Tuesday, May 24, 2016

Wall Street Is Bracing for a Retail Bloodbath (SHLD, BBY, TIF, COST)

Photo Credit Mike Mozart Flickr
Photo Credit Mike Mozart Flickr

(Kyle Woodley)  Anyone hoping for a slowdown in the retail malaise of the past couple of weeks can’t be encouraged by what’s on deck for the next few days.
Sears, Best Buy and Tiffany’s earnings? Good luck.
Earlier this month, department stores like Macy’s (ticker: M) and Kohl’s Corp. (KSS) were shredded. Then last week, belle-of-the-ball stock Home Depot (HD) couldn’t catch a break, nor could already-beaten-and-battered Target Corp. (TGT). Wal-Mart Stores (WMT) provided the week’s respite, but by and large, retailers have been getting killed.
Is there any chance of a letup with this week’s reports? Let’s take a look.
Sears Holdings Corp. (SHLD). There’s one good thing that can be said about Sears’ stock chart: It’d sure be fun to sled down.
Sears is off more than 30 percent in the past month and roughly 85 percent since 2012. And anyone looking for signs of a turnaround likely won’t come in Sears’ first-quarter earnings report.
That’s because the only iron that SHLD really has in the fire right now is that it’s testing a 10,000-square-foot appliance-only store in Colorado. To its credit, the store boasts a couple of snazzy features such as large interactive displays that let you place appliances in a mock kitchen, as well as five-minute guaranteed in-store pickup.
Otherwise, Sears is just trying to keep shrinking its way to success, with the company announcing last month that it’s closing 68 Kmart stores and 10 Sears stores.
When it reports Thursday before the bell Sears is projected to announce quarterly revenues down 10.6 percent for the quarter, contributing to full-year estimates of $22.25 billion – nearly half of 2013’s figure. The only saving grace of an estimated $3.20 loss per share is that the figure would be better than the year-ago period’s $3.48 loss. But don’t call it a comeback – for the current fiscal year, losses are expected to expand from $8.94 per share to $15.07.
Maybe SHLD stock gets a bump on a beat, but considering that Sears actually has rallied the past couple of days as it approaches earnings … maybe not.
Best Buy Co. (BBY). For as much as we’re told that Amazon.com (AMZN) is killing Best Buy – and yes, this year’s $39 billion in expected revenues is 20 percent lower than 2011 levels – BBY isn’t in the state of perpetual decline that you’d expect. Amid a lot of whipsawing, the stock is actually sitting around prices it saw in 2010 and 2011 – not exactly what the dire narrative would suggest.
You can thank the company’s “Renew Blue” efforts – including improving the company’s e-commerce performance, cutting costs and growing its relationships with vendors – under CEO Hubert Joly, who has slapped down a lot of naysayers.
Joly has also been able to get a handle on managing expectations. BBY has beat Street estimates for 13 straight quarters, and another such performance amid a rotten earnings season for retail could give Best Buy a short-term shot in the arm.
For the record, Best Buy’s earnings, out Tuesday morning, are expected to decline slightly, from 37 cents to 35 cents, on revenues expected to shrink 3 percent to $8.29 billion.
Costco Wholesale Corp. (COST). Costco had long been one of the most dependable, consistently performing stocks in retail for years. However, shares are off roughly 15 percent from December 2015 highs amid a laundry list of bad news.
In early December, Costco reported its slowest membership growth in years – 1.9 percent in fee revenue improvement for the quarter, versus a range of 4.5 percent to 7.7 percent on average during the previous four years. COST shares have been hampered further in 2016 thanks to a significant earnings decline for its fiscal second quarter, as well as a thin 1 percent improvement in comps for March that came in under expectations.
But take heart, Costco bulls. COST stock is expected to see earnings growth this quarter, by 4 percent to $1.22, on revenues expected to improve the same amount. Meanwhile, the company is in the middle of a $3 billion capital expenditure program to increase its number of warehouses by 32, the most it has debuted in more than a decade. That’s causing short-term pain, but it could produce some serious long-term gain.
If you’re looking for anything that could turn the stock around this week, watch those membership figures, as they tend to rock the boat more than just about any other metric.
Tiffany & Co. (TIF). Tiffany’s upcoming earnings report got a lot more interesting recently when Ralph Nicoletti stepped down suddenly as chief financial officer on May 13 – just a couple of weeks before the company’s first-quarter earnings report.
That has analysts preparing for (more) bad news out of the struggling luxury retailer. A Barron’s report says that Wells Fargo analyst Ike Boruchow “told clients that Nicoletti’s departure for Newell Brands (NWL) after only two years bodes poorly for the jewelry and luxury goods retailer.” However, Benzinga points out that Nicoletti’s exit follows short stints at Cigna (CI) and Alberto-Culver, so maybe this is much ado about nothing.
Either way, the road ahead for TIF stock looks rough. Analysts are expecting first-quarter revenues to decline nearly 5 percent to $914.94 million, with earnings dropping 16 percent. This follows a January report in which Tiffany said it would be cutting jobs after a weak holiday performance, and a woeful fourth-quarter report that included a forecast for 15 to 20 percent earnings contraction for the first quarter of this year, followed by 5 to 10 percent declines in the second quarter.
Yes, this is in part because of a strong dollar amid Tiffany’s international-heavy business, but also amid consumers’ general trend away from many established luxury brands, from Coach (COH) to Burberry to Ralph Lauren Corp. (RL), and even newer entry Michael Kors Holdings (KORS).
Given that even higher-end retailers like Nordstrom (JWN) struggled in the first quarter, don’t expect much out of Tiffany when it reports Wednesday morning.
HP (HPQ). We’re now a couple of quarters removed from the split of HP from Hewlett-Packard Enterprise (HPE), we’re starting to get a clearer picture of what life is like for HPQ.
That picture isn’t swell, which is exactly what you’d expect from a business dependent on PC sales and printer interest. The previous quarter saw HPQ’s revenues and earnings both decline 12 percent year-over-year amid a “tough” environment for PC sales, and that sure didn’t change in the first quarter. PC sales declined 13 percent from last year, according to research firm Canalys, reaching figures not seen since the second quarter of 2011. A separate Gartner report on PC shipments saw figures decline 9.6 percent in the first quarter to 64.8 million units.
That makes it difficult to enter Wednesday evening’s earnings release with any amount of positivity. The numbers to beat this quarter: earnings of 38 cents per share on revenues of $11.73 billion.
If you’re looking for some reason to get excited about HPQ stock, look toward its hail Mary offering in 3D printing, with a pair of products for business customers – a market that should be juicier than the as-of-now weak consumer market.

No comments:

Post a Comment