November 12, 2014

Retailers Warn Of Slow Q3 Sales

by Jharonne Martis.

As retailers wrap up the numbers for Q3, ending Oct. 31, many store chains are warning investors not to expect great results. Same Store Sales (SSS) are expected to gain 1.3%, compared to a 1.9% increase in Q3 2013. The outlook for Q4 currently is better at a 1.8% rise, compared to a very weak 0.7% gain a year ago. Let’s go shopping.

To date, we have received negative guidance for Q3 from 38 retailers and only six positive. In addition, retailers that already reported Q3 results are warning us about Q4 — to date we have received 17 negative guidance and only four positive.

As a result, analysts have been lowering projections. Some of the big names scheduled to report during the week of Nov. 10 are Macy’s, Walmart, Kohl’s, Nordstrom and JC Penney.

EXHIBIT 1. THOMSON REUTERS SAME STORE SALES INDEX 2014 EST. VS. 2013 ACTUAL

Warn

Source: Thomson Reuters I/B/E/S estimates.

Check these retail signposts

As we await the release of key earnings we will be watching for these important signs:

• Guidance for the Q4 holiday season
• Inventory levels going into the fourth quarter.
• An improvement in mall traffic from Q3. Warm weather extending throughout Q3 cooled down demand for fall merchandise in the malls. We want to see if it’s all been recuperated.
• Signs that consumers are still buying big ticket items for the home.
• Social media initiatives. More retails are incorporating Apple Pay. Also, more consumers are carrying smartphones, as instant gratification is key.
Of the big names reporting earnings this week – we are watching these closely:
• Macy’s posted Q3 earnings of 61 cents per share, beating its estimate by 11 cents. However, similar to other retailers, it cut its full-year forecast. Chief Executive Terry J. Lundgren said that in Q3 they were up against difficult year-over-year comparisons, but that he remains optimistic going into the holiday season. Analysts also believe Macy’s omni channel strategy will continue to pay off.
• Walmart – will give us some insight on the state of the low-end consumer.
• Kohl’s is a favorite for back-to-school shopping – we’re looking to see if it expects the same pattern for the holiday season.

EXHIBIT 2. Q3 2014 BEST REPORTED SAME STORE SALES

Warn 1

Source: Thomson Reuters I/B/E/S estimates.

Kitchens and living rooms

One important trend is continued strength in the home furnishings sector, suggesting that consumers are interested in improving the stay-at-home experience. Looking at retailers that have already reported, two of the five are in home furnishings. Pier 1 Imports reported a 4.5% SSS gain, followed by Ethan Allen at 4.2%. Still, both missed their estimates.

EXHIBIT 3. Q3 2014 STRONGEST SAME STORE SALES ESTIMATES

Warn 2

Source: Thomson Reuters I/B/E/S estimates.

Strength in the group

Along this trend, Williams-Sonoma and Home Depot are among the retailers expected to turn in the strongest same-store sales gains in Q3, as seen in the chart above.

EXHIBIT 3. Q3 2014 WEAKEST SAME STORE SALES ESTIMATES

Warn 3

Source: Thomson Reuters I/B/E/S estimates.

Handbags and teenwear

Which retailers are having the most difficulty?

Coach is struggling, with the weakest SSS estimate in our retail universe at -25.2%. The retailer continues to experience difficulty in China. But above all, it is still trying to incorporate its new logo and the look and feel of its stores.

Teens are fickle and the usual suspects — Wet Seal, Aeropostale, Abercrombie & Fitch — all continue to struggle as teens flock to fast-fashion retailers.

 
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