After a turbulent time on Wall Street, analysts, economists, and traders alike have been in need of R&R of late. As fears of tightening monetary policy surface, it doesn’t appear investors will be getting a break anytime soon either. Moreover, the thought that the Federal Reserve may be ending its historically loose policies at a time of poor economic performance has caused pain to the consumer-discretionary sector.
In recent weeks, a number of the largest retailers reported their second-quarter results. For the most part, these results came in below analyst estimations thus exasperating the downside moves within the sector. In this article, I would like to review a few of the notable retail reports while providing guidance for the second half of the year.
Big blue
Wal-Mart Stores, Inc. (NYSE:WMT) reported second-quarter earnings per share of $1.25 excluding items, inline with analyst consensus estimates. However, all eyes were on revenue as a barometer for the company’s growth and strength of the economy. The company reported revenue short of the $118.4 billion analysts were expecting. Wal-Mart Stores, Inc. (NYSE:WMT) generated only $116.9 billion; higher fuel prices and a shaky employment picture caused consumer push-back.
Management doesn’t feel overly exuberant when it comes to the remainder of the year either. Wal-Mart Stores, Inc. (NYSE:WMT) decided it needed to lower its guidance to reflect changes in the economy. Wal-Mart Stores, Inc. (NYSE:WMT) now expects net sales to rise only 2% to 3% for the year, down from the initial projection of a 5%-to-6% increase. If fuel prices rise even further, I remain afraid the company’s growth will continue to suffer. On the conference call, management was clear to draw the correlation. Longer-term investors must weigh these concerns considering the company’s rise in valuation this year.
High-end pains
Shares of Nordstrom, Inc. (NYSE:JWN) traded lower after what was a disappointing second quarter. Poor comparable-sales data, far below analyst estimates, caused revenue to slump. Nordstrom, Inc. (NYSE:JWN)’s second quarter comparable sales rose 4.4% on a year-over-year basis, below the 6.8% gain analysts were predicting. Sales at its department stores open for at least one year fell 0.7%, a key indicator as this metric takes into consideration the impact of newly opened and closed locations.
Net income for the fiscal second quarter rose to $184 million, or $0.93, from $156 million, or $0.75 per share in the year-ago period. These results were $0.05 better than anticipated as a result of lower selling and administrative costs, which the company did not identify. While the headline results may look fine, it was the updated guidance which raised concerns.
The company is projecting continued weakness through the rest of the year. It now predicts its annual comparable-store sales to increase by only 2% to 3%. Not great guidance for the growth investors who have chosen this name out of the retail sector.
To sustain long-term growth, the company is now looking to diversify its revenue streams. Nordstrom, Inc. (NYSE:JWN) was able to drive its e-commerce sales 37% higher by increasingly pushing customers online.
Going forward, the company plans to focus its attention on “Nordstrom Rack” to reach a greater number of consumers. The discount version of Nordstrom, Inc. (NYSE:JWN) generated a 2.4% increase in comparable sales during the quarter. I will be watching household wealth trends as this metric should align with the company’s revenue over the next couple of quarters. Should the stock market continue to perform well, higher-end spending should rise.
