The holiday reckoning is here.
It’s already a given that this winter’s been an extremely tough one on most retailers, but just how bad it really was will start to be made clear as Wal-Mart Stores Inc. and Macy’s Inc. kick off the fourth-quarter earnings season today.
Nine major retailers will unveil their results this week and collectively analysts expect them to post a 12.6 percent drop in adjusted profits on a 1.1 percent gain of sales, according to data from S&P Capital IQ. (The trend is slightly better, but still down excluding the giant Wal-Mart, with the other eight retailers combined showing a 5 percent profit loss on a 0.6 percent increase in fourth-quarter sales).
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In short, retailers were forced to cut prices to move goods, eating into already slim earnings.
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Part of the problem is centered on the consumer, who is simply not buying apparel the way they have in the past, opting for less expensive fast-fashion looks and spending more on experiences.
But retailers are also having to spend more to reinvent their businesses, meeting the challenges of a quick-turn and much more digital marketplace.
The combination is toxic to the bottom line.
Wal-Mart is also running up against the law of large numbers, with sales slated to top $481 billion last year.
“Though Wal-Mart’s 2016 results have generally been in line to better than management had projected and the Jet.com acquisition should help drive e-commerce growth in the fourth quarter, we suspect that the company was not immune to some of the in-store traffic challenges experienced elsewhere within retail,” said Scot Ciccarelli, analyst at RBC Capital Markets. (Wal-Mart acquired e-tailer Jet for $3.3 billion last year and tapped its founder, Marc Lore, to build its online business.)
“Longer-term, Wal-Mart is making some smart strategic changes to improve its competitive positioning; however, it has become increasingly difficult for it to grow,” Ciccarelli said, adding the company “is being forced to continue to accelerate investments to defend existing market share, and many of its newer growth initiatives are margin-dilutive.”
Macy’s has it’s own, although not unique problems, including store closures and sagging results, and will also face questions from Wall Street about rumors that the company is seen as a takeover target.
On Tuesday, one of the industry’s few truly strong players, off-price giant TJX, will update its investors and although profits are expected to be down slightly, sales are slated to rise strongly, with a 5.3 percent gain.
In a sign of the times, TJX is now bigger than Macy’s on the sales line.
Nordstrom Inc., perhaps the strongest department store player now, is still seen as a solid business despite expected profit declines. Certainly, it’s not immune to the ills of the market.
Christian Buss, an analyst at Credit Suisse, said Nordstrom would “continue to grow sales and outperform peers, but believe some caution is in order near-term given highly challenging market conditions over the holiday period.”
J.C. Penney Co. will end the week on Friday with what is supposed to be the strongest bottom-line showing of the bunch, a 57.2 percent gain to $190.2 million despite a 0.6 percent sales decline.
Penney’s misadventure under former ceo Ron Johnson, which saw a dramatic strategy change lead to dramatic sales declines, has given the company a hole to climb out of — a process that maybe others are just beginning.