Retailer rout erases Us$500 bil, stirs worry

Concerns abound over the volatility of consumer sector

“The implications for retailers that have yet to report are not promising.” John Zolidis

NEW YORK: The wild swings in consumer stocks last week that erased about Us$500bil (RM2.19 trillion) in market value are far from over with earnings reports from well-known retailers, including Dollar General Corp, Macy’s Inc and Costco Wholesale Corp, still to come.

Volatility in consumer stocks reached levels not seen since the early days of the pandemic-driven rout as retailers from Walmart Inc to Target Corp cut their annual profit forecasts and stoked concern over the impact of rising inflation and the challenge to pass on higher costs to consumers.

Walmart and Target each posted their biggest one-day declines since 1987 after their results, with selloffs of 19% and 29%, respectively, last week.

Given Walmart’s drop, Procter & Gamble Co has overtaken the retailer as the biggest company in the S&P 500 Consumer Staples Index by market value.

Ross Stores Inc was the latest to trim its forecasts for comparable sales and profit, fuelling its biggest decline on record in data going back to 1985.

“The implications for retailers that have yet to report are not promising,” said John Zolidis, president of Quo Vadis Capital, after Walmart and Target’s bleak updates.

Several brokerage firms, including Truist

Securities and Oppenheimer, have trimmed profit expectations for retailers that have yet to release quarterly results, including Dollar General and Costco.

Gap Inc, which will report earnings after markets close on May 26, forewarned investors last month, slashing its quarterly sales outlook on “macroeconomic dynamics” and execution challenges at its Old Navy brand.

Macy’s Inc will report first-quarter results ahead of the bell on May 26.

The stock is down 31% this year, after more than doubling in 2021 with the company benefiting from pent-up demand as consumer mobility resumed.

Shares are likely to be volatile after earnings, with an implied one-day move of 14%, according to data compiled by Bloomberg.

Dollar General Corp also reports earnings on May 26.

Its stock is expected to move more than 8% in either direction after it releases results, data compiled by Bloomberg showed.

That’s bigger than the moves seen after the past eight quarterly reports were issued. Dollar General has declined 20% this year.

All eyes are one Costco Wholesale Corp after peer BJ’S Wholesale Club Holdings Inc bucked the trend last week and reported earnings and sales that grew in the quarter.

As one of a few retailers that still reports monthly sales, the company’s April net sales increased 13.9% year-over-year after climbing 18.7% in March.

Costco, which is due to report after the bell on May 26, has slumped 27% this year.

That’s a big drop for a chain which has been a very steady stock, usually moving upward while also paying a dividend.

Costco has fallen victim to broad concerns about retail in general, analysts said.