It’s the second-most wonderful time of the year for retailers.
See, there’s a general trend for those in the retail game: The fourth quarter — thanks, of course, to the holiday season — tends to lead the way in terms of sales (and usually earnings), while the third quarter takes the silver — thanks to back-to-school shopping.
That doesn’t necessarily translate to outsized stock gains in that period, of course, since most quarterly comparisons are done year-over-year. Still, as headlines about consumer spending in the coming quarter continue to circulate, it helps to realize what stock generally rake in more of their annual sales during the fall season. Last week, for example, we named five stocks that get outsized chunk of their sales during back-to-school and could thus suffer more if spending is weak.
Now, though, let’s take a quick survey of those that fit the opposite bill … beyond obvious ones like high-end specialty names like Tiffany & Co. (TIF). These three picks get a smaller proportion of their top line — and often the bottom too — in the coming quarter vs. the majority of retailers. And since the quarter isn’t expected to carry extra weight for the full year, they may not be as worried about spending, sales and seasonality in the next few months.
Take a look:
Walmart (WMT) might seem like the perfect one-stop shop for back-to-school, but in reality the third quarter isn’t one of the retailer’s stronger periods. In four out of the past five years, the third quarter has been the retailer’s second-worst in terms of straight-up sales … and things get even worse when you factor in the low margins that come with a back-to-school blowout sale.
Walmart has earned its lowest unadjusted earnings during the current quarter for the past two years. Considering Bloomberg’s Kyle Stock said the big-box store is “emerging as the pricing bully in this year’s back-to-school shopping game,” I wouldn’t expect those margins to bulk up any this year.
Right now, the company’s back-to-school period is slated to earn $1.17 per share — which is actually less than a quarter of expected full-year earnings. And while that number is three cents more than the company reported in the second quarter, that’s partially because the retailer has been off to such a slow start this year.
Don’t be surprised if that analyst consensus gets lowered in coming months, as has happened with Walmart’s current quarter and full-year outlooks, which have slid 4 cents and 5 cents respectively over the past few months.
Another retail destination that may seem like a back-to-school shop — maybe for no other reason than its department-store status that puts everything from jeans to shoes to backpacks on its shelves — is Macy’s (M). At Macy’s, though, the third quarter has been the lowest sales and earnings period for two of the past three years.
Last year, for example, the company’s unadjusted Q3 earnings were less than a fifth of its Q4 profit. Meanwhile, adjusted earnings for this year will get sliced in half from this quarter to the next; the 44-cent EPS slated for this fall will tally a mere 11% of the company’s full-year number.
Of course, that doesn’t mean expectations aren’t high in a relative sense. That EPS bar would be a 22% year-over-year climb — higher than the 18% growth expected in the current quarter and 14% expected for the full-year.
Still, a miss during back-to-school season likely won’t be as big a deal as a miss during the holiday season would be.
This last one may not be surprising to you, but it surprised me. Teachers often need back-to-school gear too; rival name Ann Inc. (ANN) actually got its largest chunk of sales during the third quarter last year. Still, Limited Brands (LTD) — whose Victoria’s Secret store is popular with girls of all ages thanks to products from its Pink clothing line to its brightly color panties — drops off pretty significantly during Q3.
The company’s Q3 was the lowest for sales in 2012, while it barely inched ahead of the first quarter the year before. And this year, third-quarter earnings will tally less than 10% of the year’s total.
Interestingly, Limited Brands stands out from its peers in another way too: The normally strong fourth quarter is actually even weaker on the earnings front for LTD … despite the fact its the leader for sales.
That sheds light on the tough reality of retail — especially during critical shopping periods. Blowout sales — whether during back-to-school or during the holiday season — can backfire if they slice away margins dramatically.
Luckily, compared to other periods of the year, investors are used to relatively subdued back-to-school numbers from these three names.
As of this writing, Alyssa Oursler did not own a position in any of the aforementioned securities.