Retail has become a world of haves and have-nots.
The divide is expected to come into sharper relief as Macy’s Inc. — which has been on a roll — kicks off the second-quarter earnings season today. Other major retailers such as Wal-Mart Stores Inc., Nordstrom Inc., Target Corp. and Sears Holding Corp. will weigh in later this week and next week.
Total retail sales perked up in July, rising 5.4 percent versus a year earlier, the Commerce Department said Tuesday, signaling good things for the still frustratingly slow recovery. But the last three months appear to have been blah for many major chains.
“The quarter on balance was only OK,” said Craig Johnson, president of Customer Growth Partners. “There was a lot of weakness, particularly in some of the larger-format stores — Wal-Mart and Target will be weak. There’s a lot of underlying consumer weakness out there.”
In addition to the broader trends — unemployment is still high at 7.4 percent and real disposable income has been tepid — there are sector-specific troubles.
The teen retailers, for instance, are trying to get back on track. Last week, American Eagle Outfitters Inc. cut its second-quarter earnings per share guidance to about 10 cents from the 19 to 21 cents previously projected.
Johnson attributed the teen angst to a “female flight” to fast-fashion players such as Forever 21. “The teen sector is struggling pretty mightily,” he said. “There are exceptions. I think Urban [Outfitters Inc.] is steadily rowing along, setting the pace.”
Department stores will be a little bit on the soft side, with even the solid Nordstrom struggling to find growth in its core business of full-line stores, Johnson noted.
“Everything after Macy’s will be anticlimactic,” he predicted.
Analysts project that Macy’s second-quarter EPS jumped 16.4 percent to 78 cents a share, as sales nudged up 2.5 percent to $6.27 billion.
J.C. Penney Co. Inc., for one, is not expected to shine by comparison. The chain’s results will be under the microscope after the boardroom battle with activist investor William Ackman and worries surrounding the company’s turnaround effort. Analysts project the firm’s losses widened to $1.02 a share from 37 cents a year earlier as sales fell 7.6 percent to $2.79 billion.
Wal-Mart is also being watched closely, although it hasn’t had anything like the run Penney’s has had.
John Zolidis, an analyst at The Buckingham Research Group, said Wal-Mart’s comparable-store sales would be “fairly anemic” with a roughly 1 percent rise in the U.S.
“Traffic could be negative,” Zolidis said. “Sales growth will reflect pressure on lower-income consumers, including higher gas prices, higher withholding taxes and lackluster employment and wage gains.”
Wal-Mart’s EPS is expected to rise 5.9 percent to $1.25 on a 3.8 percent gain in sales to $118.67 billion.
Earnings for discount competitor Target are projected to fall 7.6 percent to 98 cents a share despite a 3.2 percent rise in sales to $17.31 billion.
The sluggish recovery and lingering macro worries might obscure some basic retail truths.
“Of course people are strapped, but there’s always money to go shopping,” said Antony Karabus, president of Hilco Retail Consulting. “It’s much more about getting that assortment right at sharp, compelling value. The winners are going to do extremely well, and the losers are going to bumble along.”
Analysts will also be scouring second-quarter reports for information on how the key back-to-school season is shaping up.
Robert Drbul, who covers broadline retailers at Barclays, said second-quarter sales were “somewhat muted” and noted that “our checks indicate slower trends in July and likely a later back-to-school season, which we expect to eventually culminate in a 2.5 percent to 3 percent increase.”