Live Markets: Store closures to accelerate, ring up rivals' profits

Floor & Decor Holdings

11/04/2023 18:15

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    STORE CLOSURES TO ACCELERATE, RING UP RIVALS' PROFITS (1254
EDT/1654 GMT)
    U.S. store closures will likely accelerate sharply moving
forward, according to UBS analysts including Michael Lasser, who
blame a mix of slowing consumer spending, reduced credit
availability and an expansion of online purchases for the trend.
    The analysts estimate 50,000 plus store close out of the
940,000 U.S. stores currently operating, excluding gas and food
service in the next five years. This implies ~5% fewer stores by
the end of 2027.
    But UBS sees this benefiting large, well-capitalized
retailers like Home Depot  HD.N , Lowe's  LOW.N , Walmart
 WMT.N , Target  TGT.N  and Costco  COST.O  "who stand to
capture a disproportionate amount of market share" as well as
specialist retailers such as Floor & Decor  FND.N , Academy
Sports and Outdoors  ASO.O  and National Vision  EYE.O .
    The reasoning is that $5.7 million average sales per closed
store would translate to $285 billion of sales "up for grabs."
    If 26% goes online - as per UBS' prediction for 2027
e-commerce penetration versus 20% currently - this potentially
leaves  $210 billion, or $1,600 annual spend per household, for
retailers like Walmart, Home Depot and Costco Wholesale.
    So who loses out? 
    UBS says smaller chains and mom & pops are "most at risk of
closures" because they typically have less access to the capital
needed for robust offerings. As of 2020, it says, firms with
less than 20 employees ran 57% of retail stores while 68% of
stores are operated by chains with less than 500 employees.
These chains closed 40,000 stores in the past 10 years, while
bigger chains with more than 500 employees added 17,000 stores.
    UBS sees clothing, accessories, consumer electronics and
home furnishing retailers seeing the most shutdowns, at 27,000
cumulatively. 
    UBS sees every 100 basis point increase in online
penetration closing about 8,000 stores. 
    But if online does better than its base case, gobbling up
28-29% of sales and with retail sales growing 2.5%, this means
130,000 stores may be shuttered. Or if retail sales grow at a
faster 5% clip and online reaches just 24-25% penetration, this
could mean an increase in the number of stores by 10,000.
    
    (Sinéad Carew)
     *****
    
    ASSESSING THE MARKET LANDSCAPE LEADS TO THESE 10 CONCLUSIONS
-CROSSMARK GLOBAL (1215 EDT/1615 GMT)
    In his latest "Deliberations," Bob Doll, chief investment
officer at Crossmark Global Investments, comes to 10 conclusions
about what to expect over the next year.
    Crossmark continues to recommend underweighting risky assets
versus government bonds, as they expect that the U.S. economy is
destined to enter into recession over the coming year.
    In any event, after assessing the market landscape, Doll
comes to the following conclusions:
    1) Moving through 2023, expect the U.S. economy to slow
sequentially each quarter
    2) A mild recession will commence at year end
    3) The Fed will raise rates one more time then leave rates
flat throughout the rest of 2023
    4) Inflation will continue to subside, but not hit levels
anywhere near the Fed's targets
    5) Earnings estimates will continue to fall for this year
and next 
    6) Bonds will remain in a trading range, with credit spreads
just seeing some widening
    7) Stocks will break below their October lows when recession
and reduced earnings expectations finally sink in
    8) Non-U.S. markets will outperform U.S. markets again this
year
    9) Both bulls and bears will be frustrated for the balance
of the year
    10) The domestic and global political arena will be somewhat
chaotic
    
    (Terence Gabriel)
     *****    
    
    MORE LOSERS THAN WINNERS IN Q1 WITH EARNINGS RECESSION
LIKELY (1040 EDT/1440 GMT)
    The upcoming quarterly reporting season is likely to mark
the start of another U.S. profit recession, with earnings for
S&P 500 companies expected to have declined for the second
quarter in a row, according to an analysis from Refinitiv.
    First-quarter blended earnings for S&P 500 companies are
forecast at $419.1 billion, down 5.2% year over year, while
revenue is expected to have risen 1.6%, according to the latest
data from Refinitiv.
    Similar to the last earnings recession, which started in
2020, this earnings recession may also last three quarters, if
analyst expectations prove to be correct, according to
Refinitiv.
    Only four sectors are expected to have had earnings growth
in the first quarter, per Refinitiv data, with the largest share
belonging to consumer discretionary, followed by industrials and
energy.
     Refinitiv noted that energy is no longer the belle of the
ball when it comes to earnings growth, like it had been in
recent quarters. The sector's top-notch performance in 2022 will
make year-over-year comparisons more difficult for it now,
according to Refinitiv.
     Health care, information technology, and materials are
likely to have dealt the biggest blow to earnings growth in the
first quarter.
    Analysts have set the bar low going into earnings season by
lowering first-quarter estimates, according to Refinitiv.
    Wells Fargo strategists have also warned of an earnings
recession in the near-term, flagging a likely hit to revenue
from an economic slowdown. 
    The earnings season unofficially kicks off this week, with
results due Friday from JPMorgan Chase & Co  JPM.N  and other
big U.S. banks.
     
    (Vansh Agarwal)
    ****    
    
    NFIB: THE GRUMPYTOWN GAZETTE (1035 EDT/1435 GMT)
    The mood among small business owners dimmed in March as the
potential for a regional bank crisis offset easing labor market
conditions and ongoing consumer resilience.
    The National Federation of Independent Business' (NFIB)
Optimism index  USOPIN=ECI  shed 0.8 point to 90.1 last month,
marking the series' 15th consecutive month below the long-term
average of 98, according to the NFIB website.
    "Small business owners are cynical about future economic
conditions," says Bill Dunkelberg, NFIB's chief economist.
"Hiring plans fell to their lowest level since May 2020, but
strong consumer spending has kept Main Street alive and
supported strong labor demand."        
    Digging deeper into the report, the percentage of survey
participants reporting hard-to-fill jobs eased 4 percentage
points to 43%, and near-term hiring intentions eased to a net
15%, supporting the notion that a gradual loosening in labor
market conditions could be under way.
    Those citing inflation as their biggest problem slid 4
points, to 24%.
    Still, a net negative 47% of respondents expect business to
improve over the next month and a net negative 6% reported
higher sales over the last three months.
    An optimist might point to all that as evidence that the
Fed's restrictive policy rates are doing the job - dampening
demand and cooling inflation.
    The survey was conducted right around the time the notion of
a regional bank liquidity crisis raised its ugly head amid the
failure of SVB and Signature banks.
    "Small businesses are captives of their banks, and the
overnight change in the way markets view regional banks means
they have been catapulted into survival and liquidity mode,"
writes Kieran Clancy, senior U.S. economist at Pantheon
Macroeconomics. "Lending growth was slowing long before SVB
failed, but the declines in the March NFIB measures of current
and expected credit availability means we have to expect much
weaker lending numbers over the next few months."
    The effects of tightening credit conditions - a combined
result of Fed rate hikes and the regional bank scare - have yet
to show up in the report.
    "The March NFIB survey suggests the fallout from regional
bank failures has not yet led to a large tightening in financing
conditions for small firms," said Michael Pearce, lead U.S.
economist at Oxford Economics. "But the continued easing in
capex intentions and hiring plans is consistent with a continued
slowdown in economic growth."
    It should be noted that the NFIB is a politically active
membership organization whose PAC spending skews heavily 
conservative, according to the Center for Responsive
Politics/opensecrets.org.
    Wall Street stocks were idling at the stoplight as investors
rev their engines ahead of tomorrow's CPI report.
    Declining tech shares  .SPLRCT  pulled the Nasdaq lower,
while industrials  .SPLRCI  helped keep the Dow above water,
albeit barely.
    (Stephen Culp)
    *****
    
    U.S. INDEXES NEAR FLAT EARLY, BUT TECH FALLS (0950 EDT/1350
GMT)
    Major U.S. stock indexes are mixed in early trading Tuesday,
with the technology sector weighing the most on the S&P 500
 .SPX .
    Investors are bracing for Wednesday's U.S. consumer price
data, which could give them a better idea of the inflation
picture and possibly how much longer the Federal Reserve may
need to keep raising interest rates to cool inflation.
    Key earnings reports are also on tap this week, with results
from some of biggest U.S. banks due.
    The results unofficially kick off S&P 500 companies'
first-quarter earnings, which in aggregate are expected to have
declined in the first quarter year-over-year.
    Here is the early market snapshot:
    
    
    (Caroline Valetkevitch)
     *****
    
    
    DOW INDUSTRIALS: RUMBLE, BUMBLE OR STUMBLE? (0900 EDT/1300
GMT)
    Over the past four trading days, the Dow Jones Industrial
Average  .DJI  has been consolidating in an especially tight
range.
    On the plus side, this action may well be a bullish pennant
implying the impending continuation of the DJI's
late-March-early April advance:
    
    
    Meanwhile, with this, a measure of volatility, on an hourly
basis, just hit a one-year low, suggesting the DJI is especially
ripe for a dynamic breakout of its shorter-term range.
    By mid-day on Monday, the DJI's hourly Bollinger Band width
had compressed to its tightest reading since mid-April 2022.
    Compressed band width does not in itself predict direction,
but it can signal a market primed for much more spirited action,
or indeed, its next trend.
    On a thrust above the April 4 high at 33,642.72, the DJI can
quickly move to challenge the resistance line from its January
2022 record high, which is around 34,020 on Tuesday.
    Since establishing this line with its mid-December high at
34,712.28, the DJI put in three distinct highs in January to
February of this year. These highs were all packed in a tight
range, all lower, and all capped by the resistance line. These
highs were at 34,342.32, 34,334.70 and 34,331.47.
    Thus, traders will be keenly focused on the DJI's action in
the event it thrusts higher to once again challenge the
resistance line.
    On the downside, breaking the 50-day moving average (DMA),
which ended Monday around 31,115, may see pressure quickly
intensify.
    The 23.6% Fibonacci retracement of the March 2020-January
2022 advance is at 32,530, and the 200-DMA ended Monday around
32,470. The mid-March trough was at 31,429.82.
    In any event, with a highly anticipated CPI release on
Wednesday, traders may not have long to wait before the
blue-chip average sees some real fireworks.   
 
    (Terence Gabriel)
     *****
 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
DJI04112023    https://tmsnrt.rs/3ZX1jSj
Early US market snapshot    https://tmsnrt.rs/3Kskmye
NFIB    https://tmsnrt.rs/3KREMSO
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 (Terence Gabriel is a Reuters market analyst. The views
expressed are his own)