As retailers prepare for the Black Friday rush, it’s the big value players that are bringing almost all of the earnings momentum into the make or break holiday season.
And that could signal more trouble for the mall-dependent companies trying to break out of their box, including Gap Inc., which at least some analysts think could ditch its plan to spin-off Old Navy given weak results and the departure of chief executive officer Art Peck.
After Walmart Inc. nearly doubled third-quarter profits last week, raking in $3.3 billion, Morgan Stanley analyst Simeon Gutman sounded a note of approval.
“We prefer to stick with retail playbooks that are working; the big are getting bigger and the winners are those with scale that have made significant e-commerce investments,” Gutman said in an analysis of Walmart’s results.
Walmart fits that bill. So does Target Corp.
Meanwhile, off-pricers such as TJX Cos. Inc., Ross Stores Inc. and Burlington Stores Inc. have been able to continue to press their structural advantage, soaking up excess goods in the system and selling brands at deep discount and with a treasure hunt vibe.
Almost everyone else in the traditional brick-and-mortar set is struggling for earnings traction.
A WWD survey of analysts’ third-quarter earnings projections for the 14 major players still set to release results before Thanksgiving showed a wave of expected declines in the vast middle of the market.
Jeansmaker Guess Inc. was the exception, expected to boost adjusted earnings to 20 cents a share from 13 cents a year earlier. But analysts are looking for losses from Chico’s FAS Inc. and weaker earnings from Macy’s Inc., L Brands Inc. Abercrombie & Fitch Co., Gap Inc., Urban Outfitters Inc., Kohl’s Corp., PVH Corp. and Nordstrom Inc.
Investors were already warned about Gap. When the retailer revealed earlier this month that chairman Robert Fisher would take over the ceo job on an interim basis, the company slipped in some disappointing financials. Adjusted earnings are projected to range from 50 cents to 52 cents a share for the quarter, down from 69 cents a year ago. Comparable sales are slated to be down 4 percent for the quarter, with Gap down 7 percent, Old Navy decreasing 4 percent and Banana Republic off 3 percent.
Gap Inc. in essence might have gotten ahead of the game and already aired its dirty laundry in advance of its earnings report Thursday afternoon.
Ike Boruchow, an analyst at Wells Fargo, said: “The most meaningful piece of incremental news likely to come out of their third-quarter call is potentially calling off the Old Navy spin — which we believe could be a positive catalyst for shares given the $700 million to $800 million of cash — the one-time spin expenses — that would reenter the Gap enterprise value.”
Boruchow noted that Gap’s management has said a miss at Old Navy this year would “force them to at least rethink the strategy” of spinning off the chain next year.
There is a growing disconnect between the consumer winners and everyone else.
The Census Bureau’s read on retail sales showed that retail and food service sales for August, September and October — roughly the retail industry’s fiscal third quarter — increased by a total of 3.8 percent from a year earlier.
But within that, the e-commerce-heavy category of nonstore retailers grew 14.6 percent while department stores fell 6.1 percent and apparel and accessories specialty stores decreased 1.1 percent.
With unemployment at 50-year lows and the economy seemingly staying to the status quo for now, consumers are spending. But many retailers — even as they rev up their online businesses, tap into AI, add more experiences and sharpen their digital marketing — aren’t able to expand and make money at the same time.
Analysts expect the value crowd to continue to shine in third-quarter reports this week and next as most mall-based retailers fall short of year-ago earnings per share.
|EPS Estimate||Year-ago EPS||Change|
|Guess Inc.||20 cents||13 cents||53.8%|
|Burlington Stores Inc.||$1.40||$1.21||15.7%|
|TJX Cos. Inc.||66 cents||61 cents||8.2%|
|Ross Stores Inc.||97 cents||91 cents||6.6%|
|Nordstrom Inc.||64 cents||67 cents||-4.5%|
|Kohl’s Corp.||86 cents||98 cents||-12.2%|
|Urban Outfitters Inc.||57 cents||70 cents||-18.6%|
|Gap Inc.||51 cents||69 cents||-26.1%|
|Abercrombie & Fitch Co.||24 cents||33 cents||-27.3%|
|L Brands Inc.||2 cents||16 cents||-87.5%|
|Macy’s Inc.||0 cents||27 cents||-100%|
|Chicos FAS Inc.||-6 cents||5 cents||N/A|
|Source: Yahoo Finance, adjusted earnings per share.|