So an unusual pattern is emerging that I think you should know about. Consumer confidence is up. In fact, it’s higher now than it’s been in three months. The gauge of how positive people are feeling about their own financial situation outperformed expectations in February by half a point. That’s good news.
The bad news is that, for the discount retailers, it’s not being seen. Wal-Mart Stores, Inc. (NYSE:WMT) and others are reporting lower than expected numbers for the beginning of February. Some are blaming it on the increased payroll tax finally taking it’s toll on spending, but we didn’t see that in January. It’s a conundrum. Really.
Emails between Wal-Mart executives have leaked in which they express deep concern about the state of consumer spending. In one of the emails an exec points out that market share for the giant retailer is still growing, but only because everyone else is having it worse than they are. Not exactly a ringing endorsement for discount retailers, is it? It makes me wonder about how the next year might go for those companies.
The emails out of Wal-Mart HQ don’t … quite … sound panicky. The company has certainly been experimental enough lately, rolling out customer mailed delivery of sample items and even testing same-day home delivery. No one can say that the firm isn’t trying to find ways to sew up more market share. But discount retailers face a real problem if folks in the poorer demographics are having trouble closing the gap. Folks a bit up the ladder can, and will, go to other retailers when opportunity presents itself. Wal-Mart’s stock has had a slight downward trend since it hit a high in October. It just might be that there’s not a lot of extra value to be gained by sticking to Wal-Mart for the moment. Best to let this play itself out and see where the trend goes. The P/E of 14.26 indicates a flat curve for a while even though the 2.29% dividend yield is attractive.
Family Dollar Stores, Inc. (NYSE:FDO)
Another firm that looked to have good times during the hard times. But now that things are getting better (and they are) it’s finding troubles. The firm’s stock took it in the neck in Dec/Jan, losing more than 20% of it’s value when it announced numbers significantly below analysts expectations. That’s rough. But again, what’s a firm to do when the people who shop there have other options or no options? It’s a hard middle to occupy. Shares peaked last June at $73.26 but have dropped to 55.94 since then, a 23% drop. There’s a 1.5% yield and an EPS right at 15 to keep that grim story company. Stay away.
Dollar General Corp. (NYSE:DG)
In a similar situation as Family Dollar, Dollar General has also had some confusing news. The firm has expanded madly recently, opening stores all over the United States. But that growth hasn’t seen a lot of affirmation in the markets as its shares have fallen a hair over 20% since last July. The chain did lower the high end of its guidance a while back and did poorly right after, but a lot of the loss came before that announcement. There’s a lot of uncertainty in my mind about Dollar General’s long-term success. It’s a crowded market there at the bottom, and not every firm is going to enjoy the coming economy upswing. Heck, at least the others pay some kind of dividend.