Saturday, September 8, 2007

More Retail Tells?: Harley Davidson (HOG) and Office Depot (ODP)

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I mentioned early last week about Coach (COH) as "the" retail tell, due to the consumer it serves. (as an aside the stock rallied to its 50 day moving average at $47 and was pushed right back down, typical behavior for weak stocks). I followed that up with some comments about a similar company, Polo Ralph Lauren (RL) (whose chart is about to get the dreaded 'death cross').

Another one I didn't think about that is a perfect tell, due to it's consumer base which is very similar to the Coach crowd.... overextended middle to upper middle income who in many cases use the house ATM to finance these sort of purchases. Well Harley Davidson (HOG) had some poor results, lowered guidance for the year and withdrew guidance for 2009. Oops.

"The company points to dropping demand and a promotion-heavy July to explain the shortfall."
"About 35% of purchases financed by Harley-Davidson Financial Services were subprime, and the troubles in this market are bound to be reflected in sales declines, much as they have in the auto sector."
"Growing unemployment figures could also have an impact on sales."
"Our U.S. dealers' retail sales have fallen sharply during August," said Harley Chief Executive Officer Jim Ziemer on Friday."
"Against the current economic background, we no longer expect worldwide dealer retail sales to increase during the second half of 2007."
"The company now expects 2008 earnings growth between 4 percent and 7 percent on moderate revenue growth and lower operating margins. It previously forecast earnings growth between 11 percent and 17 percent for 2008 as well as 2009. The company said it was not providing 2009 guidance now."
"Dealers of all leisure vehicles, such as motorcycles and all-terrain vehicles, are reporting that it's increasingly difficult to make sales as consumers become more cautious with their money, said Greg Badishkanian, a leisure analyst with Citigroup, which has Harley as a client."

And yes, don't get confused by the word subprime - many people who you'd consider to be well off in "income" are terrible with their credit - just because you make $90K a year doesn't mean you manage money well or don't spend above your means.

Next up, looking at the economy from a different perspective, small companies, we have Office Depot (ODP).

"At the Goldman Sachs retail conference yesterday, its CFO, Patricia McKay, said small businesses are slowing their spending and the retailer is also being hurt by the sagging housing market."
"The Office Depot miss follows a late August warning from Staples Inc that reported a 2% drop in same-store sales, down from 4% positive comps last year."
"The office supply sector has proven a good measure of economic activity for most of this decade, forecasting the 2002 economic recovery and now, apparently, an economic slowdown."

Just for data points that point to a 'reality' of a consumer who, without his main arms merchant, the house ATM, is pulling back.

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