Going Shopping: Earnings From Big Retailers Surpass Expectations

Anyone nostalgic about trips downtown to go shopping with their families is likely to appreciate Thursday’s full menu of department store earnings.

But as a reminder that this is the 21st century, Thursday also features earnings from a huge Chinese e-commerce retailer that’s growing quickly, a sign of the new world that brick-and-mortar stores must operate in.

Macy’s Inc M, Kohl’s Corporation KSS, and Nordstrom, Inc JWN all report today, with Macy’s and Kohl’s before the open and Nordstrom after the close. Ten or 20 years ago, results from three huge retailers might have told a pretty comprehensive story about the state of the consumer. But today, with online shopping so prevalent, it’s harder to get a full sense of consumer sentiment just from department store results.

That’s why the most interesting story of the day might be earnings from Chinese e-commerce giant Alibaba Group Holding Ltd BABA, which easily beat consensus expectations. The company, which gets most of its revenue from China, said the Chinese consumer seems to be doing fine, which is good news for everyone. Earnings per share came in at $0.74, compared with expectations for $0.63. The stock was up 5% in pre-market futures trading, and the company reported it now has 434 million users, with mobile users growing 39% during the quarter.

But Macy’s threw a counter-punch Thursday morning, also beating consensus with earnings per share of $0.54, compared with estimates for $0.45. Revenue of $5.87 billion topped estimates for $5.75 billion. How did Macy’s pull this off even as it faced a huge challenge from e-commerce? By offering deep discounts, exemplified by what the company called “terrific success” with its “Black Friday in July” event, which drove record store and online sales. The stock leaped 13% in futures trading ahead of the opening bell.

Kohl’s also beat expectations with earnings per share of $1.22, compared with consensus for $1.03, and revenue of $4.18 billion was slightly above expectations. Its stock jumped in pre-market trading. But the retailer did cut its earnings forecast.

It bodes well for Friday’s monthly government retail sales report that retail stores are beating expectations. That seems to indicate that the consumer is doing their part. Granted, expectations aren’t exactly off the charts, but earnings results are continuing to beat and are beating in an area that tends to make investors nervous.

However, some of the jubilation about Macy’s may have had more to do with a separate announcement that the company plans to shut 100 of its 728 stores. “Macy’s will operate fewer stores and concentrate its financial resources and talent on our better-performing locations to elevate their status as preferred shopping destinations,” the company said in a press release. It said volume and profitability have been falling at those locations, and that customers at those stores will still have easy access to Macy’s through the company’s “dynamic digital offering.” Will Macy’s customers grow more willing to buy perfume and dresses with a point and a click? Time will tell.

Looking ahead, consensus for Nordstrom earnings per share is $0.56, according to Briefing.com.

Despite the retail fireworks, the summer doldrums continue, with few other catalysts for the markets.

If there’s been a drag on the market this week, it’s oil. The crude market is swimming in supplies, helping send prices back below $42 for nearby U.S. oil futures. The $40 mark is a psychological support level worth watching. Matters weren’t helped Thursday when the International Energy Agency (IEA) issued a report trimming its expectations for oil demand growth by 100,000 barrels a day in 2017. It also said heavy inventories are keeping a lid on prices.

July retail sales and PPI come out Friday morning, with analysts seeing no change in PPI and a 0.4% climb in retail sales, according to Briefing.com. Trading could be a bit muted Thursday as investors await those data, especially retail sales. Last week’s blockbuster of a July jobs report has helped raise expectations for retail sales results, considering consumer spending makes up such a huge part of the economy. Are the higher wages and new jobs the economy created in recent months filtering through to the retail sector? Macy’s and Kohl’s earnings offered some clues, but we’ll know more on Friday.

Pass the Popcorn; Disney Box Office Shines: Though shares of Walt Disney Co DIS initially fell in pre-market futures trading Wednesday after the company posted above-consensus earnings, the stock quickly recovered and traded at three-week highs by later in the day. Why did the market first react negatively to above-consensus numbers? Quite possibly it’s because many investors seem concerned about Disney’s ESPN sports network, which has been losing subscribers. ESPN saw another decline in subscribers during Disney’s latest quarter, the company said, though DIS Cable Network revenues did rise 1%. But if Wednesday’s stock recovery is any indication, it may be getting hard for investors to continue ignoring the company’s Studio Entertainment revenue, which includes box office results. Revenue in that segment rose 40%, helping DIS beat analysts’ expectations. Titles like “Captain America: Civil War”, “The Jungle Book,” “Finding Dory,” “Zootopia” and “Alice Through the Looking Glass” seemed to be the right mix for DIS, drawing big crowds to theaters and helping generate $2.8 billion in revenue for the Studio Entertainment segment during the quarter, up from $2 billion a year ago. The question is, can DIS deliver a successful sequel with next quarter’s earnings?

Weekly Oil Stockpiles Data Deliver a Head Scratcher: Wednesday’s weekly U.S. oil stockpiles report from the U.S. Energy Information Administration (EIA) offered something of a puzzle, showing crude stocks growing by 1.1 million barrels when analysts had expected a draw. This marked the third week in a row of rising supplies, the first time since 2005 that oil stockpiles have risen three straight weeks at this time of year. Normally, August is a time when oil supplies decline during the summer “driving season,” and gasoline stocks did fall last week, the EIA said. But the overhang of record crude stocks, now at nearly 524 million barrels, compared with 454 million barrels a year ago and 366 million barrels two years ago, remains an enormous bearish factor that could stand in the way of sustained rallies. Adding to the pressure, Saudi Arabia recently raised its oil output to record highs, the country reported to OPEC, and the EIA now expects a smaller drop in U.S. output this year. The energy sector came under pressure following Wednesday’s EIA data, but is still up nearly 13% year to date.

 

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Posted In: EarningsNewsEcon #sEconomicsMarketsGeneralConsumer DiscretionaryDepartment Stores
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