Macy's (M) become the first major retailer to report earnings this morning, and if America's top department stores is any indication, it's going to be a tough few weeks. The nation's largest department store reported EPS of $0.72 on $6.07 billion in revenues. Analysts had been looking for EPS of $0.78 on $6.2 billion on the top line. For good measure Macy's took down guidance for the second half and now expects comparable store sales for the full year to grow between 2% and 2.9% from 3.5% previously.
Macy's is a well run department store and the stock is up more than 25% over the last year. CEO Terry Lundgren and his team have earned the benefit of the doubt from Wall Street. That might be what makes their unusual miss worth attention. It's one thing for a shaky specialty operation like Aeropostale (ARO), but when Macy's shows negative comparable store sales there's something wrong in the world of the American consumer.
The Capitalist Pig Jonathan Hoenig says renewed concerns about the death of the American shopper is a function of raised expectations rather than a reversal of fortune. "That fear that the consumer will never shop again has become hope as in 'I hope back to school is going to be good and I hope the consumer will keep shopping.'"
As Breakout viewers know, hope is not an investment thesis. Those hoping spending would do anything other than flatline for a while after the long slog back from the great recession are getting a rough lesson in consumer discretionary stocks this morning. Hoenig confirms what today's price action suggests: retail isn't the place to be investing right now.
Speaking of hope and bad investments, J.C. Penney (JCP) is the canary in the consumer coal mine. If Macy's is sick, J.C. Penney just might be dead already. At the very least J.C. Penney's earnings report next week is setting up to be one for the ages.
The lesson here is the importance of management. Investors love to attack the glittering pay-packages of CEO's like Lundgren, but when the times are tough it's worth every penny to have someone competent at the helm. J.C. Penney won't bottom until it finds a permanent leader and that kind of ability doesn't come around every day. "Management matters and good CEOs are tremendously tough to find, especially in industries as competitive as retail," Hoenig says.
The bottom line is this: Consumer stocks are trading at a discount today, but based on Macy's results today there are going to be better deals on the retailers before this earnings period is over.
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