Four major retailers stretching from mass to class took a cautious stance about the outlook for the second quarter, and it was enough to send retail stocks into a swoon.
Wal-Mart Stores Inc., Saks Inc., Abercrombie & Fitch Co. and The TJX Cos. Inc. on Tuesday all delivered bottom-line results in the first quarter that were not only better than the depressed ones of a year ago but also ahead of Wall Street estimates. However, all hedged their bets in some fashion, whether through forward-looking guidance that disappointed Wall Street, as with Wal-Mart and TJX, or with a deceleration of strategy for Europe, as evidenced by A&F’s stringent margin standards for expansion on the Continent, itself the focus of considerable economic turmoil in recent months.
Gas prices, up 41 percent from a year ago, even figured into the less-than-euphoric mood. “In our monthly survey of Wal-Mart moms, they acknowledged that they are spending less, especially on discretionary items, and have reduced their number of trips to our stores to offset gas prices,” said Eduardo Castro-Wright, vice chairman overseeing the Wal-Mart discount stores, sourcing and e-commerce.
The retailers’ uncertain message worried investors, who sent the S&P Retail Index down 11.46 points, or 2.5 percent, for the day to 444.21, rebounding only slightly from a sell-off that reached 3 percent at one point. Retail issues weighed on stocks in general, but the Dow Jones Industrial Average performed better, closing at 10,510.95, down 114.88 points or 1.1 percent, and the S&P 500 gave back 16.14 points, or 1.4 percent, to end Tuesday’s session at 1,120.80.
Paul Nolte, managing director with investment advisors Dearborn Partners, noted, “The earnings numbers were OK, but what was worse was guidance and the lack thereof, particularly Wal-Mart.” Nolte noted that, with a moribund housing market, relatively weak job growth and questions lingering about the potential impact of Europe’s fiscal troubles, the economy had essentially “flatlined” following a V-shaped recovery. Investors were moving more to safe-haven stocks, such as Wal-Mart, and away from consumer-discretionary issues.
Of the four retailers reporting on Tuesday, Wal-Mart was the only one to gain ground on Wall Street, with shares up 98 cents, or 1.9 percent, to $53.71.
Asked how long it would take before one could consider the consumer to truly be “back,” Stephen I. Sadove, chairman and chief executive officer of Saks Inc., told WWD: “I don’t know that there is a single point in time when you can answer the question. Every day or week the consumer remains confident and the stock market remains stable, you feel a little more confident taking [your business] on the offensive versus defensive.”
Driven by comparable-store sales growth, reduced promotions and cost controls, Saks posted net income of $18.8 million, or 11 cents a diluted share, in the quarter ended May 1 versus a net loss of $5.1 million, or 4 cents, in the comparable 2009 period. Excluding charges from three store closings, Saks’ net was 12 cents a share, 7 cents ahead of analysts’ consensus estimates. Sales in the quarter rose 6.9 percent to $667.4 million from $624.3 million and were up 6.1 percent on a comp basis.
“The environment is still fragile,” Sadove said. “We don’t want to get ahead of ourselves. It’s not going to be a very quick recovery. It will be a long-term, slow recovery. As the world continues to improve, we will make
prudent investments and risks. We will see top-line growth and will continue to wean ourselves off promotions and focus on full-price selling.”
On the company conference call, he said shoppers continue to be discriminating in their purchases, seeking value across price zones, and cited an increase in traffic with consumers buying fewer items per trip but at an average higher ticket. In the first quarter, women’s apparel, both designer and bridge, performed well. Men’s tailored clothing recovered, and shoes and handbags did better than expected.
Saks will continue to shut units, but Sadove stressed: “We do not expect a large number of closings by any means.” The Saks units being closed this year in San Diego, Portland, Ore., and Charleston, S.C., represented $35 million to $40 million in revenue and 200,000 square feet of retail space.
Saks forecast comp growth in the midsingle digits for the year, including low- to midsingle-digit growth in the second quarter and midsingle-digit growth in the second half. Inventories are seen relatively flat for the second quarter and up modestly in the second half. Gross margins should approximate 39 percent for the year.
Saks’ shares closed at $8.94, down 40 cents or 4.3 percent.
After narrowing its first-quarter net loss, Abercrombie & Fitch Co. said Tuesday it would slow its international expansion, due partially to fears of “overstoring particular regions,” and worries about currency instability abroad.
“We want to make sure that we’re positioning this brand around the world in the right quality locations…but we can’t get greedy,” chairman and ceo Mike Jeffries said on the earnings call to analysts. “We can achieve international growth, which we’re talking about, but at a reasonable rate.”
The company said it would be “very disciplined about requiring margins of 30 percent or greater” when opening stores, in order to allow for “room to absorb some currency fluctuation and volatility.”
During the quarter, the New Albany, Ohio-based retailer recorded a net loss of $11.8 million, or 13 cents a diluted share, 1 cent better than expected, compared with a year-ago loss of $59.2 million, or 26 cents a share. Sales were up 14.3 percent to $687.8 million from $601.7 million in the 2009 quarter. While domestic sales were up 5 percent, international sales more than doubled to $119 million. Comps rose 1 percent, with Hollister down 2 percent.
By 2012, the retailer said it would open 15 A&F flagships in Europe and Asia, not including its recently announced Madrid flagship slated to open by 2011.
The company’s shares lost $2.40, or 5.9 percent, to close at $38.38.
Wal-Mart’s first-quarter profits topped Wall Street’s estimates by 3 cents a share, but the company said the U.S. would remain a challenging sales environment and projected second-quarter profits of 93 cents to 98 cents a share this quarter, opening up some downside to the 98 cents analysts had penciled in.
The chain’s apparel business was “below expectations and continues to be a work in progress,” Castro-Wright said. The category’s bright spots included activewear, licensed apparel and men’s.
First-quarter profits attributable to Wal-Mart rose 10 percent to $3.32 billion, or 88 cents a share, from $3.03 billion, or 77 cents, a year earlier. Total revenues for the quarter ended April 30 gained 5.9 percent to $99.85 billion from $94.24 billion, but comparable-store sales at Wal-Mart’s U.S. stores fell 1.4 percent as customer traffic tapered off.
TJX followed a pattern similar to Wal-Mart’s and other broad-line retailers who reported results last week. Profits per share came in 2 cents ahead of analysts’ projections, but second-quarter guidance of 67 cents to 72 cents indicated the company would at best meet analysts’ projections. Shares dropped $1.57, or 3.5 percent, to $43.68.
But Carol Meyrowitz, president and ceo, maintained a bullish tone in the company’s quarterly statement. “The momentum in our business was driven by continued increases in customer traffic, reinforcing the appeal of our great values and indicating to us that consumers will remain focused on value in both weak and strong economic environments,” Meyrowitz said.
Net income rose 58.4 percent to $331.4 million, or 80 cents a diluted share, from $209.2 million, or 49 cents, a year earlier. Sales for the quarter ended May 1 rose 15.2 percent to $5.02 billion from $4.35 billion on a 9 percent gain in comps.
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