Retail has a tough crowd to please on Wall Street these days.
Investors are more ready than ever to jump ship and sell at any sign of weakness. And while volatility has seemed to become one of the only stock market constants in recent years, the extreme declines over the past month have sharpened the focus on retail and fashion — and not in a good way.
Despite the ultra-low U.S. unemployment rate of 3.6 percent, consumers aren’t investing in fashion — and investors are taking that seriously. The weakness has been attributed to everything from changing shopping habits to uncertainty over Brexit and the U.S.-China trade war, which threatens to slap an additional 25 percent levy on apparel and footwear made in China. Those duties would come on top of existing tariffs for apparel and footwear, which averaged 13.1 percent last year, according to the American Apparel & Footwear Association.
“It’s making investors not want to buy these [retail] stocks ahead of what could be a negative event, if [across the board] tariffs in fact become a reality,” said Jay Sole, retail analyst at UBS. “Retail would be one of those sectors where the market is showing the most amount of concern.”
While Wall Street is in turmoil and investors are on edge, even very strong companies can be hit very hard.
“When the company delivers growth that is high, but maybe not quite as high as the market was looking for, stocks can go down a lot,” Sole said. “Especially when it’s a stock with expectations that are super high. You see that happen all the time in the market.”
And when investors are already skeptical, the stock-price declines can be downright brutal when a company missteps.
On Thursday, women’s apparel and accessory retailer J. Jill plunged 53 percent to $1.68 after the company missed its earnings projections and chief executive officer Linda Heasley told analysts: “This quarter, we did not deliver. We lacked color and novelty and missed key programs and layering pieces in tops that [our customer] expects from us.”
Gap Inc. joined in after the market closed, reporting a 4 percent comparable sales drop for the first quarter. “This quarter was extremely challenging, and we are not at all satisfied with our results,” said Art Peck, ceo. Investors felt very much the same and sent shares of the company down 10.9 percent to $18.35 in after-hours trading.
Those declines followed a wave of selling on Wednesday. Shares of Canada Goose Holdings Inc. fell more than 30 percent as investors feared the company’s steep growth curve had moderated. Abercrombie & Fitch Co. narrowed its losses last quarter, but its stock dropped 26.5 percent after the company said it was closing three more flagship locations. PVH Corp., parent to Calvin Klein and Tommy Hilfiger, pointed to macroeconomic weakness and lowered its full-year outlook, helping to push its stock down 14.7 percent to $84.65 Thursday on top of an 8.6 percent drop Wednesday. And Capri Holdings, parent to Michael Kors, Jimmy Choo and Versace, also saw its shares fall nearly 10 percent Wednesday after reporting results.
“Investors seem hesitant to jump on ‘cheap stocks’ in our space today, especially given we do not see any positive catalysts over the next nine months,” said Ike Boruchow, retail analyst at Wells Fargo.
But even the broader market seems in flux — as everything from geopolitics, the economy and even the bond market give cause for concern. The Dow Jones Industrial Average shot up to 25,779.61 last week, only to dip as low as 25,093.87 during Thursday’s trading session. That’s a difference of more than 685 points. (The Dow Jones closed up modestly Thursday, rising 43.47 points to 25,169.88).
The uneasy dynamic in the fashion business only makes the ground less steady for fashion.
John Idol, chairman and ceo of Capri, told analysts “the market is weak” in North America.
At PVH, ceo Emanuel Chirico attributed at least some of that weakness, which is being seen broadly, to trade-war fatigued consumers.
“The constant drumbeat is impacting the consumer overall — both in the U.S. and in China — and we’re seeing a retail backdrop that is somewhat challenging overall in the U.S.,” Chirico said.
That’s a new worry for the trade war, which already has companies racing to reduce their production footprint in China.
Abercrombie & Fitch ceo and director Fran Horowitz said about 25 percent of the company’s merchandise was sourced from China in 2018 and that goal was to cut that to under 20 percent.
The same goes for Express Inc.
“We are aggressively working to minimize our exposure to China,” said Matthew Moellering, executive vice president, chief operating officer, and interim ceo and president, on Thursday.
That includes working with sourcing partners to share the impact of the tariffs, as well as continuing to move operations outside of China.
“Three years ago, we had approximately 40 percent of our sourced units coming from China,” Moellering said. “This year, we’re just slightly over 20 percent of our units from China and we’re targeting getting that down to 8 or 9 percent by the middle of next year.”
That’s a big change — but then again, if there’s anything retailers are getting used to, it’s big change.