Kohl's Follows Macy's Into Tailspin as Retailers' Rout Persists

  • Investors jolted by fears that consumers just aren't spending
  • Macy's dour forecast yesterday dragged down rest of industry

Kohl’s Corp. followed department-store rival Macy’s Inc. in posting weak results on Thursday, bringing a second day of suffering to many retail and apparel investors.

Kohl’s posted first-quarter earnings 31 cents a share, excluding some items, well short of the 37 cents estimated by analysts. And its same-store sales -- a closely watched measure -- fell 3.9 percent. Analysts had been looking for a 0.4 percent gain.

“They’re not buying apparel, that’s the simple answer,” Chief Executive Officer Kevin Mansell said on an earnings conference call.

Kohl’s joins Ralph Lauren Corp. and Nordstrom Inc. in reporting quarterly results on Thursday, giving shareholders some vital insights at a time when the state of the consumer economy is unclear.

At Ralph Lauren, earnings topped analysts’ estimates as the company restructures itself under the leadership of new Chief Executive Officer Stefan Larsson, previously of Gap Inc.’s Old Navy chain. Still, comparable sales fell 5 percent excluding currency fluctuations, more than the 3.4 decline analysts had predicted.


Retail Rout

The retail-stock rout started on Wednesday, when Macy’s cut its profit forecast for this year and posted first-quarter revenue that missed analysts’ estimates. The largest U.S. department-store company indicated that slow foot traffic at shopping malls continues to take a toll on sales, and the chain’s remarks signaled that it doesn’t see the slump ending soon. The message that consumers just aren’t spending jarred investors, said Ken Perkins, president of Retail Metrics.

“It’s beginning to feel like a new world,” Perkins said.

Shares of Macy’s plunged 15 percent to $31.38 in New York on Wednesday, their worst single-day decline since October 2008. And it wasn’t alone. Wal-Mart Stores Inc., the largest U.S. retailer, slid 3.5 percent to $66.41. Target Corp. fell 5.5 percent to $75.68, its biggest drop since January 2011.

Suppliers Hammered

Companies that stock retailers with goods also got hit. Nike Inc. tumbled 3.7 percent. VF Corp., owner of the North Face, Lee and Wrangler clothing brands, dropped 6.6 percent. Michael Kors Holdings Ltd., meanwhile, plummeted 12 percent.

Those declines may be vindicated by more dismal results from department stores. Kohl’s reported sales of $3.97 billion last quarter, versus the $4.13 billion projection.

Shares of the Menomonee Falls, Wisconsin-based company tumbled as much as 12 percent to $33.87 in New York, following a 6 percent decline on Wednesday.

Ralph Lauren reported mixed fourth-quarter results. While the company’s $1.87 billion in revenue exceeded analysts’ estimates for $1.86 billion, that was still a 0.7 percent decline from the same time a year earlier.

Shares of the New York-based company bounced between gains and losses on Thursday. They were up 1.5 percent to $85.77 at 11:32 a.m. in New York.

Gap Disappointment

Gap, the largest specialty chain focused on apparel, also reported disappointing results this week. It posted a 7 percent decline in Gap’s same-store sales last month. Analysts had predicted a gain of 1.1 percent, according to RetailMetrics.

Gap’s evaporating sales may force the retailer to rely more heavily on real estate deals and other cost-cutting moves to maintain profit, said Fitch Ratings, which cut its long-term issuer default rating to junk status on Wednesday.

Macy’s now expects full-year earnings of $3.15 to $3.40 a share, down from an earlier projection of $3.80 to $3.90 a share. The Cincinnati-based company also cut its forecast for full-year sales, citing a double-digit drop in tourist spending and a slowdown in sales of some core categories.

‘Low Demand’

Some investors were already bracing for a disappointing performance from retailers. 

“No one is banking on high earnings expectations from apparel makers,” said Anna Rathbun, director of research for CBIZ Inc.’s retirement-plan services unit in Cleveland. “There’s low demand.”

Others are optimistic that overall retail trends started to turn around last month. Economists’ estimates suggest that April’s retail sales bounced back after a sluggish first quarter. The Commerce Department will report the official figures on Friday.

Still, several trends are working against a company like Macy’s, said Richard Jaffe, an analyst at Stifel Financial Corp.

“The consumer is not shopping, the trends aren’t inspiring them to buy, the weather isn’t inspiring them to buy, the international tourist isn’t spending,” he said.

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