Deutsche Bank (DB) analysts are preemptively cutting their earnings targets for several retailers just ahead of earnings releases scheduled to come out over the next few weeks, citing “declining mall traffic (down ~6% YOY past 3 weeks), slipping consumer confidence, lack of must-have fashion items, and unseasonable weather.”
“Overall, we believe sales are trending materially below our prior view and consensus, and we are therefore lowering [same-store sales] & EPS estimates for [Macy's, (M) Kohl's (KSS), JCPenney (JCP), and Nordstrom (JWN)],” write Deutsche Bank analysts Paul Trussell and Matt Siler in a note to clients. “In addition, we believe the Department Store sector has experienced market share shifts to Off-Price retailers and Specialty/Vendor shops as well as a crowding out to other pockets of retail, particularly Home Improvement.”
The analysts write that discount stores are doing well while overall spending is lackluster:
Turning to various industry sources, we continue to see a muted environment within the Department Store space, while trends at Discounters remain solid. Specifically, ShopperTrak has shown a steady decline in mall traffic of late, with QTD trends down 3.2%, continuing the weakening trend that began in earnest in 2Q.
According to Redbook, trends have improved at Discounters (+4.6% QTD vs. +3.4% 1H13 Average) and remain muted at Department Stores (+2.1% vs. +1.9% 2Q). ICSC shows a similar trend, suggesting sales are up 2.1% QTD, which is below its 2.4% 2Q result, but in line with the YTD average.
Finally, SpendTrend shows Department Store revenues remain muted (-3.2% QTD), although this is admittedly an improvement from 2Q’s tough -8.8% reading. As for its Discounters spending data, it shows a 4.7% increase, a modest decrease from last quarter (+6.2%), but still strong relative to other segments.
In terms of recent company specific data points, the vast majority have been negative including disappointing sales updates from the Buckle, Gap, Limited and Wet Seal. TJX remains an exception to the upside.
Trussell and Siler say the focus among investors “is already on Santa.”
“The early forecast from ShopperTrak calls for sales growth of +2.4% YOY (vs. +3.0% LY), which is the most tepid of the forecasts we have seen,” they write. “The National Retail Federation is modestly more bullish in its forecast, with Holiday sales forecast to grow 3.9%, ahead of last year’s 3.5% growth but below the 5.0% increase in both 2010 & 2011. Finally, Deloitte believes that Holiday sales will rise in a range of 4.0% to 4.5%, and is cautiously optimistic about the potential for the upcoming season.”