US Retailers Caught In Trade War Crosshairs

By Glenn Dyer | More Articles by Glenn Dyer

US department store retailing is having another attack of the vapours as weak quarterly results force investors once again to mark down the sector.

The weak first quarter reports all showed the impact of the first round of tariff rises on US imports from China, with worse to come from the latest round.

Furniture, clothing, general merchandise and specialists goods like home handyman products all face cost rises which the chains (and others like Target and Kmart) will all be forced to pass on to customers to varying degrees.

The higher tariffs won’t discriminate – Amazon, for example, will also be hit and analysts say the biggest unknown this year for the troubled sector is the amount is how much of the higher tariffs the chains are forced to carry themselves because of the weak retailing environment.

That amount will impact margins as the year goes on and the chains will be under growing pressure from investors to recover as much as possible.

On Tuesday major chains, Kohls, Nordstrom, J. C. Penny, and Anne Taylor all surprised on the downside, leading to big falls in price in regular and after-hours trading.

Kohl’s shares dropped 12.3%, the largest fall in the S&P 500 after the retailer cut its full-year profit forecast and reported quarterly same-store sales and profit that missed expectations.

Shares of rival J.C. Penney fell 7.0% after the company also reported a bigger-than-expected fall in quarterly same-store sales.

Nordstrom Inc. shares plunged more than 9% in the after-hours session Tuesday after the retailer reported first-quarter sales below forecasts, admitted to problems with its customers and trimmed its outlook for the year.

Damaging for Nordstrom (an upmarket department store chain like David Jones here) was a weak revenue forecast. The company now projects that its current fiscal year revenue will fall 2%, compared with a previously stated estimate that revenue would rise 3.3%.

That was after Ann Taylor parent Ascena Retail Group said it would close its Dressbarn operations and its 650 stores. The costs of the move were not revealed.

Urban Outfitters shares rose in regular trading but then fell as investors analysed what was a poor quarterly result.

The company reported first-quarter net income of $US32.6 million, compared with $US41.3 million, in the year-ago period. Revenue edged up 1% to $US864.4 million from $US855.7 million a year earlier.

Last week the biggest department store chain, Macy’s released weak first-quarter figures.

Macy’s is always the first US department chain to report its quarterly earnings and analysts described the figures as disappointing as the chain revealed weak sales and earnings. Sales dropped 0.7% from $US5.541 billion a year ago to $US5.504 billion, mostly due to the closure of hundreds of stores in the past three years.

More worrying was the weak forecast for the rest of the year 1% on a comparable store basis (the most watched sales metric) after a 0.7% drop in the first three months.

To achieve that low 1% gain over the full year, comparable store sales growth will have to rebound strongly in coming quarters and US analysts just don’t see that happening.

Retail industry leader, Walmart (not a true department store chain) last week surprised with a better than expected performance.

While revenue of $US123.93 billion was lower than the market forecast $US125.03 billion currency changes explained the fall. But they were up slightly from $US122.69 billion a year earlier.

More important was the small beat on same store (comparable) US sales growth of 3.4% against the forecast 3.3%.

A big factor is its online business. Walmart said E-commerce sales grew 37%, boosted by it’s home and fashion businesses. That was better than online sales growth of 33% a year earlier.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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