Citi analyst Deborah Weinswig has lowered her expectations for consumer spending and is now saying that stabalization and recovery won’t begin in earnest until 2H09:
While 2Q-3Q08 could benefit from the tax stimulus checks, we expect current pressures facing the consumer, including across-the-board inflation, housing and credit concerns, and a deteriorating employment picture, to continue to weigh on consumers for at least the remainder of 2008 into 2009. Our models now reflect stabilisation in the macro picture beginning in 2H09.
Weinswig blames the usual suspects:
There is a confluence of macro and industry factors dragging down consumer demand, including 1) a lack of fashion newness [come again?] 2) the recent spike in the unemployment rate; 3) continued housing market woes; 4) turmoil in the equity markets and the associated negative wealth effect; 5) more restrictive consumer credit/lending terms; and 6) rising gas/food/product cost inflation. These negative variables have reduced consumers’ abilities and/or desires to spend, particularly on discretionary items, and we do not anticipate a meaningful improvement in the near-term.
As a result of this expected weakness, Citi is lowering estimates from 2008 to 2010 on all the department stores it covers, which include Home Depot (HD), Lowe’s (LOW), Target (TGT), and Safeway (SWY). On the positive side, Weinswig is recommending Wal-Mart (WMT) and Kroger (KR):
We recommend investors play our coverage universe carefully by selecting stocks with company-specific catalysts. WMT and KR are best-positioned in this environment given their strong value message/lower pricing, benefits from the tax rebates, as well as inventory mgmt. and operational improvement.