Earnings season has come and gone and the results were fairly clear: Most retailers continue to deal with the ill effects of a still-sluggish economic environment. Although there were a few that persevered and were able to post better-than-expected results, the majority operating in this space continued to struggle on a year-over-year basis.
The industry posted July-sales figures that were nothing to write home about, essentially matching June results, its worst showing since January, which was hampered by poor weather. Stagnant wage growth was the likely perpetrator, keeping consumer confidence low and shoppers at bay. As a result, demand probably remained weak during this back-to-school season.
Big Names, Big Misses
Retailers’ struggles were clear after examining the most recent quarterly results of Wal-Mart Stores (WMT). Indeed, the world’s largest retailer and a barometer for the U.S. economy reported fairly uninspiring June-quarter results. Although there seemed to be a few positives, overall results revealed some problems, especially with the domestic business. June-period U.S. same-store sales remained flat, while comps actually declined at domestic Supercenters. Demand is likely to remain difficult and costs appear to be on the rise. As a result, management tempered its fiscal 2014 earnings guidance, prompting us to look for share-net to fall on a year-over-year basis.
Macy’s Inc. (M) was another big name that was snake bitten in the most recent quarter. The department store chain announced that it was lowering its sales outlook for the full year after reporting a second-quarter top-line miss. Specifically, it said that it now expects sales to improve 1.5%-2.0%, down from its earlier call for 2.5%-3.0% growth. Management blamed the shortfall on a still-cautious consumer.
Elsewhere, another interesting story was American Eagle Outfitters (AEO). The apparel and accessories purveyor posted lower sales and earnings in its fiscal second-quarter. In fact, the bottom line plunged 70% from the year-earlier mark. However, results managed to come in above expectations, and the stock gained nicely on the news. Meanwhile, shares of handbag maker Kate Spade & Co. (KATE) have been on a rollercoaster ride following the release of better-than-expected second-quarter results. The stock gave back some earlier gains after Wall Street learned of the heavy promotional activity that was used to move merchandise.
Bucking The Trend
Not all the news was bad, however. There were some companies that enjoyed healthy financial results. Discount retailer TJX Companies (TJX), for one, reported strong top- and bottom-line gains, and upped its full-year guidance. Jewelry and accessories maker Tiffany & Co. (TIF) has also gained momentum after reporting sparkling second-quarter sales and raising its full-year guidance. Express, Inc. (EXPR) followed suit by posting a second-quarter earnings beat and increasing its outlook. Cost-cutting played a prominent role, however, as sales dipped. Rumors of a possible takeover attempt by private-equity firm Sycamore Partners continues to fuel investor optimism.
Takeover Attempt Apparently Snuffed
Meanwhile, lululemon athletica (LULU) continued to make headlines, as company founder Dennis “Chip” Wilson sold half of his stake in the retailer of yoga-inspired athletic clothing and accessories to private-equity firm Advent International for $845 million. Advent accumulated a 13.85% stake in the company and received two seats on the board of directors. The stock is up slightly following the announcement, perhaps easing investor fears that Mr. Wilson would stir up more controversy and would look to regain control over the retailer.
Three’s Not Always A Crowd
Discount retailer Family Dollar (FDO) has a new suitor apparently courting it. Dollar General (DG) submitted a formal offer to buy the company for $9.7 billion. The bid is an all-cash offer and represents a 5% premium over Dollar Tree, Inc.’s (DLTR) accepted offer of $9.2 billion. Dollar Tree’s proposal was for $59.60 in cash and the equivalent of $14.90 in stock. Although many pundits preferred the deal that Dollar General put on the table, Family Dollar rejected its bid and is said to be sticking with its original pact with Dollar Tree. Regulatory hurdles seem to be a major sticking point, but Family Dollar may be looking just to drive the stock price even higher via instigating a bidding war. Dollar General says that it does not believe that antitrust laws would be a problem and is not expected to bow out as a player for Family Dollar. Although deals with either rival would likely have certain advantages, investors may want to consider holding tight. FDO stock is still trading higher than both of the aforementioned offers.