Just like you never want to hear a doctor say "oops" in the operating room, you never want to see a going-concern statement in a financial report about a company you own. Accountants throw these in when they've been over the books, talked to customers, and checked the horoscopes and have concluded there is "substantial doubt" about a company's ability to remain in business. In short, don't blame the accountants if the company files for bankruptcy protection.

You¿d reckon that a going-concern statement would be enough to send investors running to the exits, but it's not. True, many large institutions automatically bail when an existing company gets slapped with one of these, but many individuals (often wrongly) take a chance they know more than the bean counters.

During the tech boom of the late 1990s, many companies actually went public even though they had been hit with going-concern statements. Many of those companies subsequently disappeared. Enough said.

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Thursday, September 04, 2008

Retail Sales Sag in August

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Associated Press

Woman Shopping || Consumer Spending || Retail [276]

Many of the nation's retailers struggled with a sluggish back-to-school season, though Wal-Mart posted higher August sales Thursday as shoppers focused on buying essentials amid persistent worries about high gas and food prices.

As merchants announced their August sales results, Wal-Mart Stores Inc. (WMT), the world's largest retailer, reported a solid gain that beat Wall Street forecasts as consumers stick to low-price operators. But mall-based apparel stores such as Wet Seal Inc., Gap Inc. and Limited Brands Inc. remained in the doldrums. And high-end retailers Saks Inc. (SKS) and Nordstrom Inc. (JWN) posted weaker results as their affluent customers start to feel pinched.

"Consumers are spending on necessities and looking for value and the lowest price possible. And it's reflective again in the results that we are seeing," said Ken Perkins, president of research company RetailMetrics LLC.

According to a preliminary tally by Thomson Reuters, 14 retailers missed expectations, while 12 merchants beat estimates. The tally is based on same-store sales, or sales at stores opened at least a year, which are a key indicator of a retailer's health.

The August results aren't comforting to the retail industry as it prepares for the critical holiday season. Many merchants had entered the fall season with inventories well below a year ago, but such reductions may have not been enough as last month proved to be even weaker than planned. Dan Hess, founder and CEO of research firm Merchant Forecast, estimated that discounts are 10% deeper at mall-based apparel stores than a year ago, despite a drop of 10% to 15% in inventories.

One encouraging piece of news is that Hurricane Gustav, which hit the Gulf Coast on Monday, wasn't as bad as analysts feared -- and that sent oil prices lower. But retailers are now getting ready for the next series of tropical storms such as Hanna, which could be become a hurricane when it hits U.S. land sometime Saturday.

Wal-Mart said Thursday that as of the day before fewer than 50 Wal-Mart stores in the Gulf Coast remained closed as a result of power outages and other issues related to the hurricane. It also noted that 13 Sam's Clubs in the Gulf Coast area that were closed for at least one day as a result of Gustav have all since reopened.

The company reported a solid 3% gain in same-store sales, helped by sales of groceries and back-to-school products. Analysts surveyed by Thomson Reuters had expected a 1.6% increase. Including fuel, the retailer's total same-store sales rose 3.5%

"The underlying business performance for Wal-Mart U.S. continued to show strength and the improved relative performance has resulted in market share gains," Eduardo Castro-Wright, the president and chief executive of Wal-Mart's U.S. stores, said in a statement.

Wal-Mart expects same-store sales to rise 2% to 3 percent in the current month.

Another bright spot is warehouse club operators as shoppers buy in bulk to save money. Costco Wholesale Corp. announced a 9% same-store sales increase in August on Wednesday as higher gas prices boosted sales. Analysts had expected a 9.6% gain. Excluding the effect of higher gas prices, Costco's U.S. same-stores sales rose 6%.

Among luxury department stores, Saks recorded a 5.9% drop in same-store sales, steeper than the 4.7% decline that Wall Street expected. The weakest categories were women's apparel, women's shoes and intimate apparel, while the strongest categories were fashion jewelry, fragrances, men's sportswear and men's shoes.

Nordstrom recorded a 7.9% drop in same-store sales,a bit worse than the 7.1% decline expected.

On Wednesday, J.C. Penney Co. (JCP) announced that same-store sales at its department store business dropped 4.9%, slightly better than the 6.3% drop that analysts surveyed by Thomson Reuters had projected. Penney also predicted a mid- to high-single digit decrease in same-store sales for the current month.

Kohl's (KSS) announced on Wednesday a 5.8% drop in same-store sales, though the decline was less steep than the 7.6% expected by analysts.

Gap Inc. (GPS) recorded an 8% drop, though it was less steep than the 9.7% decline projected by Wall Street.
Limited Brands (LTD), the operator of Victoria's Secret and Bath & Body Works, suffered a 7% drop, mostly in line with the 6.9% decline estimated from Wall Street.

Teen retailer Wet Seal recorded an 8.7% drop in same-store sales, as demand at its Arden B stores dropped. Analysts polled by Thomson Reuters expected a same-store sales decline of 7.5%.