For many retailers, this winter could get really ugly.
Economists are expecting U.S. Gross Domestic Product to grow at 2 percent in the fourth quarter, which is basically flat. With unemployment remaining above 7% and consumer confidence shaky, the last thing that many people feel like doing this holiday season is shopping. Not surprisingly, many retail stocks have been hammered lately and many economists remain downbeat.
“I don’t get a good feeling about the holiday season,” says Mike Meyer, a market strategist with EverBank in an interview. “Shoppers these days get motivated by once-in-a-lifetime sales. … Going forward, it’s going to be interesting see if consumers get addicted to these low prices much like financial markets have become addicted to these extraordinary stimulus measures.”
Here’s a look at five retail stocks in for a cold winter:
Apparel retailer Ann Inc. (ANN) — owner of the Ann Taylor brand — became the latest retailer to indicate that the holiday season will be far from jolly. Sales in the current quarter are expected to be $640 million, below the $646 million consensus forecast.
Ann expects yearly sales at $2.51 billion versus an August forecast of $2.515 billion. Like other CEOs, Ann’s Kay Krill blamed the “challenging and highly promotional retail environment.” Not surprisingly, shares fell today.
ANN, though, has plenty of company.
Target (TGT) reported dismal results yesterday. Profit at the No. 2 retailer fell 46% percent to $341 million, or 54 cents per share.
The Minnesota company’s foray north of the border, its first outside the U.S., isn’t going well. During the last quarter, the business lost $238 million before interest and taxes. Unfortunately, its U.S. business isn’t doing very well, either. U.S. same-store sales fell 0.3% in the third quarter.
Still, despite the problems, shares of TGT have gained more than 7% since January.
Things aren’t so hot at Target’s nemesis Walmart (WMT), either. The company is hoping to lure shoppers with deals like a $98 32-inch TV.
CEO Mike Duke noted in the company’s Nov. 14 results that the environment “remains competitive.” During the latest quarter, profit excluding some costs rose 2.8% to $3.73 billion, or $1.14 per share, a penny better than expectations. Sales were disappointing, though, gaining 1.6% to $115.69 billion, lagging the $116.8 billion analysts were expecting.
The company’s same-store sales figures and guidance were also disappointing. WMT stock is up more than 16% this year.
Another company in Wall Street’s trash bin is Kohl’s, which reported earnings on November 14. The company lagged analyst expectations and slashed its earnings guidance.
The former Wall Street darling is getting squeezed by Macy’s (M) on the high end and TJX (TJX), the parent of TJ Maxx and Marshalls, on the low end.
Merchandising mistakes didn’t help along with its lackluster ecommerce efforts: “When Kohl’s was thriving, it made an ill-fated decision to focus more on exclusive brands from the likes of Jennifer Lopez and Daisy Fuentes and less on national brands,” the Wall Street Journal says.
Shares of KSS are up more than 28% so far this year.
Hopes for a turnaround at Best Buy (BBY) were dashed, at least temporarily. Though the consumer electronics chain reported better-than-expected quarterly profit and revenue on Nov.19, its comparable sales were below consensus forecasts.
Even more ominous in the eyes of investors was the company’s commentary about an increasingly “promotional” fourth quarter. That shouldn’t have been a shock since Best Buy sells consumer electronics, one of the most competitive areas in retail.
CEO Hubert Joly has earned kudos from Wall Street for making Best Buy relevant again by matching the prices of rivals such as Amazon (AMZN). Whether Joly can do this without sacrificing margins remains to be seen. Even with its recent setback, shares of BBY have skyrocketed more than 200% this year.
Of the discount rack stocks we discussed here, this is the only one that is worth investors’ time. Joly has made great strides in improving the consumer electronics retailer and has even won over founder Richard Schulze, who briefly considered taking the company private.
BBY stock trades about 17% percent under the average 52-week price target of $46.10. Given the launch of the PlayStation 4 and Xbox One, there is every reason to expect Best Buy to have a holiday season that will be jollier than many expect.
As for the others companies we discussed, you’re better off avoiding them like holiday fruit cake.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.