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Retail Roller Coaster

Second quarter earnings season is just about complete as 95% of the S&P 500 has reported results. Currently, earnings per share stand at $29.76, representing a 0.07% increase in growth year-over-year. That compares to the 4.4% decline expected at the start of earnings season on July 13th. 

The retailers have been the focus over the last few weeks as they bring in the rear of earnings season. Similar to what we saw when the technology sector reported mid-season, the retailers are providing quite the roller coaster ride.

  • Early announcements from Coach, Ralph Lauren and Michael Kors kicked things off with a positive tone two weeks ago, but the earnings party didn’t last long. Department store retailers, Macy’s and Kohl’s were up next and not only did they miss quarterly expectations, they also lowered guidance.  
  • Same store sales, the holy grail of retail financial metrics, missed the mark for both these mid-tier retailers as consumers didn’t feel compelled by their merchandise assortments. On the other hand, Nordstrom, Dillard’s and Target, who cater to the higher-end consumer said they actually saw strength in apparel. Unique and new merchandise combined with catering to a wealthy customer seems to be what’s winning.
  • Walmart was the largest disappointment as the discount giant cut full year guidance by a substantial amount as they invest in improving their customer experience. The increase in what is a long-term investment in the business weighed heavily on the stock this week.
  • Momentum picked back up as the home improvement and houseware retailers Home Depot, Lowe’s and TJX Company beat estimates, benefitting from strength in the housing market and trend for consumers to remodel their homes. Here too, higher ticket items were key drivers of sales growth.
  • We will look forward to reports from Dollar Tree and Dollar General for insights into the health of the low-income consumer, especially as these consumers benefit more from lower gasoline prices.

For more detail into these observations as well as an update on our broader view of the market, please read our full Lookout Report here.  

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