Nomura Global Market Research analysts Robert Drbul, Jessica Schoen and Madeline Steiner take a look at retailers like J.C. Penney Company, Inc. (NYSE:JCP) and how they’ve been faring in the current economic climate. J.C. Penney Company, Inc. (JCP) ‘To Benefit From Cold Weather’ and Macy’s are both companies in the report along with Wal-Mart and Kohl’s.
We head into 4Q13 and FY13 earnings season with a great deal of visibility into what have largely remained soft sales trends, but note a number of highlights and thoughts going forward below.
Wal-Mart announces 4Q earnings
Wal-Mart Stores, Inc. (NYSE:WMT) will kick off the Broadline & Department Stores group’s 4Q earnings tomorrow, Thursday, February 20 before the market open. We are expecting 4Q13 EPS of $1.60, in line with consensus. Walmart pre-announced below expectation comp store sales for both Walmart U.S. and Sam’s Club, due in part to a reduction in SNAP funding as well as adverse weather during the quarter. For the quarter, we are looking for a 1.5% decline in Walmart US comps. Looking forward, we are forecasting a 1% comp decline and $1.20 per share in 1Q14, $0.03 below consensus due to a continuation of challenging weather, as well as the expectation of delayed refunds again this year. For full year 2014, we are looking for $5.60 in EPS, $0.03 above consensus.
We are forecasting 1.3% comp growth and 0.7% revenue growth for the department stores and broadline retailers (includes Wal-Mart Stores, Inc. (NYSE:WMT), Sam’s Club, Target Corporation (NYSE:TGT), Macy’s, Inc. (NYSE:M), Kohl’s Corporation (NYSE:KSS), J.C. Penney Company, Inc. (NYSE:JCP), Stage Stores Inc (NYSE:SSI), Tiffany & Co. (NYSE:TIF), Nordstrom, Inc. (NYSE:JWN), Costco Wholesale Corporation (NASDAQ:COST), The TJX Companies, Inc. (NYSE:TJX) and Ross Stores, Inc. (NASDAQ:ROST)), vs. 4.2% revenue growth and 0.4% comp growth in 4Q12. We note 4Q12 included an extra week for many companies. While sales for many retailers were challenging in 4Q13, we believe companies are continuing to aggressively work down inventory levels.
Despite some softness in 4Q13 and January in particular, we expect the winners this quarter to be Macy’s, Inc. (NYSE:M), The TJX Companies, Inc. (NYSE:TJX), and ROST. We are expecting a 2.5% comp increase at Macy’s, a 2.5% increase at TJX and a 2% increase at Ross Stores, Inc. (NASDAQ:ROST). We note that in 3Q13, TJX outcomped ROST by a 300 bps margin, but we expect a convergence of trends going forward.
J.C. Penney Company, Inc. (NYSE:JCP) and other retailers to benefit
We expect companies and retailers (such as Macy’s, Inc. (NYSE:M), Kohl’s Corporation (NYSE:KSS), J.C. Penney Company, Inc. (NYSE:JCP)) with a large cold weather product offering to benefit from the more normal winter weather in 4Q13 and thus far into 1Q14 (but do see shortfalls in spring business being hindered by the continuation of the cold weather). Our industry checks indicate that cold weather inventory is down as much as 50% YoY in a number of retailers which provides challenges to meet demand. While 1Q14 sales have been challenging due to the weather, we do expect pent up demand to surface if and when the weather breaks over the next several months.
Following two very mild winters, we believe the more seasonable winter has wiped the channel of outdoor/outerwear, which should lead to healthier than- expected order patterns for fall 2014. On 2/18, Columbia reported a 6.4% increase in sales in 4Q driven by double-digit increases in the U.S., Canada, and EMEA, and we believe the 2014 order book is robust (and still incomplete). Importantly, the company ended the quarter with $529 million in cash and equivalents, or over $15 net cash per share.