After U.S. department stores including Nordstrom Inc., J.C. Penney Co. Inc. and Macy's Inc. reported disappointing results last week and saw their share prices get slaughtered, specialty and discount retailers will get their turn in the earnings spotlight over the next several days.
While the results should be better than last week's dreadful showing, given the shaky state of retailing, a few nasty surprises are always possible.
Retailers have been struggling in the face of weak mall traffic, frugal consumers and growing competition from Amazon.com Inc. and other online merchants. As sales fall, store closures and bankruptcies have become increasingly common.
One of the latest victims is children's clothing retailer Gymboree, which is expected to close 350 stores and seek bankruptcy protection. Women's clothing chain Bebe, meanwhile, recently announced plans to shutter all 175 of its bricks-and-mortar stores. Other retailers closing stores include Payless ShoeSource, Rue 21, The Limited and Sears.
"The industry is in the middle of a major disruption," Deborah Weinswig, managing director with Fung Global Retail & Technology, said in a statement. The 3,658 store closings announced so far in 2017 have already exceeded the total for 2016, and "we expect more announcements in the coming months, particularly for stores located in lower-grade malls," she said.
Not all retailers are feeling the pain. Last week, the U.S. Commerce Department said retail sales rose 0.4 per cent in April from March, or 4.5 per cent on a year-over-year basis. Still, the gain was less than the 0.6-per-cent advance that economists had been expecting.
The biggest retailer of them all, Wal-Mart Stores Inc., is scheduled to report first-quarter earnings before markets open on Thursday. Although Wal-Mart is in much better shape than many retailers, its results may do little to cheer Wall Street.
The discounter is expected to post earnings per share of 96 cents (U.S.), down from 98 cents a year earlier. Revenue is seen rising 1.6 per cent to $117.8-billion, according to Thomson Reuters.
Other retailers reporting results this week include Home Depot, Staples, TJX, Urban Outfitters and Dick's Sporting Goods, all on Tuesday; Target and American Eagle Outfitters on Wednesday; Gap and Ralph Lauren on Thursday; and Foot Locker on Friday.
Even as many retailers struggle with shifting consumer buying habits, the broader U.S. economy continues to chug along.
Thanks to strength in other sectors such as energy, financials, materials and information technology, the first-quarter-earnings season is shaping up as one of the best in years, according to FactSet Research.
With 91 per cent of S&P 500 companies having reported results as of last Friday, the expected earnings-growth rate for the first quarter stands at 13.6 per cent. If that turns out to be the final figure, it would mark the highest year-over-year earnings-growth rate for the S&P 500 since the third quarter of 2011, when earnings rose 16.7 per cent, FactSet said.
In Canada, the retail industry will also be in focus on Friday when Statistics Canada releases sales numbers for March. Economists, on average, are calling for a gain of about 0.3 per cent for retail sales in March from February.
"Canadian consumer spending has been running at a solid pace, helped by strong job growth, record-low interest rates and less drag in the oil-producing provinces," said Robert Kavcic, senior economist with BMO Nesbitt Burns. BMO expects retail sales to rise an above-consensus 0.5 per cent, helped by an increase in auto sales.
Toronto-Dominion Bank is even more optimistic, calling for March retail sales to rise 0.7 per cent from February. "Auto dealers enjoyed a strong March as new vehicles sales posted a fresh monthly record while a possible rebound in used vehicle sales could provide further support to the headline print," TD economists said.
"We look for ex-auto sales to come in at a softer 0.4 per cent … as another robust month for home sales boosts demand for furniture while a pickup in construction activity should lead to stronger sales of building materials."
Also on Friday, Statscan will release the consumer price index for April, providing a fresh read on inflation. Economists, on average, expect the headline CPI to rise about 1.8 per cent on a year-over-year basis, with higher gasoline prices contributing to the increase. That would mark an uptick from the CPI's 1.6-per-cent advance in March.
"We look for the deflation in food prices to stabilize, though retail competition across grocery stores remains a source of downside risk in the near-term," TD said.
Other notable economic reports this week include Canadian manufacturing shipments for March, to be released Wednesday, and U.S. industrial production and housing starts for April, both scheduled for Tuesday.