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James Li
James Li
Articles (274)  | Author's Website |

Brick-and-Mortar Retail Stock Prices Down on Declining Comparable Sales

Comparative analysis on revenue and earnings for 5 major retailers

August 11, 2017 | About:

In light of the summer shopping season, retail-trade companies can expect high consumer traffic. Despite this five of the top brick-and-mortar companies reported weak second-quarter earnings, driving stock prices down.

JCPenney Co. Inc. (NYSE:JCP)

On Aug. 11, JCPenney said second-quarter comparable sales declined 1.3% year over year despite total net sales increasing 1.5% year over year. According to CEO Marvin Ellison, the company “liquidated inventory in 127 of [JCPenney’s] closing stores,” which negatively impacted earnings and gross margins. JCPenney reported a net loss of $62 million, approximately $6 million worse than the net loss in the prior-year quarter.

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JCPenney increased its full-year cost of goods sold guidance, which can lead to further declines in operating income. The company’s share price dropped below $4, representing a 16.37% nosedive from its previous close of $5.20.

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Dillard’s Inc. (NYSE:DDS)

Dillard’s stock price tumbled 16.06% Aug. 10 as the company reported a net loss of $17.1 million for the quarter ending June 30.

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Merchandise sales contracted 3% year over year while comparable store sales contracted 2% year over year during the first six months. CEO William Dillard said “significant markdowns led to a disappointing loss as we dealt with inventory, which was up 2% at (second) quarter end.” Dillard’s days inventory of 145.53 is near a 10-year high and underperforms 73% of global competitors. The company also had higher selling, general and administrative expenses during the quarter compared to the prior-year quarter.

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Macy’s Inc. (NYSE:M)

Macy’s stock took a 10.42% setback Aug. 10 as the company missed second-quarter earnings expectations by approximately 7 cents per share.

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Total sales during the first six months declined 6.4% year over year while comparable sales on an owned basis were down 4%, reflecting the “closure of stores previously announced” by Macy’s. Although CEO Jeff Gennette listed incentives to “stabilizing the brick-and-mortar business,” the company reiterated its previous full-year comparative sales guidance, a decline of 2.2% to 3.3% on an owned basis.

Kohl’s Corp. (NYSE:KSS) and Nordstrom Inc. (NYSE:JWN)

Kohl’s took a 6.14% price drop Aug. 10 as the company reported a 0.9% year-over-year decrease in total revenues and a 0.06% year-over-year decrease in gross margin. Nordstrom also traded lower despite increasing comparable sales 1.7% year over year.

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Although the company reported increasing sales, Nordstrom’s second-quarter earnings still declined approximately $7 million from the prior-year quarter’s earnings. Despite this, the Seattle specialty retailer boosted its full-year net sales guidance: total net sales are expected to grow approximately 4%, the high end of the company’s prior guidance.

Kohl’s and Nordstrom have a GuruFocus business predictability rank of 3.5 stars, which indicates consistent revenue growth.

Conclusions

Although Kohl’s and Nordstrom has higher growth potential than the other companies, brick-and-mortar retail companies generally have low growth potential for the rest of the year. The number of employees in clothing and clothing accessories stores declined during the past 10 years.

Higher average hourly earnings of retail trade employers usually suggest increasing revenue. Unfortunately for JCPenney, sales per share declined even though the average hourly earnings increased during the past 10 years. We observe this in Sears Holdings Corp. (NASDAQ:SHLD) as well, especially since 2013:

Sears has a profitability rank of 1, which suggests nearly no growth potential in the short term. Such companies are potential value traps.

See also

GuruFocus added several new features to Interactive Charts, including industry-specific economic indicators. You can also set a user-defined default chart and change the price chart type (please refer to the respective “new feature announcement” articles).

Disclosure: The author has no positions in the stocks mentioned.

About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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