Summary
The fallout at retailers is not yet over and I expect that other retailers will also struggle in a very tough economic climate. Signs that this will occur are evidenced in the following over the past several months: 1)Staples 2nd Quarter earnings announcement included negative same store sales, a phenomenon that I cannot recall occuring anytime in the past 5 years. 2)Office Depot announced on September 11th, the release date of 3rd Quarter Earnings, unusual, given the fact that they normally make this statement about 1.5 weeks vs 6 weeks prior to the end of a fiscal quarter. 3)Within the text of this release, Office Depot also announced observing a "quiet" period during which time the company will not have discussion with any members of the investment community.
Analysis
It is indeed, a very tough economy for many retailers. From companies such as Target and Lowe's to the boys in the Office Supply sector, the words in general press and earnings releases is that the customers are just not coming into the retail stores as expected. Staples and Office Depot have both alluded to softness of footsteps from small and midsize business customers and have cited that sales of electronics and furniture(high ticket durables) have declined. I believe that the negative store comps posted by ODP and SPLS in the Q2 earnings announcements of 5% and 1% respectively also shows that the walk-in environment for the consumer has also slowed substantially at retail store. Furthermore, speculation from both companies has centered around Q3 and Q4 being more of the same, and it's probably a sure bet that the quiet period mentioned at ODP is the boardroom time needed to prepare an announcement for Wall Street and shareholders that the forecast for Q4 and full year will be downsized. The economy will weather the storm and if history has anything to do with Q4, consumers will ultimately find a way to puts gifts under the tree and worry about the Visa bill next year. However, the housing slump and subprime mortgage Grinches have done early damage to FY 2007 for many retailers, and if signs don't start pointing to positive new construction stats soon, 2008 could bring more of the same gloom.
