The big trends in retail today... How Wal-Mart is fighting back... Amazon claims another victim... The Amazon of China comes to the U.S...
Two major trends are dominating the retail sector today...
First, consumers are shopping at smaller, more local stores... Second – and more important – the growth of online retail is destroying traditional retailers. (More on this in a moment.)
The average American is struggling today... Prices are rising, but wages are stagnant. As a result, Americans are driving less. The total vehicle-miles driven in the U.S. is down 9% from its 2007 peak.
As Porter and his team described in the December Investment Advisory... During the housing boom, Wal-Mart (WMT) and Target (TGT) built supercenters as fast as they could. These massive stores were usually placed on the edge of growing areas to serve the new sprawl.
Now people are shopping closer to home and supercenters are suffering.
Now, the profile of the average grocery store is shrinking back down to the size of the old neighborhood market. The smaller stores offer the same products but have less brand selection.
One in particular stands out as the most effective operator. That company is Dollar General (DG). Dollar General is now the largest discount retailer in the U.S., with 11,000 stores. It plans to add around 700 more this year.
Don't be fooled by the name. Dollar General doesn't operate everything-for-a-$1 stores, where you can take your kids or grandkids to load up on hair clips and notepads. Dollar General sells all the stuff people need... right in their own communities.
The trend has hurt Wal-Mart, which posted its slowest quarterly growth in five years (and reported a drop in same-store sales, an important retail metric). And the company reported five consecutive quarterly declines in U.S. sales.
But the world's largest retailer is fighting back. As Porter and his team wrote...
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Now, Wal-Mart is adapting to changing shopping habits...
The retail giant is opening up more "Neighborhood Markets" and "Wal-Mart Express" locations. It expects to add between 270-300 of these smaller stores during fiscal year 2014... double the initial forecasts of 120 to 150 stores. By 2017, Wal-Mart will open more small stores than supercenters.
In first-quarter 2014 results, Wal-Mart executives said supercenter traffic was weaker, particularly in the bottom-performing 10% of its stores. Revenue growth at existing Wal-Mart stores was less than 1% below the same quarter a year ago.
During the same time period, sales at "Neighborhood Markets" rose 5%. Traffic was up 4%.
Office-supply stores are also downsizing... Staples, for example, plans to reduce its U.S. store space by 15%.
While traditional retailers are looking for ways to fight the loss of customers and revenue, online sales are soaring...
Online-retail behemoth Amazon's quarterly revenue grew 23% to $19.7 billion in the first quarter of 2014 – up from $16.1 billion a year ago. The company had sales of more than $74 billion in 2013.
Of the more than $4 trillion in annual U.S. retail sales, 8%-10% occur online. Even the biggest shopping day of the year for traditional retailers, Black Friday, is suffering...
From the March 28 Digest Premium:
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RadioShack understands the woes of the brick-and-mortar retail business better than most...
Shares of the consumer-electronics retailer fell more than 10% yesterday after announcing disappointing earnings... They're down another 4% today.
Yesterday, RadioShack announced its first-quarter loss widened to $98.3 million... Sales fell for the ninth straight quarter.
RadioShack is in a death spiral... It sells electronic equipment most folks don't need or use anymore. Its biggest focus is cell phones, which are largely a commodity product. And it faces competition from online retail.
The buzzards are already circling... BB&T analyst Anthony Chukumba said in a note to clients that "RadioShack's much-worse-than-expected [quarterly] results demonstrate that senior management's turnaround efforts do not appear to be bearing much fruit, in our opinion, and we increasingly believe time could be running out for the company."
Another analyst, Scott Tilghman of research firm B. Riley & Co., gave RadioShack a price target of "$0."
RadioShack had borrowed $35 million under its credit line as of Monday and said it would make further use of the facility this year. The company has $614.5 million of debt coming due in 2018-2019.
RadioShack, which recently announced a revamp of its outdated stores, will close 600 stores over the next three years.
On the topic of online retail, Alibaba – the Amazon of China – made its first major move into the U.S. with today's launch of the website 11 Main.
11 Main is modeled after Alibaba's China-based TMall... Both portals give merchants an online storefront. The merchants manage all aspects of the transaction besides payment.
Alibaba has also invested in ride-sharing service Lyft in the U.S. And it put $215 million into Tango, a chat application. Its investment values Lyft at $1 billion.
Alibaba is believed to be preparing for an imminent initial public offering (IPO). As we explained in the May 8 Digest:
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S&A Short Report editor Jeff Clark recently designed a trade for his subscribers to take advantage of Yahoo's mispricing. As he explained to subscribers, Jeff believes shares of Yahoo could start to rise to reflect the value of the Alibaba stake in advance of the IPO.
But betting on an Alibaba IPO comes with a lot of risk. So Jeff has recommended a trade that counters a lot of that risk… and could double in a short period of time if the situation plays out like he expects. To learn more about subscribing to the S&A Short Report – and gain access to the details of the trade – click here...
New 52-week highs (as of 6/10/2014): Apple (AAPL), American Financial Group (AFG), Apache (APA), Anadarko Petroleum (APC), Activision Blizzard (ATVI), Bank of Montreal (BMO), Anheuser-Busch InBev (BUD), Consolidated Tomoka Land (CTO), Discover Financial Services (DFS), Devon Energy (DVN), ProShares Ultra MSCI Emerging Markets Fund (EET), Freehold Royalties (FRU.TO), WisdomTree Europe Hedged Equity Fund (HEDJ), iShares Dow Jones U.S. Insurance Fund (IAK), InterDigital (IDCC), Integrated Device Technology (IDTI), Intel (INTC), SPDR S&P International Health Care Sector Fund (IRY), Johnson & Johnson (JNJ), Altria (MO), Pepsico (PEP), PowerShares QQQ Fund (QQQ), ProShares Ultra Technology Fund (ROM), RPM International (RPM), Sprott Physical Platinum and Palladium Fund (SPPP), ProShares Ultra S&P 500 Fund (SSO), Skyworks Solutions (SWKS), Sysco (SYY), Targa Resources (TRGP), Travelers (TRV), Union Pacific (UNP), Invesco High Income Trust Fund (VLT), and Alleghany (Y).
In today's mailbag... we let you in on one subscriber's joke. Send your comments to feedback@stansberryresearch.com.
"Am I missing something here? It seems to me that Mr. Fish's idea of simultaneously buying and shorting Tesla stock is a no-win situation. Any gains on the long side are off-set by the short position, and vice versa. And when transaction fees are factored in, short of some clever (and lucky) margin strategy, it's a net loss no matter what happens.
"I understand individual investors, on average, underperform the broad market. Isn't this just a way of guaranteeing that outcome? Or was it some kind of inside joke?" –Paid-up subscriber Bill
Goldsmith comment: Mr. Fish was recommending buying an actual Tesla – the automobile – and shorting shares of the stock... He was joking that the profit from shorting the automaker would pay for the depreciation of the vehicle.
Regards,
Sean Goldsmith
June 11, 2014
One gold investment we're happy we made...
In today's Digest Premium, Stansberry's Investment Advisory analyst E.B. Tucker discusses why one particular gold stock in the model portfolio is soaring...
To subscribe to Digest Premium and receive today's analysis, click here.
One gold investment we're happy we made...
Editor's note: Last November, Porter and his research team recommended a specific gold stock to their subscribers... Since then, readers who followed the recommendation are up 68%. Analyst E.B. Tucker explains what's going on...
Last year, we bought gold for $41 an ounce... It's a decision we doubt we'll regret.
You may recall... 2013 was one of the worst years on record for gold. The precious metal fell 28% that year. You'd have to go back to 1980 to find a worse time to be a gold bug. While it was a tough year to own the physical metal... it was even worse to be a miner. The Market Vectors Gold Miners ETF (GDX) – a basket major mining stocks – lost more than half of its value.
We've written often about how mining is a terrible business. It requires tons of capital, and the projects are usually located on the outskirts of civilization. And the risks of failure are large. Even with a rising gold price, mining stocks can fall. So timing your investments is tricky as well.
I (E.B.) have followed gold stocks for years. They're the opposite of the capital-efficient companies we like to recommend in Stansberry's Investment Advisory... which is why we typically avoid them.
But in November, we added NovaGold Resources (NG) to the Investment Advisory model portfolio. It was selling gold at $41 an ounce. That is, when you took the value of the company's stock at the time (market cap) and divided by its 50% interest in 34 million ounces of proven gold at its Donlin project in Alaska, you get $41 an ounce... And that doesn't include anything for its 50% interest in the Galore Creek copper and gold project in British Columbia. Investors got that asset for free.
In both projects, NG has a 50% partner. It's a brilliant structure. NG does the exploration and development work on these projects. It proves there's gold and exactly how much... then takes the deal to larger companies like Barrick Gold (ABX), its partner at Donlin, and Teck Resources (TCK), its Galore Creek partner. Barrick and Teck Resources are giants in the industry. They have the financial strength and industry knowledge needed to bring big projects into production.
NG doesn't do any mining itself. When we bought the stock, NG had about three years of working capital in hand. And it had reduced debt to almost nothing. What we were able to buy was all those ounces in the ground.
And it has worked out great for us. We're up 68% in shares of NG, while physical gold is down 3%. Most of that gain resulted from timing. We saw that hedge funds and large holders of NG were dumping shares before year-end. They had huge gains with the S&P up 30% in 2013. They didn't mind taking a loss on NG shares, which were down as much as 60% during the year.
There's a lot of risk in NovaGold... it's a true speculation. The Donlin project still has many milestones and hurdles ahead before it starts producing gold. But for now, it's acting as exactly what we want... as a long-dated call option on a higher gold price.
– E.B. Tucker
One gold investment we're happy we made...
In today's Digest Premium, Stansberry's Investment Advisory analyst E.B. Tucker discusses why one particular gold stock in the model portfolio is soaring...
To continue reading, scroll down or click here.