RETAIL CONSENSUS: Shopping not the sport it used to be

May 20, 2014

Consumer spending accounts for between 66-70 percent of economic activity in North America. The logic then being if consumers are spending money and shopping away, then it should be full speed ahead on economic growth. Many analysts are calling for the economy to gain meaningful traction in 2014. The reality is that if the recent earnings reports by the retail sector are any indication, it is that consumers are not showing any desire to storm the malls and shops especially after a dreadful winter. Some fingertip facts:

“…The 61 retailers that have reported for the quarter just ended have missed estimates by an average of 2.6%, well below the long-term average of a 3% beat, according to Retail Metrics President Ken Perkins. First-quarter average profit is estimated to be down 2.3%, versus the 7.7% quarterly average profit growth of the past 15 years, he said….”

Some of the notable disappointments include:


  • TJX shares slumped 5.7 percent to $55.07 as the biggest drag on the S&P 500 after the owner of off-price chain stores TJ Maxx and Marshalls reported lower-than-expected quarterly revenue.
  • Staples Inc tumbled 10.8 percent to $11.95 after the office supply retailer posted first-quarter earnings and forecast a decline in sales in the current quarter. The S&P retail index fell 0.4 percent.
  • Dick's Sporting Goods (DKS.N) estimated current-quarter earnings way below analysts' average estimate and cut its full-year 2014 adjusted earnings and same-store sales growth forecasts due to weak demand for its golf and hunting products. Its shares plunged 15.7 percent to $44.80.
  • Caterpillar (CAT.N) shares dropped 1.8 percent to $103.45 after the heavy machinery company said retail statistics for the three-month rolling period ending in April were down 13 percent.
  • Wal-Mart Stores, largest retailer on this planet, said bad winter weather, sluggish sales abroad and food stamp cuts contributed to a 5% profit decline in the first quarter.
  • Target posted fourth quarter revenue of $21.5 billion, a 3.8% decline over the same time last year. Fourth quarter net income plummeted 46% to $520 million.
  • The malaise isn’t confined to the mid tier-discount segments. Luxury handbag maker Coach saw its sales fall 7 percent and earnings fall year-over-year from $239 million to $191 million in the recent quarter.


and we haven’t gone into JC Penny and Sears…

The most common excuse is that has been trotted out is that the past winter made things so dreadful everywhere that it gave very little incentive to go out, which would make sense if there was no Internet. As much as it was a long and brutal winter for certain parts of the company, other parts marched along and yet their numbers did not look any better.

A couple of better reasons for the languishing retail landscape is that gasoline prices have remained stubbornly high even though there is more supply out there (thank you fracking). High gas prices has reduced disposable income for most consumers. An even better reason is captured by Mr. Perkins at Retail Metrics, “… The crux of the problem for retailers is the majority of Americans are not making enough money to grow their expenditures on discretionary purchases and are either keeping them flat or cutting back,”

Of course little annoyances like falling sales are of little consequence to the stock market these days, who up until now have propped up retail stocks quite nicely in the past few years. It seems that only now, that reality is finally setting in as retail stocks have now started to meaningfully pull back (even as the stock market races to record highs). If the pullback gains traction, opportunities could spring up to pick up some durable brand name companies at a discount.