The Dow Climbs, but Retailers Continue to Struggle
The Dow Jones Industrial Average continues to forge slowly higher as tensions maintain between Ukraine and Russia and economic data continues to be good but not great. The big economic news for the day was a 1.8% rise in productivity for U.S. worker, which is down from 3.5% in the third quarter.
Productivity is a key driver of economic growth, because as workers become more efficient, they can produce more per hour worked without adding to the workforce. But there are limits to how much managers can squeeze from workers, and after years of asking employees to do more with less, we may be reaching that limit. Keep an eye on what this means for employment, because if productivity can't be improved, companies will have to hire more to grow, which may not be all bad for the economy.
Retailers continue to struggle
On the company side, retailers continue to report weak holiday-season results. We've seen Wal-Mart and Target struggle during the holiday season, but today it's surprising to see Costco's earnings decline as well. Costco has long been one of the best-performing retailers in a cutthroat industry because its memberships, bulk sizes, and low prices keep customers coming back even as online retail takes share. But last quarter's net income fell 15% to $463 million, or $1.05 per share.
While the bottom line is struggling, Costco remains stronger than most retailers. Membership fees were up 4.1% to $550 million, and same-store sales were up 5% last month, compared to falling same-store sales at Wal-Mart.
Conditions are even worse at Staples , which reported a 7% drop in same-store sales on both lower traffic and order sizes. The office products retailer is still profitable with $212.3 million in earnings for the quarter, but a 3.8% drop in overall sales isn't a good sign that the company is healthy.
When competitors are offering similar or lower prices and shipping straight to your door, it's hard to grow sales or earnings in retail. Costco seems to be holding up reasonably well because it has a differentiated offering with memberships and jumbo product sizes, but even that isn't resulting in impressive figures.
It's a time to be cautious in retail, especially if a company isn't offering products that are somehow differentiated from customers.
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The article The Dow Climbs, but Retailers Continue to Struggle originally appeared on Fool.com.
Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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