1/9/2014
By David Urani

Retail stocks are leading the market lower, with the XRT retail ETF down 1.2% on the day so far. Today various retailers gave their monthly updates, as is customary, along with a handful of earnings results in the sector. Overall the results have been lackluster, and even among the companies that beat expectations, guidance fell short or was not given. The main culprits are a highly promotional retail environment, and cold weather that also stretched into January.

We already got a concerning update from JC Penney (JCP) yesterday, as they gave out a December update reiterating their Q4 expectations, but omitted any figure for comparable store sales which the Street translated as them hiding something. Prior to this JCP had been looking better, having posted a 10.1% comp increase for November. JCP stock is coming back some today, but hasn’t recovered from yesterday’s dive.

One of the biggest bombs today came from Bed Bath and Beyond (BBBY), who reported Q4 earnings last night that fell $0.03 short on the bottom line. They also lowered their guidance for next quarter, and gross margin took a hit on couponing and mix shift.

Pier One (PIR) is taking a similar nosedive after reporting that December comps were up just 1.3%, blaming the weather on a decline in traffic that continued into January. Consequentially, they significantly lowered their fiscal Q4 EPS estimates, to a range of $0.47-0.52 from their previous expectation of $0.60-0.66.

Family Dollar (FDO) posted disappointing earnings and guidance, indicating a retraction in spending by the lower-income consumer. FDO missed by $0.01 on the bottom line, which included a 2.8% decrease in comparable store sales. The company also gave out FY14 EPS guidance of $3.25-3.55, which was well below the $3.98 consensus estimate.

Fred’s (FRED) posted a 1.4% increase in comps for December, which was below the 1.0% consensus. That came with Q4 guidance of earnings “flat to up modestly,” versus a consensus of +10.5%. As a result they’ve decided to make a number of strategic changes to improve sales and generally improve business. The stock is being saved, however, by their announcement that they are ‘exploring strategic opportunities,’ which means they could be seeking buyers.

Some other results in the teen apparel space include American Apparel (APP) getting crushed on a -6% comp; American Eagle (AEO) up on a -7% comps as the Street was already expecting something terrible; and Urban Outfitters up as its +3% comp was a little shy of expectations but still pretty good considering the circumstances.

Even some of the companies that actually posted a good comp result went on to issue weak guidance:

Signet Jewelers (SIG) was yet another retailer to post a disappointing print. They reported a +5% comp which isn’t bad, but once again guidance was an issue, with their fiscal Q4 EPS estimate being ratcheted down to $2.12-2.16 from their previous expectation of $2.30-2.40. They noted weak traffic trends and a need to cut prices.

L Brands (LB), owner of Victoria’s Secret, reported a +2.0% comp which was above the +1.7% consensus, but they lowered guidance to approximately $1.60 per share for next quarter, down from $1.67 previously and the consensus estimate of $1.81. They note lower margins on promotional activity.

There were a couple of winners on the day, but optimism has to be limited because they were both companies that did not give any guidance:

Costco posted a decent comp of +3% versus expectations for 1.8%. They typically do not give guidance, but perhaps it’s one stock you could give the benefit of the doubt to given its track record.

Stein Mart also posted a good comp of +4.5% against a +3.2% consensus. Management is “delighted,” but as usual did not offer guidance.

David Urani
Wall Street Strategies

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