Tough Days For Retailers
Posted on March 30, 2008 in the Investing, Stocks category
.We can argue whether we are in a recession or an economic slowdown, but what is unarguable is that the economy is slowing and that means that Q1 earnings for a lot of companies are going to be disappointing.
J.C. Penney on Friday became the latest retailer to announce that Q1 earnings and sales will be below expectations? J.C. Penney followed other retailers that have reduced their earnings outlook include Wal-Mart (WMT), TJX Companies (TJX), Kohl’s, (KSS) Nordstrom (JWN) and Limited Brands (LTD).
“Consumer confidence is at a multi-year low,” said Myron Ullman, III, chairman and chief executive of J.C. Penney. “J.C. Penney counts half of American families as its customers, and they are feeling macro-economic pressures from many areas, including higher energy costs, deteriorating employment trends and significant issues in the housing and credit markets.”
But the bottom has not been reached yet. Most retailers still have another month to go before they can close the books on the first quarter, meaning that a further reduction in expectations is likely.
Look how quickly expectations at J.C. Penney turned. Just over a month ago, J.C. Penney predicted first quarter earnings of 75 cents to 80 cents. New guidance issued Friday pegs that amount at 50 cents a share. The earnings free fall is mainly the result of plummeting sales. For March, sales at stores open at least a year are now expected to fall by double-digits, compared with a prediction of a low-single-digit drop back in February.
As of Jan. 1, Thomson Financial had predicted year-over-year first quarter earnings growth of 8% for consumer stocks, which in addition to retailers, also include homebuilders and auto companies. Today, that prediction of growth has been replaced by one of contraction. Thomson now expects the group to report an 8 percent drop. Excluding homebuilders, which account for a large chunk of the swing, earnings are still expected to shrink by 2%.
Thomson Financial is much too optimistic. Expect more consumer stocks to pre-announce poor earnings in the coming weeks and for year-over-year first quarter earnings growth to shrink be more like 5% than 2%.
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