SOURCE: Rothman Research

Rothman Research

June 22, 2010 08:21 ET

Retailers Have Lost Some of the Momentum Gained Earlier This Year

JOHANNESBURG, SOUTH AFRICA--(Marketwire - June 22, 2010) - www.rothmanresearch.com -- The retail industry takes most of its mana from consumer confidence which according to the Conference Board Consumer Confidence Index surged for the third consecutive month in May. The increase of 65.9 for May 2010 is the highest level the index has recorded since March 2008. Additionally, retail sales were up 7.4% year-over-year, but as compared to the previous month sales in the retail space declined by 1.2%. Looking closely at those sales figures for May, it becomes perceptible that consumers lost a bit of their appetite for shopping in the month of May. A few factors that still keep consumers and retailers edgy are the painstaking recovery in the U.S. jobs market and income growth.

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OfficeMax Inc. (NYSE: OMX) which reported its most recent quarterly earnings at the end of April surprised Wall Street as it delivered a staggering increase of 95% in earnings. The company cited cost cutting measures behind this surge. Another positive from OfficeMax is the company's balance sheet is indicating a better cash position with $564 million. Staples Inc. (NASDAQ: SPLS), U.S. top office products retail supplier, also posted better-than-expected quarterly earnings late May with sales surging to $6.1 billion. Earnings were up 32% as compared to the same time period in 2009. However, the company reported only a 1% increase in its same-store sales in North America underlying the current weakness in the economic recovery process. 

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An improving employment level could be the catalyst to a strong recovery in the retail space. With the next report from the Conference Board Consumer Confidence Index due at the end of June, analysts are expecting better comp readings from retailers boosted by Memorial Day, Father's Day and graduation gift sales. Retailers, nonetheless, prefer to keep a cautious stance regarding outlook for the rest of 2010.

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