After several months of a seemingly unstoppable performance from US retailers, things have gotten a lot softer for the sector recently. A number of very large companies have reported disappointing results, sending these stocks down double-digit percentages in some cases. One of the culprits was the cold spring weather which kept shoppers away. However, the performance from the sector recently is somewhat worrying.
Sears Holdings Corporation (NASDAQ:SHLD)
Sears Holdings Corporation (NASDAQ:SHLD) reported a larger than expected loss last week, sending the stock tumbling over 13.5%. Excluding items, first quarter results came in at an adjusted loss per share of $1.29, down from a $0.51 loss in the prior period. Analysts had expected a loss of $0.60 per share. Revenue dropped 9% to $8.45 billion, which came in ahead of the consensus.
According to management, the results are not only due to macro factors, and are in fact unacceptable. Despite aggressive cost-cutting efforts, analysts believe the company has not invested in its stores enough to remain competitive with other large US retailers, and may end up having to cannibalize itself to restore profitability. However, even other retail giants have reported disappointing results.
Target Corporation (NYSE:TGT)
Target also came out with disappointing numbers last week. first quarter EPS came in at $0.77, down from $1.04 in the year-earlier period and below the $0.84 consensus estimate as polled by Bloomberg. Sales were up 1%, but still missed estimates.
Like Sears Holdings Corporation (NASDAQ:SHLD), Target Corporation (NYSE:TGT) suffered from cool weather, which was a drag on apparel and sporting goods, as well as reduced consumer spending on the back of a payroll tax hike. The retailer has been struggling with traffic, with comp store sales down 0.6%. Additionally, the company lowered its full-year outlook, indicating continued pressure on sales and ultimately on profits.
J.C. Penney Company, Inc. (NYSE:JCP)
Poor old J.C. Penney just can’t get a break, missing quarterly estimates for the fifth quarter straight. The company, back under old leadership, has embarked on a large-scale turnaround, but so far there are no signs of improvement. Sales plunged a dramatic 16.4% and comp store sales were down 16.6%.
Some of the other metrics are also startling. The company saw a 6% decline in traffic, with gross profit dropping 31.5% and gross margin down 680 basis points. The company recently secured an increased line of credit, which may prove to be something of a life-line for the struggling retailer, but this money will have to be put to exceedingly good use in order to show tangible signs of a turnaround.
Valuations and Metrics
The price action in recent weeks has had consequences for these companies’ valuations, so it may be useful to give a quick rundown of what they are trading at currently. Worryingly, the only company mentioned here that is currently trading a positive P/E ratio is Target Corporation (NYSE:TGT), which currently trades at 15.42 times trailing earnings. As such, it may be more useful to take a look at price to sales. Sears Holdings Corporation (NASDAQ:SHLD) currently has the lowest multiple, at 0.16, followed by J.C. Penney Company, Inc. (NYSE:JCP)’s 0.34 and Target’s 0.60. Since Target Corporation (NYSE:TGT) is the only one of these actually making money at the moment, it might be the best bet for cautious investors.
The Bottom Line
After months of strong performance from some US retailers, and some fairly encouraging macro numbers, things seem to have taken a turn for the worse recently. A number of large US retailers have announced disappointing results, in part due to the poor spring weather and the recent payroll tax hike. While US retail is certainly not out yet, one may be cautioned by this string of lower than expected earnings.
Daniel James has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Daniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Poor Season for US Retail originally appeared on Fool.com and is written by Daniel James.
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