Find Blue-Light Specials In Retail ETFs [The Gap Inc., Family Dollar Stores, Inc., Wal-Mart Stores, Inc.]

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July 21, 2014 4:54pm NYSE:PMR NYSE:RTH

retail etfTony Sagami:  The cold winter of 2014 was the popular Wall Street excuse for the disappointing first quarter profits and justification for the 2.9% contraction drop in GDP.

Now, in the middle of the Q2 reporting period, I’m hearing the same “dog ate my homework” excuse from companies that deliver worse-than-expected profits … especially for retailers.

The Census Bureau reported last week that U.S. retail sales increased by 0.2% in June. This was well below the 0.6% gain economists were expecting.

The worst-hit sectors were building materials, restaurants, auto dealers and gas stations.

But I think the most-accurate hints about the state of the economic recovery (or lack thereof) came straight from the mouths of the retailers themselves.

Here’s what they had to say:

The Gap (NYSE:GPS) reported weaker-than-expected sales, complaining that same-store sales dropped by 2% in June.

Family Dollar (NYSE:FDO) saw its quarterly profits fall by one-third on a 1.8% decline in same-store sales. That was, by the way, the third quarter in a row that same-store sales have shrunk.

Family Dollar told Wall Street to lower its too-high expectations: “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment.”

The Container Store (NYSE:TCS) reported a 0.8% drop in same-store sales; the first drop after 15 consecutive quarters of gains.

CEO William Tindell warned that low-, middle- and high-income consumers are tight-fisted nationwide.

A ‘Democratic’ Decline

“We don’t see any geographical differences between it. It seems to be all over the place, and we have a robust database,” Tindell told analysts this week.

“Our highest-end customer seems to be infrequently shopping us for some darn reason. Still, we have a very uneven economic recovery. For a long time, it was the lower-end retailers suffering and the higher end that was doing better, and so were we.

“Now, it seems to be more democratic. It seems to be kind of across the board,” Tindell added.

Perhaps the most-telling comments came from Wal-Mart (NYSE:WMT) CEO Bill Simon, who said American shoppers just aren’t spending.

“It’s really hard to see in our business today whether it’s any better.”

“The hiring rebound reported by the U.S. Labor Department is not translating into increased customer spending in Wal-Mart stores.”

“Wal-Mart customers are adapting to what has been a difficult macroeconomic situation.”

Of course, there are pockets of retail strength, but with consumer spending so weak, it is not about to rebound anytime soon.

U.S. Consumers Still Tapped Out

The reason I say that is because the key metric of the ever-optimistic Wall Street crowd is stagnant wage growth, which grew a pathetic 1% in 2013.

And in the Long-Term Budget Outlook for 2014 from the Congressional Budget Office, it projects average real-wage growth will be 1.5% over the next 10 years.

It’s not surprising, then, that consumer confidence hit a four-month low in July, with many Americans citing sluggish wage growth as the culprit.

The good news for investors is that you can find ways to boost your own income simply by choosing the right investments.

Whether you’re bullish or bearish, you can target these retail-focused ETFs for short-term trading gains:

  • The PowerShares Dynamic Retail Portfolio Fund (NYSEARCA:PMR)

Each ETF had a positive day on Friday. Will the gains keep piling up, or will they soon feel a pinch?

It doesn’t matter, because you can profit in either direction!

Bullish investors on retail can simply buy any of the above ETFs, but bearish could “short” those ETFs or buy low-cost put options on the same ETFs.

For example, you could buy the XRT August 2014 Puts (XRT140816P00084000) roughly $1. If retail stocks continue to sink, you could quickly turn that tiny investment into gains of 100%, 200%, 300%, 400% or more.

Tony SagamiThis article is brought to you courtesy of Tony Sagami

Money and Markets is a free daily investment newsletter published by Weiss Research, Inc. This publication does not provide individual, customized investment or trading advice. All information is based upon data whose accuracy is deemed reliable, but not guaranteed. Performance returns cited are derived from our best estimates, but hypothetical as we do not track actual prices of customer purchases and sales. We cannot guarantee the accuracy of third party advertisements or sponsors, and these ads do not necessarily express the viewpoints of Money and Markets or its editors.

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