the recovery take?" question.

Full disclosure: I edited Ritholtz's book and was paid for my contributions. 

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