The outside of a Macy's store is shown in Dallas, Texas, in this Feb. 20, 2011 file photo. Shares of Macy's Inc. plunged more than 10 percent at the opening bell Wednesday, Nov. 11, 2015.LM Otero/The Associated Press
Major U.S. retailers will be in the earnings spotlight this week and, based on early indications, the results could paint a bleak picture heading into the crucial holiday shopping season.
Department store chain Macy's Inc., its stock already down sharply this year, underscored the gloomy mood when it reported lower third-quarter revenue last week, citing the impact of unseasonably warm weather on sales of boots, coats and sweaters.
With Macy's poised to slash prices to clear out excess inventory, the spectre of a holiday filled with margin-destroying discounts is hovering over the retail industry less than two weeks before the traditional Black Friday kickoff on Nov. 27.
"Jittery investors are anxiously awaiting third-quarter earnings and revenue numbers as well as guidance on the key fourth-quarter holiday selling period," research firm Retail Metrics wrote in a note to clients.
On Tuesday, all eyes will be on Wal-Mart Stores Inc., as the giant discounter reports results for the three months ended Oct. 31.
Analysts expect Wal-Mart to report earnings of 98 cents (U.S.) a share, on average, down from $1.15 a year earlier. Revenue is seen slipping 1 per cent to $117.8-billion.
Wal-Mart's shares have taken a beating as the company faces growing competition from dollar stores and supermarkets, which have cut prices in a bid to to win back market share, and from online retailers such as Amazon.com.
The strong U.S. dollar is also weighing on results from Wal-Mart's international operations.
Adding to those challenges, Wal-Mart's plan to invest heavily in lower prices, revamped stores, higher wages and improved e-commerce is expected to lead to a drop of 6 to 12 per cent in earnings next year.
When Wal-Mart announced its plan in mid-October, the stock plunged 10 per cent – its steepest one-day decline in more than two decades.
Analysts are skeptical that the huge retailer can turn itself around any time soon.
"We believe the convenient nature of dollar-store chains and grocery stores make it much easier to shop than going into a Wal-Mart Supercenter," Edward Jones analyst Brian Yarbrough, who rates Wal-Mart a "hold," said in a note to clients.
"Over all, we believe the recent market-share losses will continue because we don't see anything in the foreseeable future that will change the current trends."
On Wednesday, home improvement retailer Home Depot Inc. is scheduled to release third-quarter results that are expected to buck the general industry trend. Analysts expect earnings per share to rise to $1.32 from $1.15 a year ago, helped by a 6.1-per-cent rise in sales.
Also on Wednesday, Target Corp. and Lowe's Cos. Inc. are scheduled to report. In Canada, Wednesday's earnings lineup includes grocers Loblaw Cos. Ltd. and Metro Inc.
Even after last Friday's soft U.S. retail sales report for October added to the pessimistic mood heading into the holiday period (October U.S. sales rose just 1 per cent), some economists remain optimistic about the outlook for U.S. consumer spending.
Following recent strong reports on employment and auto sales, "the October retail sales release was a relative dud," said Sal Guatieri, senior economist with Bank of Montreal.
Still, he expects real consumer spending to rise by about 3 per cent year-over-year in the fourth quarter, reflecting four factors:
- About 2.8 million more Americans are working now compared with a year ago, he said.
- Although actual wage gains remain “subdued,” real personal incomes are rising, reflecting lower gasoline prices and “intense retail competition.”
- The proportion of U.S. household disposable income going to debt payments is 10 per cent – the lowest since at least 1980.
- Total U.S. household net worth has increased 5 per cent in the past year to $86-trillion.
"The upshot is that, while Santa's sleigh might be a little lighter this year, it will still be brimming with gifts," Mr. Guatieri said.
Among other U.S. reports to watch this week, Tuesday brings the consumer price index for October, followed on Wednesday by minutes from the Federal Open Market Committee's October meeting, which will shed more light on the Fed's thinking on interest rates.
"Since the October communiqué, policy makers have done little to dampen expectations that the liftoff from the zero lower bound for the fed funds rate will occur at the December meeting," Royal Bank of Canada economists Dawn Desjardins and Josh Nye said in a note.
In Canada, Monday features data on manufacturing sales for September and existing home sales for October, followed on Thursday by wholesale trade for September. Rounding out the week, Friday brings retail sales for September and the consumer price index for October.
John Heinzl