Teen line and luxury
JB Hanauer---Beder, Eric---Analyst
>> attention you carb conscious soda lovers, coca-cola is rolling out a new soft drink. coca-cola c-2 is the name with half the sugar, carbs and calories of regular soft drinks. it will be available first in japan and then the u.s. later in the summer. coke’s c.e.o. credits consumers with the drink idea. c-2 will come in bottle, cans, at fountains and as a frozen beverage. the company says coke beverages are consumed at a rate of a billion a day. j.c. penney, zales and saks out with earnings today and customers making purchases. our next guest tells us why he prefers the teen vendors, luxury goods retailers over discounters. eric beder with j.b. hanauer joins me in the studio. you like the teen line and luxury, but not the discounters. what’s the thesis here?
>> if you go forward, you see tough comparisons in the second half for almost everyone. teen players, luxury goods players, they’re not affected by price increases in oil and other commodities. it’s really driven by fashion and we’ve seen an explosion in that since last fall. discounters, they’re affected by higher oil prices and in winter by higher home heating oil prices, impacting especially the northeast and you have difficult comparisons for discounters which are in a tough spot in the second half.
>> so it’s all about disposable income. teens, i’m thinking, don’t have a lot of disposable income, they get allowances or babysitting money or mow the lawn. but the reality is that allowance is somebody on a tighter budget.
>> there’s two parts. teens have their own jobs and they spend all their money on trendy items. you and i have to buy gas but teens buy pizza, movies and go shopping.
>> we have spoken with other retail analysts and somebody made the point that the wal-marts, targets, discounters will do better if people have less money in their pocket. i understand the thinking that the wealthy have more disposable income so luxury goods will do well but i see the point that if i’m on a tighter budget, i’ll go to wal-mart to save money.
>> i think you have to look at that that, yes, that’s for some level of people but for certain people, if you’re making a salary, that’s the case. if you’re the middle squeezed consumer, you’ll shop wal-mart but you’ll have less disposable income to shop with. if you’re over $100,000, you probably don’t care if gas is $2.50, but the middle market consumer, yes, you have less to spend.
>> a lot of news out with sak’s, zale’s, j.c. penney.
>> those were the highlights. if you looked at the trends in these retailers, you see margins improving. one of the things that retailers learned in the slow period a year and a half ago was to be strong in terms of inventory management and not overbuy. looking at j.c. penney and especially with sak’s, the margins were significantly larger because of inventory control.
>> wouldn’t price increases have something to do with that?
>> it’s more less discounting so instead of buying 400 pairs, you’re buying 200 pairs and have a higher margin on those and the consumer doesn’t see the last sale anymore.
>> if we can say that the first half of the year is gone although it’s not yet, but we’re almost 2/3 of the way through the second quarter, the second half of the year will be different than the first half.
>> the first half of the year, last year we had the war in iraq and people didn’t shop. the second half of the year, we had tremendous pent-up demand and fashion was very strong. all those things will make comparisons extremely difficult in the second half of the year so throughout retailing, the first half is where you make the hay and the second half is where you try to make it work.
>> where will it work in the second half?
>> i think it will work in areas that are not dependent upon priceing, dependent on fashion. that’s why we like teens and luxiry.
>> who is price dependent?
>> discounters, like the j.c. penney’s and people at the lower end. some department stores, but really discounters hurt the most in terms of pricing.
>> what about the gap?
>> they have an interesting story. the gap is the poster child for changes in that they had poor years and have come back. same-store sales are very strong and margins are strong because they have less inventory to sell and in the second half it’s about showing me the turnaround has legs and that’s the question for investors and something they have to prove in the second half.
>> we appreciate your coming on today.
>> it’s a pleasure.
>> it will be interesting to see how your crystal ball works out. folks, stay with us, because it’s 16 years and counting. alan greenspan renominated as chairman of the federal reserve.
