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3 O'Clock High: Retail Mail-Bag


Taking a step back from the retailers as we brace for SSS this week.


Minyan "Ned" Kelly writes:

Jeff, I worked for Target (TGT) a long time ago, after TGT acquired Fedmart. I remember the 2nd largest cost to a Fedmart store was electricity. Does the price of Nat Gas make the beginning of a short case for the food retailers ?


Rising natural gas prices certainly won't help the retailers. Electricity prices are ramping like mad, hitting the retailers at the cost and revenue side (home heating prices are going up 71% out west).

As a growing hurdle for the retailers we can add electricity to a list which includes, in no particular order: rising gas prices (hitting both consumers and cost of shipping), reports of rising prices from vendors getting "sticky", evidence of a weak consumer before we had a one-two hurricane punch and a Christmas season which is looking fair to partly lousy.

And don't forget that we had retailers out warning for the current quarter in August (Abercrombie (ANF), BeBe (BEBE) et al). We'll get more when same-store-sales for September are reported this Thursday morning. Sometimes you can smell horrible sales coming down the pike and September is one of those months.

Think about it, we had a freaking mattress company warning last month, blaming the automakers for soaking up all the retail dollars with the Employee Pricing Programs. Did you see the sales for GM and Ford (F) this morning? It's beginning to look a lot like the retail dollars have either stayed at home since July or are being saved for the i-Pod Nano.

The problem on the short side is that the Street is already braced for a horror-show on Thursday morning. Nothing on our list is particularly "new" since the retailers started trying to put in a bottom, collectively, in late September after Best Buy (BBY) disappointed.

Consider Wal-Mart (WMT) which had its numbers cut at Bear today. The stock barely burped digesting whatever supply was created by the downgrade and has been up about a dime for most of the day. The Street expects bad news from the retailers and the stocks are beginning to shake it off when the news comes.

The best that can be said about the retailers, fundamentally, is that everyone seems to understand that the fundamentals are terrible. The stocks are still way off the highs of just a couple of months ago.

It's not enough of a counter thesis to get me long the retailers enmasse but it's enough to keep me out of the short side, for now.

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