Retailers have been reporting first-quarter financials at a feverish pace in recent weeks, with earnings results varying on a case by case basis. (Most operating in this space have fiscal years that end January 31, 2015.) Sales, however, have remained weak, for the most part. Companies mentioned in this review include Wal-Mart Stores (WMT - Free Wal-Mart Stock Report), Target Corp. (TGT), Nordstrom, Inc. (JWN), Penny (J.C.) (JCP), Macy’s Inc. (M), Dillard’s, Inc. (DDS), Sears Holdings (SHLD), Staples, Inc. (SPLS), Urban Outfitters (URBN), Dick’s Sporting Goods (DKS)
Wal-Mart, the nation’s largest retailer, which has historically been used as a gauge for the American economy, delivered disappointing first-quarter results. Indeed, it reported flat same-store comparisons with inclement weather and a still-tough economic environment taking a toll. Things were no different on the earnings front, as the company continued to invest in price reductions in an effort to garner customer loyalty. This, coupled with elevated operating costs and a higher tax rate, further hurt. Guidance was nothing to write home about, either, with management calling for fiscal second-quarter earnings of $1.15 to $1.25 a share, on flat comp sales.
Meanwhile, industry mate Target, which is still trying to shake off last year’s security breach and more recent expansion hiccups, saw share net fall 16%, to $0.66, in the first quarter. Sales increased 2.1%, but comp sales dipped 0.3%. Although this was far better than most had been calling for, management trimmed its full-year share-earnings outlook to a range of $3.60 to $3.90. The company is still in search of a new chief executive officer and continues to revamp its Canadian operations.
Shares of Nordstrom and J.C. Penny rallied after both retailers reported better-than-expected fiscal first-quarter results. The much maligned Penny reported a 6.2% increase in same-store sales, thanks primarily to improved Internet traction. This marked the second consecutive quarter of increased comp sales for the company, helping distract Wall Street from the fact that it reported a $1.15 share loss in the most recent quarter, and that it still has a long road to recovery ahead.
Higher-end department store chain Nordstrom, meanwhile, posted a 7% sales advance and a 3% earnings decline. That said, results seemed to be overshadowed a bit, by the company’s announcement that it is putting its $2 billion credit card receivables portfolio up for sale.
Dillard’s gained significantly, also, with a stronger-than-expected first quarter seemingly calming investor fears raised after the company posted its first year-over-year earnings decline in the final quarter of fiscal 2013.However, Dillard’s success, much like Macy’s, which inked a 9% share-earnings advance in the April period, was a product of share repurchases rather than fundamental improvement. Sales increased just 1% at Dillard’s and declined nearly 2% for Macy’s in the most recent quarter. It should be noted that Macy’s did raise its quarterly dividend by 25%, to $0.25 per share.
In other news, Sears recently completed its previously announced spinoff of Lands’ End. In doing so, it distributed roughly 32 million shares of Lands’ End common stock and received a $500 million dividend payment from the new entity. This is not the first divestiture, as Sears spun off its Hometown and Outlet business in 2012 and its Orchard Supply Hardware Stores in 2011, and may not be the last. Rumors are swirling that the struggling retailer, which is being hampered by its debt-laden balance sheet, may look to separate its Auto Centers next.
Most specialty retailers continued to struggle in recent months. Take, Staples, Urban Outfitters, and Dick’s Sporting Goods, for example. Although each operates in a clearly different and distinct niche, they all had something in common. Each stock retreated following the release of their respective company’s most recent earnings release, specifically due to weak comp sales. Although unfavorable weather conditions undoubtedly played a role, each seems to be continuing to deal with a challenging demand environment. Dick’s, like many others in this segment, tempered investor expectations by providing conservative guidance.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.