US retailers suffer as clouds gather for consumers
Retailers' slowest earnings growth since the last recession has them bracing for a weakened second half as the US economy leaves consumers confronting the prospect of losing their jobs and a volatile stock market.
Second-quarter earnings per share for 43 retailers in the Standard & Poor's 500 Index gained an average of 11pc, the smallest increase in eight quarters, according to data compiled by Bloomberg.
Profits rallied 71pc on average in last year's second quarter and declined 2.2pc in the three months through June 2009, when an 18-month recession ended.
Wal-Mart Stores Inc last week said its lower-income consumers, concerned about losing their jobs with the US unemployment rate at 9.1pc, were trading down to lower- priced brands and smaller sizes of goods to stretch their paychecks. Wealthier shoppers may retreat from luxury purchases as the stock market falls, analysts said.
"There are a lot of clouds on the horizon," Bernard Sosnick, an analyst at Gilford Securities in New York, said in an interview. "Consumer confidence is heavily influenced by outside factors such as the stock market and political uncertainty."
Confidence among consumers in August fell to the lowest level since May 1980, according to a survey from Thomson Reuters/University of Michigan.
US stocks posted unprecedented swings in the week of August 8, and the Dow Jones Industrial Average has dropped 14pc in the past three months.
US gross domestic product climbed at a 1.3pc annual rate from April through June following a 0.4pc gain in the prior quarter, the Commerce Department reported last month.
The stock-market decline and weaker confidence make a double-dip recession more likely, said Michael Souers, a retail analyst at Standard & Poor's in New York.
"The economy will remain weak," Mr Souers said in an interview.
Consumers were pushing back against price increases that some stores were trying to pass through from vendors, said Ed Yruma, an analyst for Keybanc Capital Markets in New York. Bon-Ton Stores Inc said shoppers resisted an increase of 8pc, or $1 to $2, on basics such as children's clothing.
Sears Holdings Corp's net loss widened in the quarter as it discounted merchandise to clear items from stores and reduce inventories.
Customers of department stores and luxury retailers, who have reported some of the strongest gains this year, may be most affected by the recent market turmoil, said David Schick, of Stifel Nicolaus & Co.
"Higher-income consumers are flat-out less confident than they were and less wealthy than they were," Mr Schick said.
However, there was no indication that retailers are bracing for the sort of meltdown that followed the collapse of Lehman Brothers in 2008, when people didn't show up for sales during the Labor Day holiday weekend, Mr Sosnick said.
Retail sales in the US in July climbed 0.5pc, the most in fourth months, the Commerce Department reported on August 12. (Bloomberg)