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Seeking Alpha

Thursday, July 12, 2007

Today's Coffee - Retail and Housing Stew


Individual same-store sales reports from the nation's retailers are driving the market action of the day. A relief rally looks to be secure. We continue to anticipate near term rally into earnings season, gaining ground from the reports starting next week. This first week was previously marred by earnings warnings from large retail establishments, Home Depot (NYSE: HD) and Sears (Nasdaq: SHLD). As we move into the regular earnings reports, we believe large multinationals will again light the way. However, remember, we view this rally as a short-lived opportunity on the long end. Our weekly article from two weeks ago covers this in more detail.

Meanwhile, we are seriously considering a new theory regarding the Turkish troop movement, and other chess moves in the Middle East. We will prepare a new geopolitical factor piece for you soon on our theory. Here is a little teaser though. Suppose the United States wants Turkish troops on the border with Iraq, perhaps to stop Syria from coming in through the back door. In that case, the significant Turkish movement makes a lot more sense. If we are not involved, then the administration had better be concerned about the force.

ECONOMIC DATA & ANALYSIS

June Retail Sales for Individual Companies

Today's reports from individual retailers are preparing a mosaic for us to predict tomorrow's June Retail Sales Report. The International Council of Shopping Center has indicated expectations for much weaker growth than the prior year period. Today's reports are helping us draw a picture of a consumer less willing to make trips to the mall, while paying more for groceries and spending more at discount stores. This reads to us like a consumer digging in for survival.


WalMart (NYSE: WMT) and Costco (Nasdaq: COST) did relatively well, while big mall anchor department stores like Macy's and Kohl's reported weakness. Apparel retailers generally did poorly, while teen focused brands seemed to benefit from discounting ahead of the "back to school" shopping season.


Company Name / Ticker Symbol / June Same-Store Sales

WalMart (NYSE: WMT) +2.4%
Costco (Nasdaq: COST) +6.0%
Target (NYSE: TGT) +3.3%
Macy's (NYSE: M) -2.7%
Kohl's (NYSE: KSS) -4.9
J.C. Penney (NYSE: JCP) -1.5%
AnnTaylor Stores (NYSE: ANN) -8.4%
Abercrombie & Fitch (NYSE: ANF) +2.0%

The International Council of Shopping Centers is looking for a June sales rise of 1.5-2.0%, compared to last year's growth of 3.0%. We will be keeping a close eye on July's weekly results, and thus far, they have not gotten a boost from "back to school." It's still relatively early, but the seasonal impact is important for the industry. That seasonal pick up may cloud the picture of overall retail weakening.

HOUSING

Foreclosures and the NAR's Revision to Home Sales

The 87% increase in foreclosures in June conceals the fact that the rate of increase actually fell from May. I'm being sarcastic, but some media outlets actually tried to put a positive spin on an 87% increase in that manner.

A day earlier, the National Association of Realtors revised its sales forecast for the seventh consecutive month, and is now looking for sales to fall 5.6% this year. It seems that something we talked about before is playing out. Home builders are facing their reality and now looking to consolidate operations. We are going to write a special piece on the housing sector next week for Motley Fool. We think we know what to look for if you are a portfolio manager who must have exposure in the sector. Otherwise, steer clear.

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RealtyTrac

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