Pain in Housing Market is Spreading to Other Sectors

a. The newspaper industry has the been hurt not only by readers and advertisers who have moved the Internet, but also by the downturn in real-estate. It puts further pressure on ad revenue and classified revenue. All newspaper stocks: Gannett, Tribune, McClatchy, and New York Times recently reported lower earnings in 3Q. Heavy buyers of newspaper ads such as auto makers, airlines, and retailers have shifted ad dollars away from print.

b. High-end consumers. Coach spooked investors on Tuesday when it said it was seeing fewer than expected shoppers in stores in California, Florida and the Northeast. The company is a bellwether for the mass affluent, having helped create the category when it reinvented itself several years ago as a status brand minus the sticker shock. Though still priced well below designer handbags, Coach has quietly gotten more expensive, a fact that may make it "less accessible to a certain demographic challenged by higher fuel costs and lower housing values," wrote Todd Slater of Lazard Capital Markets in a research note yesterday. Slater estimates that the average Coach bag has seen a price increase of 30 percent over the last few years, with $400 handbags now accounting for a quarter of the company's overall sales. Another retailer that has courted the mass affluent shopper is Nordstrom. The company recently cut its third quarter earnings guidance after September sales came in below plan and inventory piled up on store shelves. Michael Boyd, a spokesman, said women's apparel was among the weaker areas, although sales of designer clothing and handbags remained strong. Nordstrom shares are also trading near their 52-week low of $37.80. "To think that this customer is immune to the ups and downs of the economy is simply not correct," said Danziger, of Unity Marketing. "They may not be defaulting on their mortgages, but there's a good chance their homes are not worth as much as they were last year - and as a result they don't feel as rich."

http://money.cnn.com/2007/10/24/news/companies/luxury_slowdown.fortune/index.htm?source=yahoo_quote

c. Bond insurers such as Ambac and MBIA. Their job is to guarantee the interest and principal payments on bonds in the event of default. Although the majority of the financial guarantors' business is insuring securities such as muni bonds, they have also insured some $100 bilion of riskier CDOs. The increasing default rates and rapid downgrades of subprime-related CDOs have contributed to the decline of value of policies underwritten by these insurers (in the form of CDS) on their balance sheets. The question is whether or not they will have enough capital to support them in the case of worse-than-expected losses. At this point Ambac's and MBIA's triple-A credit ratings become questionable.

d. Office Depot Inc., the nation's second biggest office-supply store chain, said Tuesday its third-quarter profit fell 9 percent, hurt by lower consumer spending and a weak housing market. The company said North American retail same-store sales fell 5 percent for the quarter, hurt mostly by the slumping housing market. Same-store sales, or sales at stores open at least a year, is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones. At a September retailing conference, CEO Steve Odland said purchases by small business customers connected to the housing market, such as real-estate agents and contractors are "down significantly." According to WSJ, the company estimates the % of its customers in housing-related businesses is in the double-digit range.