The warmer weather might be good for heating oil bills, but it’s not welcome for the department stores that are filled with cold weather outerwear.
JPMorgan analyst Matthew Boss warned that too much warm weather is keeping stores full of winter inventory. This weighed on the sectors stocks Monday with Macy’s dropping more than 5 percent to $46.19, Kohl’s also down more than 5 percent to $43.99, Nordstrom sliding almost 5 percent to $62.49 and Dillards slumping near 3 percent to $86.74.
A quick internet search brings up warm weather in Vermont, Massachusetts and Wisconsin. The El Niño pattern has pushed warm weather into the Midwest and it is expected to last through the month. November is expected to be 7 degrees warmer on average this year. That’s bad news for retailers that depend on shoppers that wait until it gets cold to buy new sweaters and jackets.
Boss wrote that November was off to a slow start with excess inventory building in the channel. Weather for him was the straw that broke the camel’s back. He reduced his price target for Macy’s to $45 and lowered his same stores sales to a negative 4 percent. He slashed the earnings per share estimate to 36 cents, while the street estimate is at 54 cents per share.
The analyst also cut the price target for Nordstrom to $70, but is expecting same store sales to be up 2.5 percent. The price target for Dillard’s is now $84, a cut from $91 and he expects flat same store sales. Kohl’s price target was dropped to $47 from $61 and he expects a negative 1 percent same store sales.
Boss downgraded L Brands to neutral from overweight as part of his third-quarter review. He wrote, “While we remain confident in management’s ability to drive double-digit annual bottom-line expansion, waning margin levers and a fierce mall landscape raise the top line bar into FY16 in our view.” He still believes that L Brands remains the best-in-class across mall-based specialty and gave the company a $100 price target.
The analyst believes that traffic remains sluggish and the warm weather has reduced needs-based apparel purchasing. He also noted the increased promotional activity with the stores. Macy’s had 2 additional sales days and Nordstrom ran five additional promotional days. Kohl’s also looked to be more aggressively promotional.
The only group that Boss believes will have strong same store sales is the off price group. TJ Maxx, Ross Stores and Burlington are all estimated to have positive sales this quarter.