Weaker-than-expected holiday spending has led to concerns that it’s the start of a retail slowdown, leading Wall Street to slash profit estimates.
According to a report in The Financial Times, sixty-two U.S. retailers saw their estimates reduced during the past three months, with estimates only increasing for 16. The report noted that declines in estimates picked up after earnings reports came in mixed and muted hopes that the holiday spending season had turned out strong. GlobalData Retail managing director Neil Saunders told The Financial Times that while the outlook is not awful, it’s more pessimistic than previously thought.
Among the retail brands to get an estimate cut, the paper reported L Brands, which owns Victoria’s Secret, is at the bottom with earnings estimates down 87 percent from just three months ago. Barnes & Nobel’s losses are now 69 percent more than three months ago. Meanwhile, JC Penney’s estimate is down 28 percent. But it’s not just underperformers that are facing increased pessimism. According to The Financial Times, Wall Street is getting more cautious about retailers that have been able to have successes online. Walmart, which has been able to stand up to Amazon’s dominance, saw its profit estimates come down 5 percent for the April quarter. That’s even though Wall Street and investors were happy about the quarterly earnings results for the fourth quarter.
Also hurting retailers is macroeconomic data that shows weakness in retail sales in the U.S. In December retail sales dipped 1.6 percent, which was one of the largest declines in ten years and was only at 0.2 percent in January when compared to December, reported the FT. Analysts are setting their sights to Easter and warmer weather to see how the retailers fare. After that, they will be better able to tell if its an across-the-board slowdown. Retailers of all stripes have been hit by estimate reductions, noted the report.