Department stores struggled in the first quarter while discount chains fared much better, as a whole, in terms of earnings, revenue and stock performance, based on earnings reports released in the last two weeks.
Macy’s Inc. was one of the few bright spots for a retail segment that is dealing with a host of issues. And while each department store had its own problems in Q1, many are now fearful of how the new tariff increase will affect their second, third and fourth quarters.
“There is a minimal impact on our business resulting from the three tariff tranches that went into effect last year including the recent increase on the third tariff tranche that went into effect on May 10th which increased tariffs from 10 percent to 25 percent,” J.C. Penney Co. CEO Jill Soltau said on the company’s recent earnings call. “However, in looking ahead, we do anticipate a more meaningful impact on both our private and national brands if the potential fourth tranche of tariffs does go into effect on all Chinese imports.”
Read much more about the impact of tariffs on department stores and other public companies here.
Here is SGB’s roundup of how department and discount stores fared in the first quarter of 2019:
Macy’s Q1 Tops Wall Street’s Targets
The 411 – Macy’s Inc. reported earnings declined in the first quarter but easily topped Wall Street’s consensus estimates. Same-store sales inched up 0.6 percent on an owned basis, 0.7 percent on an owned plus licensed basis. EPS and adjusted EPS of 44 cents per share beat Wall Street’s consensus target had been 33 cents.
Reaction – “Macy’s Inc. is off to a solid start this year, delivering our sixth consecutive quarter of comparable sales growth … . As an omnichannel retailer, we are focused on growing our customer base by providing a great experience across all channels and taking market share category by category. Our brick-and-mortar sales trend improved sequentially in the first quarter … . We had another quarter of double-digit growth in our digital business, and mobile continues to be our fastest-growing channel. We are pleased with the progress we are making on our strategic initiatives as they continue to drive top-line growth, keeping us on track to reach our 2019 goals. We believe these initiatives, coupled with productivity improvements, position our company well for long-term profit growth.”
–Jeff Gennette, Chairman & CEO, Macy’s Inc.
What’s next? – The department store giant confirmed its guidance for the year of comp sales flat to up 1 percent and diluted EPS (excluding settlement charges, impairment and other costs) between $3.05 and $3.25.
The 411 – J.C. Penney Co. widened its loss in the first quarter to $154 million, or 48 cents per share, from a loss of $78 million, or 25 cents, last year. The adjusted loss was 46 cents per share wider than the 39-cent loss forecast by FactSet. Comparable sales decreased 5.5 percent for the first quarter. The exit of the major appliance and in-store furniture categories in the first quarter had a combined negative impact of 20 basis points to comparable sales. Transition continues to be top of mind for J.C. Penney, which has been adding new executives to the C-suite and trying to execute a host of new growth strategies.
Reaction – “I am pleased with the strides we’ve made in setting key objectives, building our senior leadership team, executing significant changes in our assortment, such as eliminating major appliances, and mobilizing the entire organization around our priorities. We have made good progress on each of our immediate action steps highlighted last quarter, including our continued efforts to reduce and enhance our inventory position, which resulted in a 16 percent reduction in our inventory and a meaningful improvement in our free cash flow this quarter.”
–Jill Soltau, CEO, J.C. Penney CO.
What’s next? – Soltau touched on the retailer’s need to focus on the customer experience moving forward. “We are working to reestablish the fundamentals of retail at JCPenney, and at the same time, we are building capabilities to satisfy the wants and expectations of our customers,” she said. “In everything we do, we are putting the customer at the center. My commitment is that we will make sound, strategic decisions backed by data and will always be rooted in delivering on our customers’ wants and expectations.” Look for the company to lay out a long-term growth strategy in the coming months.
Dillard’s Reports Slight Revenue, EPS Bump In Q1
The 411 – Dillard’s Inc. reported net income for the first quarter of $78.6 million, or $2.99 per share, compared to net income of $80.5 million, or $2.89 per share, for the prior-year first quarter. Included in net income for the period was a pretax gain of $7.4 million ($5.8 million after tax or 22 cents per share) related to the sale of two stores. Net sales were $1.465 billion, up slightly from a year ago. Net sales includes the operations of the company’s construction business, CDI Contractors LLC.
Reaction – At the retailer’s annual meeting in Little Rock, AR, a couple of weeks ago, CEO William Dillard II was quoted in Arkansas Business as discussing the struggle that malls across the U.S. are having. That, of course, has impacted businesses like Dillard’s. “Amazon gets thrown out as part of the reason,” he said. “Whatever the reason is, all malls in general, and retailers that operate mainly in malls, all of us are having difficult times.”
What’s next? – Dillard’s didn’t issue guidance in its quarterly report.
Nordstrom Trims Full-Year Forecast On Weak First-Quarter Start
The 411 – Nordstrom Inc. reported first-quarter earnings fell well short of Wall Street’s targets as execution issues associated with the launch of its enhanced loyalty program was partly to blame for a sales shortfall. Earnings fell 57.5 percent to $37 million, or 23 cents, well shy of Wall Street’s consensus estimate of 43 cents. Total company net sales decreased 3.5 percent for the first quarter. The company’s top-line results were impacted by three areas—loyalty, digital marketing and merchandise—which contributed to declines across its full-price and off-price businesses in both stores and online.
Reaction – “While we expected softer trends from the fourth quarter to continue into the first quarter, we experienced a further deceleration. We had executional misses with our customers, and we’re committed to better serving them. This is well within our control to turn around. The strength of our inventory and expense execution helped mitigate a meaningful portion of our sales miss. We ended the quarter with inventories in solid shape, and our financial position remains strong. We’re actively taking steps to drive our top-line, and we’re focused on delivering on our financial goals.”
–Erik Nordstrom, Co-President, Nordstrom Inc.
What’s next? – Nordstrom remains focused on three strategic objectives in driving shareholder returns: gaining market share, improving profitability and returns, and maintaining disciplined capital allocation. The company revised its annual outlook to reflect current trends. It now projects a net sales range of down 2 percent to flat (revised from a 1 percent to 2 percent increase), and EPS of $3.25 to $3.65, down from the previous guidance of $3.65 to $3.90.
Kohl’s Cuts Outlook After Quarterly Miss
The 411 – In the quarter ended May 4, Kohl’s reported net income declined 17 percent to $62 million, or 38 cents a share. On an adjusted basis, earnings were down 8 percent to $98 million, or 61 cents, missing Wall Street’s consensus estimate of 68 cents. Revenues were down 2.9 percent to $4.09 billion, ahead of analysts’ forecasts of $3.97 billion. Comparable store sales were down 3.4 percent while analysts projected a drop of 0.1 percent. Read more about Kohl’s Q1 earnings here.
Reaction – “The year has started off slower than we’d like, with our first quarter sales coming in below our expectation. We are actively addressing the opportunities that impacted our first quarter sales and we have strong initiatives that will enhance our sales performance in the second half. We are incredibly excited about our nationwide rollout of the Amazon returns program as well as several important brand launches and program expansions. Operationally, the team reacted appropriately throughout the quarter by managing expenses in line with our expectations. While we are planning the year more conservatively, we continue to invest in our business and operate with a view on our long-term success.”
– Michelle Gass, CEO, Kohl’s
What’s next? – Kohl’s reduced its annual outlook after reporting first-quarter results came in below analysts’ estimates. The company now expects adjusted annual earnings per diluted share to be $5.15 to $5.45, compared to its prior guidance of $5.80 to $6.15.
TJX’s Q1 Exceeds Plan, Outlook Lifted
The 411 – The TJX Cos. Inc. reported net sales for the first quarter of fiscal 2020 increased 7 percent to $9.3 billion, exceeding Wall Street’s consensus estimate of $9.22 billion. Consolidated comparable store sales increased 5 percent over last year’s 3 percent increase. Net income for the first quarter was $700 million, and diluted earnings per share were 57 cents, versus the prior year’s 56 cents and ahead of Wall Street’s average target of 55 cents.
Reaction – “We are very pleased with our continued strong performance in the first quarter, as both our consolidated comparable store sales increase of 5 percent and earnings per share of 57 cents came in well above our expectations. It is terrific to see the continued strength of our largest division, Marmaxx, with an outstanding 6 percent comp increase. Further, Marmaxx’s apparel and home categories were both very strong. Once again this quarter, customer traffic was the primary driver of our consolidated comp increase and was up at each of our four major divisions. We believe this is a great indicator of the enduring appeal of our great values on an eclectic and exciting mix of merchandise and our treasure-hunt shopping experience, as well as the resiliency of our off-price retail model.”
–Ernie Herrman, President & CEO, The TJX Cos Inc.
What’s next? – For fiscal year 2020, the company raised its guidance for diluted earnings per share to be in the range of $2.56 to $2.61. This would represent a 5 percent to 7 percent increase over the prior year’s $2.43, which included a 2 cent negative impact from a pension settlement charge. TJX now expects diluted earnings per share to increase 4 percent to 7 percent over the prior year’s adjusted $2.45, which excluded the pension settlement charge.
Photo courtesy Macy’s Inc.