With the holiday season over, a picture of which retailers gained or lost ground has begun to emerge.
And industry analysts say Target came out on top, Walmart and Lululemon fared well, and Macy’s and Nordstrom appear to have performed better than expected. Costco and Best Buy also fared well.
On the other hand, Kohl’s and Old Navy lagged.
“The fourth quarter overall for retailers was OK, not great. Margins were hit. We do see the results as mixed,” Jefferies retail analyst Randal Konik told WWD on Tuesday.
“The primary company that is hurting Kohl’s and Old Navy is Target, though Walmart is getting better at apparel.”
Precisely how retailers fared won’t be known until they report fourth-quarter profits in February and March.
Konik noted that Kohl’s arrangement with Amazon enabling Amazon customers to pick up and return packages at Kohl’s stores is no longer exclusive. That could mean some loss of traffic to Kohl’s locations. He also mentioned that providing the service to Amazon customers means investing SG&A dollars. Shipping and technology costs are also digging into profits.
Given the prospect that Old Navy continues to underperform, the proposed spin-off of the chain into a separate public company may not be as successful, at least for the time being.
Aside from Target, Konik said he felt comfortable with the holiday performance of certain other companies that have recently exhibited momentum, citing Lululemon and Nike.
Jefferies downgraded Kohl’s to hold, citing poor comps and margin declines, though the research firm said the retailer’s omni initiatives are great.
“We are downgrading Kohl’s as key categories have been weak, the business is losing share, and we see comps continuing to underwhelm and margins declining,” Konik said in his report. “We like management’s traffic-driving initiatives, partnering with Amazon and Plantronics, but Kohl’s results continue to be muted, regardless of the multiple self-help initiatives in place. Active, men’s and digital have been strong, but we believe momentum at competitors such as Target is likely to continue to nip at Kohl’s heels.”
He did credit Kohl’s with product differentiation through proprietary brands and favorable off-mall real estate, though the partnership with Amazon “has yet to fully prove that it is providing a meaningful sales lift and ROI.”
“Management has pointed to unfavorable weather and an increasingly competitive environment as drivers of the poor performance, but we believe it has predominantly been a function of the latter, and we expect this to continue,” Konik indicated in his report.
He said Kohl’s women’s business was down 1 percent in the third quarter of 2019. Children’s was also down. The two categories account for 41 percent of the mix.
Jefferies downgraded Gap Inc. to “hold” and reported that divisional results have been mixed, margins have been weak and that management is in flux,” referring to the departure of chief executive officer Art Peck last month.
The research firm questioned whether the spin-off of Old Navy still makes sense given the chain’s recent “underwhelming” results. “We believe GPS needs a new permanent leader to turn the business around, and we expect the transformation to take time…We find it hard to believe investors will give Old Navy a worthwhile multiple on a stand-alone basis, and likely a gross discount to prior expectations, compared to when we conducted a SOTP (sum of the parts) under the premise of better growth and margins.”
Gap division store closings — 230 stores over two years — should enhance profitability and Gap margin rates have been improving, but top-line momentum continues to be underwhelming.
Banana Republic continues to be challenged, while Athleta is growing fast and has a $2 billion sales goal.
JP Morgan analyst Matthew Boss upgraded Nordstrom to a neutral rating after having the department stock slotted at underweight, indicating “transitory top-line headwinds in the rearview mirror and clean inventories.” He also cited efforts to broaden the Millennial customer base via digitally native brand launches and domestic luxury/aspirational lateral consolidation expanding global brand relationships and market share opportunity.”
On Macy’s, JP Morgan and Cleveland Research believe that the retailer’s fourth-quarter sales numbers will be better than expected. The Bloomingdale’s division of Macy’s triggered a wave of cuts on Tuesday, though the parent Macy’s Inc. is seen disclosing a broader restructuring plan on Feb. 5 during an investors’ meeting in New York.
Analysts credit Macy’s with moving to rationalize its store fleet while investing in its best 150 stores and making changes in its assortment.