US old-guard retail in the cross hairs
13% growth registered by the S&P 500 retail index so far this year
Aglance at the US stock market’s main measure for the health of retailers suggests all is well among those companies in the business of peddling stuff directly to consumers.
After all, the $1.16 trillion S&P 500 retail index has climbed nearly 13 per cent this year to a record high, roughly double the seven per cent gain by the full S&P 500.
That stalwart performance, however, has been delivered almost entirely by a clutch of new ‘retailers’ that now account for more than half of the value of the index: Amazon. com, Netflix and Priceline Group. Moreover, it masks a broad slump in shares of traditional retailers having their lunch eaten by disrupters like Amazon in particular.
In fact, when the retail index’s big three gainers are excluded, the group’s aggregate value has gained a lackluster 1.3 per cent this year and is some eight per cent shy of its high-water mark two years ago.
This week brings a fresh look at how that old guard of retail is holding up and whether a turn-around in their flagging share performance might be in the offing.
First-quarter earnings reports from Macy’s, Nordstrom, Kohl’s Corp and JCPenney Co 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 Thomson Reuters 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 kneejerk 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 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 this week, only Nordstrom is forecast to post an increase in earnings per share, and that by just 2.8 per cent, according to estimates from Thomson Reuters I/B/E/S.
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 headline risk attached to retailers, so we’re not a big fan of owning a lot of the brick-and-mortar mass retailers,” said Nathan Thooft, senior managing director, at Manulife Asset Management.