Gas prices and unemployment are down and the stock market is up — but retailers just aren’t feeling they’ll see much of a lift in business this year despite the positive indicators.
That became apparent among midtier fashion-focused retailers reporting results Thursday, including Gap Inc., Kohl’s Corp. and Ross Stores Inc., all of which issued conservative projections for 2015. News Thursday about store closings and layoffs at Chico’s didn’t help the mood, with the company revealing plans to cut headquarters staff by 240 people, close 120 stores by the end of 2017 and forecasting low-single-digit comparable sales increases this year.
Retailers are factoring in the impact of currency exchanges, the West Coast ports slowdown that ended last week but impacted first-quarter receipts, a bitter cold winter hindering early spring selling, and their significant expenditures on technology and omni-initiatives.
While consumers have more dollars in their pockets, retailers remain uncertain whether they’ll opt for tech gadgets over garments.
Despite its solid fourth quarter, Ross Stores sees first-quarter comps growing 2 percent to 3 percent and earnings between $1.21 and $1.26, below the $1.29 expected, on average, by analysts. For the full year, comps are expected to grow less, rising 1 percent to 2 percent, while profits are seen moving to between $4.60 and $4.80, with the upper figure just 1 cent above the current consensus estimate.
“As we enter 2015, we continue to face ongoing uncertainty and volatility in the macroeconomic and retail climates,” said Barbara Rentler, chief executive officer. “While we hope to do better, based on these external factors and our own challenging multiyear sales and earnings comparisons, we are remaining somewhat cautious in our outlook.”
Gap expects diluted earnings per share to decline slightly to $2.75 to $2.80 for 2015, compared with $2.87 per share on a diluted basis reported for 2014.
Gap factored in the estimated negative impact of about 6 percentage points, or 16 cents, due to foreign currency fluctuations at current exchange rates, and the estimated negative impact of about 4 points, or 13 cents, due to delayed merchandise receipts at West Coast ports.
Kohl’s is expecting a total sales increase of 1.8 percent to 2.8 percent and projected comp-store sales to grow between 1.5 percent and 2.5 percent.
Earlier this week, Macy’s Inc., too, projected slim sales gains of just 1 percent to 2 percent on a comparable basis for 2015, and took a hit on the stock market. As Terry J. Lundgren, Macy’s chairman and chief executive officer, told WWD this week, “The consumer is definitely putting more money in their pockets than a year ago [because of lower gas prices]. The question is whether they spend money in categories we are in.”
Gap, boosted primarily by its Old Navy performance but still dragging with Gap brand, reported Thursday that net income rose 3.9 percent to $319 million in the fourth quarter ended Jan. 31, from $307 million in the year-ago period. Earnings per share increased 10 percent to $0.75 per share on a diluted basis, from $0.68 the fourth quarter a year ago.
Net sales were up 3 percent to $4.71 billion, compared with $4.58 billion in the year-ago period. On a constant currency basis, net sales increased 5 percent. Comparable sales rose 2 percent.
Art Peck, Gap Inc.’s new ceo, on Thursday revealed his latest appointment, Wendi Goldman, as Gap brand’s head of design and product development. Goldman served as co-president at the former Limited Brands, now called L Brands, where she developed the Pink brand and expanded Express. Most recently, she worked at Burch Creative Capital LLC, including as executive vice president and chief product officer at the now defunct C. Wonder chain. She rejoins Gap Inc., having served in product and merchandising roles at Banana Republic early in her career. Earlier this month, Rebekka Bay, executive vice president and creative director of Gap brand, left the company, and the position was eliminated.
“None of us is satisfied with the performance of the Gap brand,” said Peck, in a conference call. “It starts with righting the women’s business. Denim is showing signs of life but we need to have the women’s business hitting on all cylinders.” Old Navy, on the other hand, has consistently performed well.
Kohl’s Corp. reported a 10 percent increase in net income in the fourth quarter ended Jan. 31, to $369 million, from $344 million in 2014. Earnings rose 17 percent to $1.83 a share in the fourth quarter, from $1.56 a share in the 2014 quarter. The results beat Wall Street’s average estimate of $1.80 a share for the quarter.
Total sales in the quarter advanced 3.9 percent to $6.3 billion from $6.1 billion and comparable-store sales grew 3.7 percent.
Earnings per share rose 5 percent to $4.24 in 2014, from $4.05 the previous year.
Kohl’s plans to repurchase $1 billion worth of shares at an average price of $70 a share and pegged capital expenditures at $800 million.
Kevin Mansell, Kohl’s chairman and ceo, said during a conference call with analysts that the company’s previously announced emphasis on national brands paid dividends in the quarter, with national labels driving higher comps than private and exclusive brands. Sales of Nike, the top performer, rose 24 percent, while Levi’s, Carter and Fila Sport each gained 10 percent.
While women’s apparel reported a positive gain, it was outperformed by men’s and children’s. “The business we’re most focused on gaining more traction in is our women’s business,” Mansell said. “It’s trailed the company’s performance for some time, but the gap is narrowing between women’s and the rest of the store. The biggest opportunity we have is in women’s. That’s an issue we’re really attacking as we move into 2015.”
Gaiam, a collection of casual, yoga and fitness apparel and accessories such as yoga mats and yoga bags, will bow in April. Kohl’s in March will unveil Bliss skin-care and body products in 500 doors, then roll the brand out to remaining units in 2015. Kohl’s converted beauty departments in 500 stores to a new format last year, with additional doors slated for the redo this year. “The continued rollout of beauty initiatives will create some margin pressure as we liquidate old product to make room for new product,” Mansell said.
Ross Stores surpassed expectations for fourth-quarter results yet issued conservative guidance for the year ahead.
In the three months ended Jan. 31, net income at the Dublin, Calif.-based off-price retailer advanced 14.2 percent to $248.5 million, or $1.20 a diluted share, from $217.6 million, or $1.02, in the prior-year quarter as revenues advanced 10.6 percent to $3.03 billion from $2.74 billion. Comparable-store sales were up 6 percent in the three months.
Analysts, on average, expected EPS of $1.11 on revenues of $2.93 billion.
In the quarter ended Jan. 31, Chico FAS incurred a net loss of $31.8 million, or 21 cents a diluted share, versus a loss of $348,000, or zero cents, in the 2013 period. Stripping out restructuring charges as well as a pretax goodwill impairment charge for the Boston Proper brand acquired in 2011, adjusted EPS was 5 cents a diluted share, above the 2-cent profit expected, on average, by analysts.
Sales rose 3.4 percent to $656.9 million, above the $639.9 million analysts’ consensus estimate and compared with $610.2 million registered in the prior-year period. Both transactions and average sales rose.
“Everybody has been so damn promotional, including us, that I think that [the customer] doesn’t really even know what the right price is anymore,” said David Dyer, Chico’s president and ceo. “I think that’s one of the things that certainly we are going to do on our own is to get back to pricing that is more consistent with our history. Even if it’s slightly at the expense of sales, it will drive margin.”
The earnings report came a day after published reports that private equity firm Sycamore Partners had abandoned negotiations to acquire the retailer.
Chico’s 120 store closures, including 35 in the current year, are expected to save the Fort Myers, Fla.-based women’s specialty retailer about $55.2 million a year upon completion. The company recorded pretax impairment charges of $5.3 million in the fourth quarter as a result of the accelerated closings schedule.
The 240 job cuts, representing about 12 percent in headquarters and field management staff, resulted in a pretax charge of about $8.2 million, to cover severance and other costs, in the most recent quarter.
“As the retail environment continues to evolve, we must look at new stores through a more sharply focused lens than in the past,” Dyer told analysts. “However, we will continue to make the necessary allocations to both the customer experience and the seamless integration of digital with bricks and mortar.”