EC Previewing Department Store Stock Earnings

The earnings focus lately has been on the Retail sector and this week’s reporting docket keeps the spotlight firmly on the space. Wal-Mart’s strong earnings reports reconfirms that consumers are in good shape, but you wouldn’t reach that conclusion if you just looked at the stock market performance of the major department stores.

The department store stocks enjoyed plenty of sunshine in 2018, but the mood shifted in a major way in November. While the rest of the market, including several other Retail sector industries, rebounded strongly after Christmas, the department store stocks never got a break.

The chart below shows the one-year stock market performance of the Zacks Department Store industry relative to the S&P 500 index.

The group’s earlier momentum in 2018 wasn’t a reflection on improving underlying fundamentals, but rather a combination of over-sold conditions and easier comparisons. The fundamental backdrop for the group - characterized by imbalance between falling foot traffic, excess capacity and secular shift towards digital sales - still remains challenging. 

Earnings estimates for department store operators have been steadily trending down, as you can see in the chart below (green line represents forward 12-month EPS estimate for the group).

Given the group’s recent stock market performance, coupled with the steadily lowered earnings estimates, it will likely not take much for Macy’s (M), Nordstrom (JWN) and others to regain some affection from the market.

Key Earnings Reports This Week

We have more than 650 companies coming out with quarterly reports this week, including 39 S&P 500 members. The Retail and Utilities sectors are the only ones that have a sizable number of reports still to come and this week brings in plenty of reports from these sectors.

We have a number of restaurant operators reporting results this week, including Shake Shack (SHAK), Potbelly (PBPB), Red Robin Gourmet (RRGB), Cracker Barrel (CBRL) and others. Importantly, the traditional department stores and home improvement operators are reporting results this week. 

Monday, February 25th:

Potbelly and Shake Shack are reporting after the market’s close on Monday. The government shutdown likely had a material impact on both of these operators as they have material DC footprint. In addition to the shutdown effect, trends in labor inflation, unit growth and outlook for the current period will be the key issues for both of these operators.

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Note: Sheraz Mian regularly provides earnings analysis on Zacks.com and appears frequently in the print and electronic media. In addition to this Earnings Preview article, he publishes the  more

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Gary Anderson 4 weeks ago Contributor's comment

Interesting article. Not sure how consumers flooding to Walmart from department stores shows that those consumers are in good shape, though.