The Old ‘We’ll Make It Up on Volume’ Fail? (XRT, TGT, KSS, JCP)

Michael Panzer: Back when many Wall Street “strategists,” economists, retail industry trade groups, and others who claim to know what they are talking about were predicting a strong holiday selling season (and the long-awaited return of the free-spending U.S. consumer), I warned that there was much less there than meets the eye (see here and here).

Well, as The New York Times more-or-less confirms in “Retailers Post Sales Gains, but Discounts Hurt,” it looks like the so-called experts have been proved wrong once again [italics mine].

December holiday sales figures came in at a decent level, retailers said on Thursday, but not enough to make for a blockbuster season.

Sales at stores open at least a year at major retail chains rose 3.4 percent compared with December 2010, according to Thomson Reuters data, just slightly above the 3.3 percent that analysts had expected.

But those sales were largely gained by big markdowns that will probably lead to lower profits at retailers (NYSEARCA:XRT), and chains including Target (NYSE:TGT), Kohl’s (NYSEARCA:KSS) and J. C. Penney (NYSEARCA:JCP) lowered their fourth-quarter profit expectations.

Shoppers seemed inclined to buy only when they saw huge discounts, and that suggested American consumers are still not back on their feet.

“Retailers (NYSEARCA:XRT) came in with pretty conservative assumptions and they were hoping to blow them out of the water — they really didn’t,” said David L. Bassuk, managing director and head of the retail practice at AlixPartners, a consulting firm. His store visits over the holidays indicated that many of the promotions were “unplanned,” he said, a tactic retailers resort to in response to slow spending.

“Retailers hope that as they plan some promotions on key items, that will entice the consumer to spend money,” he said. “That didn’t happen — the planned promotions were not as exciting as the consumer today expects, so the retailer has to revert back to things that were unplanned, like ‘50 percent off our whole store,’ ‘60 percent off our whole store,’ which is when you can see times are tough.”

…

Mr. Bassuk, the retail consultant, said that with consumers still unwilling to buy at full price, 2012 would probably bring “closing of stores and, I think, closing of retailers. It’s a more dire situation than many had anticipated.”

And yet, the “smart money” types on Wall Street still seem to think they know better. Otherwise, why else would they have pushed the S&P 500 retailing index up more than 5 percent since Black Friday, to within 5 percent of its all-time high?

I guess hope springs eternal (when you’re a highly-paid idiot)…?

Courtesy of Michael Panzer, Financial Armageddon

Posted with permission of author by Wall Street Sector Selector