It looks as if the economic pain of the consumer is beginning to shift to Retailers. Today, Limited Brands (LTD) said they will cut 10% of its corporate workforce to reduce expenses. They are also following the lead of Home Depot (HD) by issuing $1.25 billion in debt to buyback $1 billion in stock.
I've been trying to figure out where these companies got the idea of incurring more debt to buyback stock. Then it hit me. They got the idea from home buyers who walked away with cash after refinancing. Haven't these companies learned anything from the recent real estate disaster?
I wonder what Warren Buffett would say if an investment bank came to him and said, "hey, why don't you add a billion dollars in debt to your books and buyback stock?"
To make an already embarrassed homebuyer gain back confidence, Ditech Mortgage came up with the slogan," People are smart". After suckering people into Adjustable Rate Mortgages (ARM's) when rates were at historic lows, they are trying to gain back customers by making them feel better about themselves.
I hate to be so blunt, but I don't think a people who are drowning in debt, and can't control their spending are very smart. The first step in correcting a past mistake is to admit you did something stupid, educate yourself, and correct the mistake. Also, if you don't have the money, don't spend!!!
These companies are not stupid; they know people can be led like sheep.
the string of retail sales disappointments continue;
J.C. Penney (JCP): same-store sales fell by 2% in May.
Abercrombie & Fitch (ANF): Lehman Brothers downgraded the stock from "overweight" to "equal-weight," citing concerns over negative comparable sales in the second and third quarters.
Cheesecake Factory (CAKE): Shares were downgraded by several analysts given higher food costs and lower growth estimates.
These downgrades come on heels of other warnings, disappointments, and lowered outlooks;
Target (TGT)
Wal-Mart (WMT)
Best Buy (BBY)
Circuit City (CC)
Radio Shack (RSH)
Pier 1 (PIR)
Starbucks (SBUX)
Pacific Sunwear (PSUN)
Gap Inc. (GPS)
AnnTaylor Stores (ANN)
Hot Topic (HOTT)
Aeropostale (ARO)
American Eagle Outfitters (AEO)
Liz Claiborne Inc. (LIZ)
Panera Bread Co. (PNRA)
Talbots (TLB)
If your looking for a trade on the short side, the ML Retail HOLDRs (RTH) is trading near it's high. Here is a list of the funds top 10 holdings- Yahoo-RTH
