Fresh look at how old guard of retail is holding up
Indexes up: Dow 0.26 per cent, S&P 0.41 per cent, Nasdaq 0.42 per cent
Kohl’s Corp and JCPenney Co Inc are expected to be sobering, but could shed some light on whether wrenching turn-around plans launched by some of them, including thousands of layoffs, are starting to bear fruit.
Overall corporate earnings for the first quarter have been strong, with growth for the entire S&P 500 pegged at 14.7 per cent from a year earlier, the best since 2011, according to data.
But the consumer discretionary sector, which includes the department stores, is expected to show just 3.9 per cent growth, albeit that is up from an estimated 1.4 per cent a month ago.
“The consumer for the most part seems OK. Not everywhere,” said Tobias Levkovich, chief US equity strategist at Citigroup. But sales are expected to be middling for the department store chain names.
Analysts caution, however, that traditional retailers may no longer be a true measure of consumer health as people have new ways to spend.
“There will probably be a knee-jerk reaction the wrong way when we hear some of those larger retailers come out and say foot traffic in the mall is terrible,” said Art Hogan, Chief Market Strategist at Wunderlich Securities in New York.
“Hopefully we don’t start assuming that because people aren’t going to Macy’s the consumer is dead.”
Far from it. The government’s main measure of the health of consumer spending, the monthly retail sales report due out on Friday, is expected to show overall retail sales snapped back in April after two straight declines.
Of the big four retail names set to report next week, only Nordstrom is forecast to post an increase in earnings per share, and that by just 2.8 per cent, according to estimates.
Macy’s profit per share is seen sliding 13.5 per cent and Kohl’s is expected to drop 6.4 per cent.
JCPenney, which posted its first quarterly profit in three years in last year’s fourth quarter, is seen sliding back to a loss.
“There’s a lot of headline risk attached to retailers so we’re not a big fan of owning a lot of the brick and mortar mass retailers right now,” said Nathan Thooft, Senior Managing Director, at Manulife Asset Management in Boston.
Indeed, all four of those reporting next week have lagged both their own peer group and the wider market so far this year.
While Nordstrom is at least in the black with a modest 2 per cent gain, Macy’s and Kohl’s have both tumbled about 19 per cent. JCPenney, no longer a member of the S&P 500 retail group, has plunged 34 per cent.
As Manulife’s Thooft puts it: “The valuations are starting to get interesting, but at the same time you can’t dismiss the fact you have the Amazons of the world and the shift of the consumer to be able to purchase more and more items online.”
US STOCKS: Major US stock indexes gained on Friday, with the S&P 500 ending at a record high close, as energy stocks bounced back along with oil prices and US job growth rebounded.
US nonfarm payrolls surged by 211,000 jobs last month after a paltry gain of 79,000 in March, and the unemployment rate dropped to 4.4 per cent, near a 10-year low.
Energy was the best performing sector, rising 1.6 per cent, after falling sharply a day earlier.
Oil prices rebounded following assurances by Saudi Arabia that Russia is ready to join Opec in extending supply cuts.
“There has been and probably will continue to be a little bit of a fear that perhaps the economy isn’t accelerating like people thought it would or want it to...,” said Chuck Carlson, Chief Executive Officer at Horizon Investment Services in Hammond, Indiana.
“So any day where you get a little bit more confirmation that perhaps the economy is OK — and we got that today in the sense of an OK jobs report, oil is up, transports are doing better today — that probably is something that helped the broader market,” Carlson said.
The Dow Jones Industrial Average rose 55.47 points, or 0.26 per cent, to 21,006.94, the S&P 500 gained 9.77 points, or 0.41 per cent, to 2,399.29 and the Nasdaq Composite added 25.42 points, or 0.42 per cent, to 6,100.76.
All three indexes posted gains for a third straight week.