NEW YORK — Retailers’ fourth-quarter sales and earnings season kicks off Thursday and the sector isn’t sitting as pretty as it did a year ago.
Although the 2004 holiday spending season has been called “the best in years” by several industry groups, equity analysts don’t anticipate across-the-board, stellar results. A few major retailers, including Target Corp. and Kohl’s Corp., have already warned Wall Street not to set expectations too high.
Eric Beder, senior equity analyst at J.B. Hanauer & Co., said the latest retail earnings season has three clear themes: “Luxury is going to rule. They’re going to beat the numbers significantly, which you’ve already seen with Coach. Discounters are going to be a tale of woe in terms of upside to earnings and outlook going forward. And for the specialty retailers, the key to determining earnings is whether they had something unique and differentiated.”
Regarding the reign of luxury retailers, Beder, echoing many analysts, said that this fall will be “the next major test” of the trend’s staying power. For now, though, investors are fixed on bottom-line results for the fourth quarter of 2004, and where gross margin rates trend over the next two quarters.
There’s more than enough to be worried about.
Over the past month, Target and Kohl’s told Wall Street that fourth-quarter earnings would come in lower than forecast. But that doesn’t mean results will be all doom and gloom. Through the holiday shopping season, retailers such as Neiman Marcus Group and American Eagle Outfitters Inc. posted robust same-store sales, and are likely to be among the winners of the holiday race.
Sears, Roebuck & Co. is on deck to report fourth-quarter results on Thursday. Wall Street’s optimism about the retailer, which is being acquired by Kmart Holding Corp., wilted months ago after Sears’ third-quarter conference call on Oct. 21.
The firm projected fourth-quarter domestic comps would be flat compared with the previous year, including a low- to mid-single-digit decrease in apparel comps. Sears, which struggled with apparel merchandising problems for much of the year, also said it projects that gross margins in the quarter will be down from last year’s 28.9 percent. In December, Sears said same-store sales fell 3 percent, while year-to-date comps are down 1.7 percent.Analysts pegged Sears with an earnings estimate of $1.66 a share for the quarter, which compares with a profit of $2.24 in the fourth quarter of fiscal 2003.
Sears still has some “great brands, but it certainly doesn’t look like they solved their apparel issues yet,” Jim Rice, senior retail sector analyst at Bernard Sands LLC, said in an interview
“Consumers have gone away from thinking of [Sears] as an apparel store and [Sears hasn’t] been able to do enough exciting things to change their opinions.”
Wal-Mart Stores Inc., the world’s biggest retailer, reports its sales and earnings on Feb. 17. Analysts expect a profit of 74 cents in the quarter and $2.40 in the year. Wal-Mart’s own estimate is that earnings will be in the range of 73 to 75 cents in the quarter, and $2.39 to $2.41 for the year.
Analysts aren’t overly worried that Wal-Mart will miss its own earnings estimates, although it could come in shy of consensus estimates — something the company has done twice in the last two years. Analysts have said in their research notes over the past month that Wal-Mart’s core customer had their disposable spending levels in the fourth quarter limited by rising gas and home fuel oil prices.
But at least one analyst remains bullish on the firm. “Although Wal-Mart may not have had its best Christmas, the Street’s herd-like hand-wringing over a supposedly soft holiday shows an outdated view of the company’s current strategy and little awareness of this data-rich retailer’s ability to react to marketplace changes within days of any unfavorable trends arising,” wrote Craig Johnson, president of Customer Growth Partners, a retail consultancy, in a Jan. 13 report.
Indeed, one of the biggest questions analysts and investors will have answered as earnings season progresses is whether gross margins — and consequently profits — in the holiday quarter were negatively affected due to heavier-than-expected promotions before and after Christmas Day.
Rice, for one, is worried. “When sales slowed after the initial burst on Thanksgiving Day weekend, a lot of retailers seemed to panic and mark things down,” he said.Richard Keim, managing partner at Kensington Management Group, agreed: “Certain companies were discounting way too early when they didn’t have to.”
Target Corp., for example, told investors on Jan. 6 to expect earnings below Wall Street’s then-median estimate of 94 cents, despite posting a 5.1 percent rise in December comp-store sales, due to increased promotions. Analysts are now forecasting a profit of 92 cents for the quarter.
Yet other analysts contend that merchandisers are continuing to be cautious about what and how they buy, which they say helped maintain profitability levels in the holiday quarter. Nordstrom Inc., for instance, has benefited from tight inventory controls, and analysts consequently expect to see the retailer’s quarterly earnings rise roughly 34 percent when it reports on Feb. 15.
One of the season’s biggest reporting days will be Feb. 24 when Target, Gap Inc., American Eagle Outfitters, J.C. Penney & Co., Limited Brands Inc. and Kohl’s report earnings for the holiday quarter.
American Eagle, which posted a 32.8 percent surge in December comps on top of a 24.3 percent comp advance in November, already boosted its fourth-quarter per-share earnings estimate to $1.30 to $1.31, from a prior estimate of $1.08 to $1.10. Analysts are now calling for $1.32.
2003 4Q Actual EPS:
2004 4Q Company Guidance:
73 to 75 cents
Below 94 cents
93 to 97 cents
$1 to $1.05
Source: Company reports and data from Thomson Financial. *Excludes one-time items..
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
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