Retail Roundup: Susquehanna Financial on spring outlook

Retailers experienced an anti-climatic end to 2007, as Wall Street began sounding the alarm for recession and caused consumers to pull in their purse strings. The cloud has continued to hang over retail stocks into 2008 and Susquehanna Financial’s outlook for the sector’s fourth quarter and fiscal 2008 cautions that the clouds haven’t dissipated.

“Given the weak consumer environment, we believe retailers that only reported holiday sales and did not provide additional commentary during their sales release have a greater chance of realizing greater volatility heading into fourth-quarter 2007 results,” Susquehanna Financial analyst Michael Thurow wrote in a retailer’s research report today. 

For January, Susquehanna Financial analyst Thomas Filandro is projecting a sector comp decline of 3% to 5%, compared with an increase of 2.5% last January, as the analyst says the majority of the sector employed aggressive promotions.
 
“Although it is unclear whether or not a recession will hit in 2008, it is clear that consumers remain on edge and extremely cautious regarding spending on apparel and accessories,” Filandro wrote.

Looking past January, the analyst says aside from dealing with a skittish consumer, retailers will be faced with an earlier Easter holiday this year that typically shortens the initial spring selling window and may result in higher seasonal markdowns.

For the second half of the year; however, Filandro remains “cautiously optimistic” for a sector rebound in 2008.

“Looking past spring, combining the fact that sector stocks are trading at or near trough valuations, inventories and expenses remain under tight control, the Federal Reserve has lowered interest rates, and it appears a stimulus package will hit households in time for the back-to-school selling season,” wrote Filandro.

The following are January same-store-sales estimates that the investment bank is projecting for select small-cap retailers:

About the Author
Reporter Jennifer Schonberger is based in SmallCapInvestor.com's Washington, D.C. bureau. Read More

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