This was a brutal earnings season for retail stocks. On average, shares of companies that beat Wall Street’s consensus actually declined 0.3% over a four-day period (the two days before the release and the two days after), while 48% of those that beat endured a 4% drubbing.
The stage was set for disaster when the retailers began posting their numbers, but things took a turn for the better when the latest Retail Sales report from the Census Bureau was released. The number came in well above Wall Street estimates and served as a harbinger for earnings.
While carnage continued in department and sporting goods stores, motor vehicle sales were better than expected — although keep in mind this report doesn’t speak to profitability. Restaurants also bounced back, and it was clear that consumers continue to spend on their homes with the internet remaining a beast. Even clothing showed signs of life, as did grocery stores on the eve of Amazon.com, Inc. (NASDAQ:AMZN) taking full control of Whole Foods Market, Inc. (NASDAQ:WFM).
Key Earnings Reports
I kept a close eye on retail names this earnings season, and five in particular stood out to me. Let’s take a closer look at each.
Williams-Sonoma, Inc. (NYSE:WSM) posted earnings of 61 cents per share, which came in 3.4% above consensus. The numbers underscore overall strength in the home furnishing category, and also give credence to the fact that upper-end consumers are spending money. Comparable-store sales were up 2.8%.
PVH Corp (NYSE:PVH) — the old Phillip van Heusen — is now driven by brands like Tommy Hilfiger and Calvin Klein, both of which experienced solid growth in the quarter. This upper-end clothier can be a proxy for the jobs market, too. Overall earnings of $1.69 per share were up 18% on a constant currency basis.
Guess?, Inc. (NYSE:GES) is a lower-end consumer clothing name that needs to stay ahead of the trends more than most. Earnings of 9 cents per share beat the Street by 90%, and revenue increased 5% year over year in constant currently. However, the United States was actually a weak spot.
- Americas: -10%
- Europe: +5%
- Asia: +6%
- Wholesale: +6.8%
Dollar Tree, Inc. (NASDAQ:DLTR) brought in revenue of $5.28 billion, which represented a 5.7% improvement over last year. And earnings beat the Street by 13.8%. This company is considered a proxy for middle- and lower-income households, and it saw both of its divisions improve their same-store sales figures:
- Dollar Tree: +3.9%
- Family Dollar: +1%
Signet Jewelers Ltd. (NYSE:SIG) was left for dead after a series of execution misses and scandals. The latest report and subsequent surge in the share price is a major reflection of the new management. SIG bought back 12% of outstanding shares in the quarter and saw the following same-store sales numbers:
- Kay: +2.9%
- Jared: +0.8%
- Zales: +2.4%
- Regional: -9.5%
The Importance of the Consumer
The American consumer is responsible for more than 66% of national economic growth. However, they were hit hard during the Great Recession and have been reluctant to spend, even after it was clear that the worst was over. The good news is there are signs this reluctance is fading as consumers tap credit cards at a faster rate than debit for the first time in years.
Moreover, consumers are becoming more confident and secure with their employment situation, and less concerned with looming recessions or economic collapse.
I expect retail to continue rebounding as wages increase and the economic recovery gains even more momentum. All said, buying retail stocks can be tricky. The last quarter was helped by low expectations and some short-squeezes, but there are still opportunities out there. The key is knowing where to look and being patient enough to get in at the right price.
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