Wells Fargo walks away from the ICR Conference with the view that the retail sector is close to "uninvestable" in the near term.
The investment firm notes the 2016 holiday season was set up for solid numbers off of favorable weather patterns and easy comparisions to 2015.
The two-week long of guidance cuts across the sector has ended that vision.
Lululemon (NASDAQ:LULU), TJX Companies (NYSE:TJX), Ross Stores (NASDAQ:ROST), Burlington Stores (NYSE:BURL) and Ulta Salon (NASDAQ:ULTA) are singled out as the only names coming out of ICR with some optimism.
Retail execs head down to Florida next week for the closely-watched ICR Conference.
The confab this year arrives at a tumultous time for the sector. A wave of soft holiday period sales reports have set a negative tone amid increasing worries over Trump administration trades policies and border adjustment taxes.
Bloomberg Intelligence analyst Chen Grazutis wants to hear what apparel retailers say about the impact of moving sourcing back to the U.S. On the positive side, some labor wage fear have subsided and inventory levels are better than they were a year ago.
It's unlikely that Q&A at ICR won't delve into Amazon (NASDAQ:AMZN) and the ongoing impact of e-commerce on volume and margins.
Chipotle's (NYSE:CMG) presentation will be one of the bigger events in the restaurant sector, although investors might need their hard hats on with guidance updates/warnings expected from many food chains. Also keep an eye on how restaurant management talks about local sourcing and the shift toward eating local, trends which could bode well for Sysco (NYSE:SYY) and US Foods (NYSE:USFD), tips Bloomberg Intelligence.
A barrage of disappointing sales reports and guidance cuts from retailers is roiling the broad sector.
The department store sector is ground zero for the damage. Kohl's (KSS -18.1%), Macy's (M -14.5%), Nordstrom (JWN -8.9%), Dillard's (DDS -9.3%) and J.C. Penney (JCP -7.3%) are all down sharply.
Chains also bleeding include Cato (CATO -9.6%), Tailored Brands (TLRD -6.3%), L Brands (LB -7.5%), Ascena Retail (ASNA -5.7%), Francesca's (FRAN -6.5%), Stein Mart (SMRT -4.7%), Stage Stores (SSI -5.8%), Urban Outiffters (URBN -4.4%), DSW (DSW -3.8%), Express (EXPR -3.8%), Citi Trends (CTRN -4.3%).
Apparel makers Fossil (FOSL -6.5%), G-III Apparel (GIII -6.6%), Sequential Brands Group (SQBG -5.5%), Vera Bradley (VRA -4.2%) and Coach (COH -2.5%) are also getting punished.
If there's one warning to encapsulate the retail weakness it came from L Brands which cited an alarming drop in merchandise margins. It's hard to believe that Amazon (NASDAQ:AMZN) didn't have something to do with that development. By the way, Amazon is up 2.06% on the day.
L Brands (NYSE:LB) reports sales increased 1% during December to $2.415B.
Comparable sales trailed off 1% during the period vs. +1.5% expected, dragged down by a 4% comp decline at Victoria's Secret.
L Brands now expects Q4 EPS to fall in the low end of its $1.85 to $2.00 range. On a prerecorded call (available at 1-866-639-7583), L Brands management warned of a steep drop in merchandise margin rates and said January comparable sales are trending flat.
Moody's forecasts retail sales will increase 3% to 4% in 2017 and operating income will be up 4% to 5%,
Relating to DG, DLTR, FIVE: "Dollar stores will be among the top-performers in 2017, as cash-strapped consumers look to save money on multiple fronts."
Relating to the home improvment sector (HD, LOW): "Home improvement stores such as Home Depot and Lowe's will benefit from the continuing robust recovery of the housing market, and the subsiding deflationary pressure on supermarkets in 2017 should result in the sub-sector outperforming the broader retail industry."
Relating to mall chains (GPS, FINL, FL, CROX, DECK, LB, ANF, DDS, M, JWN, AEO): "Apparel and footwear sellers, on the other hand, will be squeezed as consumers continue to spend more on healthcare, rent, home-related products, electronics and cars, while weak traffic trends and competitive pressure will continue to impact operating performance of department stores."
Moody's says Wal-Mart (WMT +0.4%) will continue to see bottom-line pressure as wage hikes and investment for future growth squeez its profits.
Retail Metrics: The retail industry specialist expects chain stores to report a 1.1% increase in comparable sales during November. The estimate on October retail comparable sales was revised up to 1.5% from 1.0%. Both marks arrive against a deflation and low traffic headwind in the sector.
NPD Group: The research firm plays meteorologist by warning that the lack of "true" winter weather will hit some apparel and shoe sellers.
FBR Capital: The firm points to a strong month for Bath & Body Works (NYSE:LB).
Piper Jaffray: The retail analyst team is cautiously optimistic that Costco (NASDAQ:COST) is off to a good start.
November has been a stellar month for Target (NYSE:TGT) and Best Buy (NYSE:BBY), up 16% and 18% respectively. Both retailers trade with a ~14 forward PE ratio which has some traders buzzing that's still room left to run.
Amazon dominated a lot of the Black Friday and Cyber Monday talk, but it was Wayfair (W +4.6%) that may have posted the most impressive online sales growth vs. expectations. Shares of Wayfair are still 28% below their 52-week high, although valuation isn't for the feint of heart.
At home on Seeking Alpha, there's been some good discusssion on the impact of the reduction of SNAP benefits (nutrition assistance) in the U.S. on the retail sector. Tomorrow's earnings report from Dollar General (NYSE:DG) and the firm's conference call Q&A could shine a light on that wildcard.
KeyBanc calls Amazon (AMZN -0.1%) and Wal-Mart (WMT +0.7%) early winners of the Black Friday shopping period based on channel checks.
The investment firm confirms other reports that mall traffic is light. Within the mall sector, Lululemon (LULU +0.2%), Victoria's Secret (NYSE:LB) and Gaps (GPS -1.4%) are called outperformers - while concerns are raised over Buckle (BKE +0.6%) and Vera Bradley (VRA +0.8%).
Cowen also sees Wal-Mart as a winner. Pink (LB) and American Eagle Outfitters (AEO +0.2%) are also doing wel, according to analyst Olivia Chen.
MKM Partners has an eye on margins. The combination of "virtually all" retailers offering broad discounts on store assortment and a low level of inventory heading into the shopping period is striking.
FBR Capital reiterates the broad theme that online sales are diluting Black Friday store traffic. Despite the overhang - Carter's (CRI +0.2%), Hanesbrands (HBI -0.3%), Chico's (CHS +0.7%) and Children's Place (PLCE +1.3%) are called out by FBR as standouts.