Reports of weak sales and traffic during the kickoff of the holiday shopping season sent investors into selling mode today despite strong indications that Cyber Monday was performing above expectations.
There was also profit taking in the retail sector. As a result, the S&P 500 Retailing Industry Group index lost 1 percent to close at 1,296, which compares to a 0.5 percent decline to 2,080 in the broader S&P 500. The Dow Jones Industrial Average closed down 0.4 percent to 17,719.
Some notable retail decliners included Stage Stores Inc. with a 6 percent drop to $7.74 and Express Inc. with a 5.5 percent decline to $16.74. Lands’ End fell 6.2 percent to $24.04 while Abercrombie & Fitch Inc. declined 4.3 percent to 25.57. American Eagle Outfitters Inc. decreased 5.1 percent to $15.57.
Gap Inc. dropped 2.3 percent at the bell to close at $26.72 while Zumiez Inc. stumbled 9.1 percent to $15.09. Macy’s Inc. lost 2.3 percent to $39.09 and J.C. Penney Co. Inc. fell 2.7 percent to $16.59. Dillard’s Inc. declined 4.9 percent to $75, and Target Corp. finished down 1.3 percent to $72.50. Kohl’s Corp. had a 2 percent drop to $47.13 while Wal-Mart Stores Inc. fell 1.7 percent to $58.87.
What concerned Wall Street was the level of markdowns, which will result in lower gross margins — and weaker profits — despite higher sales.
Ike Boruchow, senior analyst at Wells Fargo Securities, said in his tracking of holiday promotions so far, 59 percent of the retailers analyzed “were more promotional year over year versus just 20 percent that were less promotional.”
“Actually, during Weeks 1 through 3 in November, we noticed very moderate markdown levels at the [retailers] we monitor — with just 29 percent of [stores] seeming to be more promotional versus 33 percent…which were less promotional,” Boruchow said. “Meaning, Black Friday activity caused the industry’s promotional cadence to reverse rather dramatically. The step up in activity was seen through a combination of increased percent off sales and earlier starts to when deals were offered – 35 percent of [retailers tracked] offered promotions ahead of Thursday this year.”
BB&T Capital Markets equities analyst Corinna Freedman said in a research note today that Black Friday promotions “were modestly higher than last year across our coverage universe, as online promotions and markdowns enabled by more mobile and omnichannel initiatives, commenced earlier than last year and converted a larger portion of normal retail store traffic into online sales.”
“Mild weather also likely contributed to the softer than normal Black Friday store traffic,” Freedman said. “We expect promos to remain higher throughout the balance of the holiday shopping season.”