Bad news in this morning’s U.S. retail sales number but not as bad as it seems.
The all-in, headline number showed retail sales plunging by 1.2% in May from April’s levels. If you discount the downturn that resulted when the cash for clunkers program ended, this is the worst drop in retail sales since the 1.5% plummet in March 2009.
But most of the drop came from a big 9.3% drop in sales of building materials from April levels. Sales of building materials had soared by 8.4% in April as the end of the homebuyers tax credit spurred a big increase in home improvements. (The explanation here is that home sellers spruced up homes before final sale and home buyers made improvements after they bought.)
Take out that category—and volatile auto and gasoline sales—to get what’s called the core sales number and?
 May was actually mildly positive with core retail sales up 0.1%. Sales of general merchandise and clothing climbed by 0.3% and 2.0%, respectively.
Nothing terribly surprising in that core number, which is why financial markets aren’t showing much of a reaction. Retail sales are likely to stay weak until employment picks up, economists keep telling us. From that perspective May is just about that the PhDs ordered.
wwlettsome, thank you for enlightening and in depth analysis.
@georic, not sure what Jim’s views on electronic gaming companies are but I can share a few thoughts. The basic problem with most gaming companies is their earnings are unlikely to be regular enough for most large investor tastes. If they are producing large AAA titles they burn through large amounts of cash over a several year period and depending on the timing of the release and it’s success they may or may not recoup the right amount of “analyst approved” profit. Figuring out which games are going to sell well is akin to figuring out which movies or books are going to do well. Some sure bets fizzle and other times a relatively unknown title does amazingly well. Activision probably is doing the best job right now of generating predictable profits/cash flow because they own Blizzard and have done a good job in the past couple of years of getting regular installments of their Call of Duty game franchise out on an annual basis. But Activision has a distressing tendency to take great intellectual properties and run them into the ground by pushing too many similar games out within a short period of time. Ubisoft has some good IP’s in it’s inventory but hasn’t yet developed a good rhythm in it’s release schedule that the investment community likes and it’s been losing money for some time as the recession hit this supposedly “recession proof” industry.
This is an immature industry that has not yet figured out the best business model. It’s gone from many small studios through a normal consolidation period but the problem with that is the larger companies tend to stagnant the innovation so in order to continue their growth or avoid extinction they have to keep finding new IP’s before existing franchises complete their lifecycles. The explosive growth of the “casual” gaming sector is now getting the major players attention, I’m sure you noticed EA has started pushing heavily into Facebook, iphone/smart phone games but that’s a fickle audience as Nintendo noticed last year. They tend to treat gaming as a fad so their interest ebbs and sways. Every time a new generation of casual gamers enters the arena everyone gets excited and says “this time it’s different!” We’ll see if that’s the case this time, but I won’t be betting any long term money on that idea. If I had a nickel for everytime I heard someone say that over the last 10 years I’d be a very rich individual.
Very long story short I would not put any money into gaming stocks. And most of the analysts I have read regarding gaming stocks don’t even seem to know which end of a joystick to hold let alone comment on the short or long term prospects of any of the major gaming companies.
Hello, I am the unhappy owner of Ubisoft shares. This company is one of the European leaders in electronic games and Electronic Arts holds 14.9% of its capital. The share has gone down (in euros) by 23.4% since beginning of 2010. What are your views on the market for electronic games?