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Retailers Limp Through Third Quarter, Putting More Pressure On Holiday Sales

Nov 18 2016

The major retailers limped through the third quarter and once again find themselves  under pressure to make sure the holidays deliver big sales figures.

70% of the retailers that have reported third quarter same store sales results have missed their analyst estimates according to Thomson Reuters I/B/E/S. The biggest misses came from mall retailer The Buckle Inc., which reported sales that were down 4.7% from where analysts believed they would be and Cabela’s Inc. whose sales were 4.1% below estimates.

Finish Line had the biggest upside surprise when its comps came in up 2.2% and Big Five Sporting Goods reported that its third quarter comps rose 0.7%.

Department stores continue to be challenged, but expressed hope for the fourth quarter. The J.C. Penney Company said that its third quarter comps dropped 0.8%. Analysts had forecast an increase of 2.7% in third quarter store sales. The discount chain blamed the weather and disruptions within the store from the appliance showroom roll-out. The company said that all of its apparel categories performed below expectations.

It wasn’t all gloom and doom. J.C. Penney said that sales had improved in the last two weeks of the quarter and are still expecting them to increase by 2-5% in the current quarter. However, this won’t be enough to save the year. Penney’s said it now believes sales for the fiscal year ending in January will only increase by 1-2%, down from the previous forecast for an increase of 3-4%.

Macy’s Inc. missed its third quarter earnings estimate and said its third quarter sales comps had fallen 3.3 %. Retail analyst Brian Tunick of RBC Capital Markets said, “Despite missing street expectations, Macy’s suggests that they hit their internal goals, which gives them more confidence that combined with sales initiatives (jewelry, Last Act, Backstage) and category strength (athletic, improving apparel), Q4 comps should improve ~200bps, while gross margins should also recover meaningfully.”

 

Kohl’s Corporation fared better with its comps only dropping 1.7% for the third quarter. The chain also suffered from a soft September when the fall weather warmed up. Net sales fell 2.4% to $4.33 billion. Tunick is keeping his underperform rating, but is raising his price target to $48. He thinks the fourth quarter comp sales will grow by 0.5%.

 

Nordstrom was one of the few retailers that managed to deliver a quarter with a positive comp. They were up 2.4%, but the company took a big hit with its Trunk Club apparel brand. Nordstrom bought the personal styling company for $350 million two years ago, but now its future growth isn’t as strong as the company previously believed it would be. Nordstrom took a $197 million charge during the quarter. Nordstrom raised its earnings guidance, but left in place its sales guidance.

 

William Blair analyst Amy Noblin said Nordstrom’s loyalty program was paying off and keeping sales steady. She said, “We are encouraged by strong inventory management, with controlled growth and focus on brands that are working leading to higher full price selling and gross margin upside in the quarter.” Noblin also described the current state of retail as a “benign selling environment.”

All year retailers have said that the election was distracting people from shopping. Now perhaps with that in the rear view mirror, consumers will return to the stores for some holiday shopping.

By Debra Borchardt via Forbes

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