Last quarter we saw retailers on both the higher and lower end outperforming market expectations and overcoming the obstacles presented by weak consumer sentiment. Same-store sales were higher at everywhere from Saks (SKS), which added nine percent to Costco (COST). The most recent crop of earnings being released is more bearish than the previous period. Earnings at retailers at all ends are coming in strong but expectations for the future are declining quickly.
The well known luxury prep brand Ralph Lauren (RL) has seen shares rocket upwards of 30 percent this year as the retailer has consistently performed above expectations. The clothing maker does not expect the strength of those gains to extend through the final stretch of the year; however, according to today’s earnings report. Earnings once against exceeded expectations at $2.46 per share, 22 cents beyond expectations, but things are expected to slow down, even in light of the holiday season. Analysts had predicted growth of 14 percent but the company has now adjusted revenue projections into the low teens.
Macy’s (M) followed a similar trajectory, surpassing analyst expectations while adjusting guidance lower. Shares fell 5.2 percent in the aftermath.
Macy’s posted earnings per share of 32 cents, twice what was expected of them by Wall Street, but it also lowered fourth quarter guidance. Macy’s says it now expects EPS between $1.52 and $1.57, beneath consensus estimates of $1.66.
Ralph Lauren and Macy’s, which also owns Bloomingdale’s , both represent the category of high end retailers that have been thriving in recent trading and throughout 2011. The fact that their earnings guidance anticipated 4Q weakness should perhaps signal some larger concern regarding other companies of their ilk which are scheduled to announce earnings in the coming weeks.
October sales were weaker than many anticipated across the board and analysts are saying the declines represent consumer uncertainty that could eat away at the strength of stocks of major retailers.
In a recent Wall Street Journal article, Barbara Kahn, director of the Baker Retailing Center at the University of Pennsylvania’s Wharton School said, “People are still dealing with high unemployment and a soft housing market, and now there is also instability in the European economies,” which has impacted U.S. financial markets.
These factors have been at play all along, but the October sales are the first tangible evidence that overarching economic factors are beginning to spook consumers. Weak fourth quarter guidance and performance and negative attitudes toward equities could take a major chunk out of margins for retail investors.