Sonoma at Kohl's

Retail investors threw out phrases like “retail recession” and “retail crash” as Kohl’s Corp. followed after Macy’s Inc.’s disappointing earnings with its own dismal quarter. Dillard’s and Nordstrom joined the poor earnings crowd after the market closed on Thursday, adding to the retail industry’s bad news.

Market experts weren’t shy about their assessments. Keith McCullough, chief executive officer at HedgeEye, wrote to his subscribers today saying, “You won’t hear this from many guys/gals who were trying to push these U.S. Retailers as ‘value’and/or ‘real-estate plays,’ but reality is that U.S. Retail ETF, XRT, is on the precipice of #crash mode at -18.4% since we went bearish on Consumer and S&P 500 in July of 2015.”

Oliver Chen at Cowen & Co., called it a full-price apparel recession. “Apparel is fighting an uphill battle,” he said, “as evidenced by surprisingly weak April trends at [L Brands Inc.], pressure at [Macy’s] & dep[artment] stores, & specific issues at [Gap Inc.], retail is in the midst of a transition.”

Kohl’s stock declined by over 9 percent to $35.15 after the retailer missed analyst estimates for both earnings and sales for the first quarter.

Net income for the quarter fell to $58 million, or 31 cents a diluted share, down from $127 million, or 63 cents, a year ago. The FactSet estimate was for earnings of 37 cents a share.

Sales for the three months ending April 30 decreased to $3.9 billion from $4.1 billion a year earlier. The FactSet estimate was for $4.1 billion. February started out well for Kohl’s, but then dropped off dramatically after that month, according to the company on the earnings conference call. Store traffic levels for March and April were particularly lower.

“First-quarter sales were challenging,” admitted chairman and chief executive officer Kevin Mansell. “Despite the sales environment, we were able to manage our gross margin and inventory levels consistent with our expectations as we took the markdowns necessary to clear excess inventory.”

The company said that the Reed handbags by Reed Krakoff were off to a very good start and that Nike continued to perform well. Men’s performed well and within women’s, juniors and intimates. The home department was weak.

The top executives debated as to whether the problems Kohl’s experienced were company-specific or more of a consumer trend. Chief financial officer Wesley McDonald suggested that the drop-off in traffic and sales in March and April were possibly macro-related and that other retailers had experienced the same problems.

Mansell noted that Kohl’s spent more of its marketing dollars in the digital space and while that helped increase e-commerce sales, the store traffic was hurt. He suggested the company would course-correct those marketing dollars and it was likely to go back to print.

Mansell said he believed sales trends would improve in the second quarter. For the overall year, the guidance for the top line was anywhere between negative 0.5 percent to up 1 percent.

“It will get warm. We have shorts to sell and we are in a good inventory position. I think at some point people will need those clothes and will come and buy them,” said Mansell.

Dillard’s went into the first quarter with low expectations from analysts but the department store missed even those sales and earnings expectations.

Dillard’s delivered net income of $77.4 million or $2.17 a share, versus the FactSet estimate for $2.52 for the quarter ending April 30.

Net sales of $1.50 billion missed the FactSet estimate of $1.57 billion. Comparable sales fell 5 percent.

“Our disappointing sales pressured our gross margin and net-income performance, although inventory was relatively flat at quarter end,” said chief executive officer William Dillard. “While we controlled expenses, sales leverage was difficult to achieve.”

Dillard’s, like its competitors, saw gross margins decline due to higher markdowns in the period. The company said gross margins dropped by 140 basis points for the quarter. Cash and cash equivalents has dropped from $457 million a year ago to $150.3 million.

Sales trends were strongest in shoes and weaker in home, furniture, ladies accessories and lingerie. Dillard’s does not host a conference call to discuss the earnings.

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