Day Trading Options: Why crumbling department store sales is no reason to worry (ANF, M, TJX, URBN)

Saturday, November 21, 2015

Why crumbling department store sales is no reason to worry (ANF, M, TJX, URBN)

Last week was not good for retail.

Some of the biggest department stores in the US reported worse-than-expected quarterly results, including Macy’s and JC Penney, sending their stocks into a tailspin. Additionally, Deutsche Bank analysts covering Nordstrom said the company’s results were a “potential cautionary tale of the US consumer’s health.”

This week, Urban Outfitters, Abercrombie & Fitch, and TJX are all set to report earnings.

Naturally, these results got many worried about the sector, but also had others more broadly concerned with consumer spending, which has been a bedrock of economic growth this year.

But in a note on Monday, Deutsche Bank’s Torsten Sløk pointed out what’s actually quite obvious: people don’t spend most of their money on clothes and shoes.

Here’s Sløk:

We all tend to think of consumer spending as a trip to the shopping mall to buy a new shirt or a new suit or new shoes. But the reality is that clothing and footwear only make up 3% of consumer spending. Services make up 67% of consumer spending. In other words, you spend more money on your mortgage or rent, on vacations, going to restaurants, on visits to the doctor, and on your children’s tuition and day care than you do at department stores.

For a more accurate snapshot of consumer spending, Sløk thinks it’s best to look at consumption figures from gross domestic product, which showed a 3.2% increase in last month’s report.