Belus Capital Advisors' Brian Sozzi Comments On Macy's After The Earnings Miss, Notes Numbers Forecast Weakness For J.C. Penney

"I have been cautious on the retail sector into earnings season (exact term I have unleashed: it's a landmine), suggesting to avoid most of the names (other than being very confident on growth retailers Michael Kors KORS due to positive store checks and master innovator, Starbucks SBUX) given a pickup in earnings warnings/negative commentary. However, Macy's M was the only other name I was somewhat comfortable with into earnings; expectations had come down, and the company's suppliers (Michael Kors, Fossil FOSL, less extent Polo Ralph Lauren RL) had voiced positive comments on their earnings calls."

"So, to see Macy's miss by a wide margin is disturbing. Some on the Street want to blame Macy's earnings bomb on the weather. But, here is the deal: if the median income household (Tweetable stat: this consumer hauls in a whopping $52,098 a year) was feeling financially secure, they would have braved the rain and heat to splurge a bit."

"Bottom line: investors MUST, once and for all, detach from the notion that post economic bust that ever higher stock prices will equate to sexy earnings growth from retailers. It's no longer 2004-2007 (see latest consumer credit data…), and to make money in this sector of the market, one should favor growth, as perceived value names are experiencing margin pressure due to the need to drive consumers into their stores."

"Here are the points of concern on Macy's: company missed against reduced expectations by Wall Street and the stock reacted negatively; the core U.S. consumer continues to shop close to need and when that happens, unplanned markdowns occur; Macy's revised guidance basically reflects the 2Q13 shortfall relative to plan, and the Street now views optimism on back to school and the holidays as unrealistic."

Some other thoughts:

• "If Macy's missed by $0.07, one should expect the absolute worst from JC Penney JCP when it announces earnings next week."


• "There are booms and bust zones inside of department stores; the boom zones (Michael Kors) are not strong enough to offset the busts (Coach, certain apparel)."


• "Reiterate: expect a “tapering” of the earnings guidance ranges from Target next week and Nordstrom this week."