--Most retailers topped Wall Street expectations for the second
quarter
--But many have given negative third-quarter outlooks, more than
double those with positive forecasts, data shows
--Because of economic uncertainty, retailers may slow share
repurchases in order to conserve cash
By Andria Cheng
Retailers, from Limited Brands Inc. (LTD) to Ross Stores Inc.
(ROST), reported better-than-expected second-quarter results, but
many have in turn offered cautious outlooks, citing the global
economic uncertainty and market volatility.
About 80% of the companies in the consumer discretionary sector
have topped Wall Street expectations with their second-quarter
announcements, according to Thomson Reuters data.
Still, 38 of those in the sector have given negative
third-quarter outlooks, more than double the 16 with positive
forecasts, Thomson Reuters data showed. Overall, Wall Street's
third-quarter profit projection has slowed to an average increase
of 19.4% as of Aug. 16, down from 21.7% that analysts had been
looking for back on April 1.
"As we look to the back half of the year and into 2012, it is
clear that we are entering a period of greater uncertainty," said
Michael Jeffries, chief executive of Abercrombie & Fitch Co.
(ANF), on Wednesday, when the company projected a lower
third-quarter margin on increased costs.
The teen retailer's stock dropped 5% on Thursday, after tumbling
almost 9% on Wednesday.
With the uncertainty in the market place, Citigroup analyst
Deborah Weinswig said in a recent report she expects retailers to
slow the rate of share repurchases in the second half and next
year, in order to conserve cash if sales trends weaken --
especially ahead of the critical holiday season.
Retailers' cash needs typically peak in October and November as
they bring in holiday offerings and increase hiring for stores.
Citigroup has cut its forecast for back-to-school, the
second-biggest selling period after the holidays. It also sees a
"more muted" holiday sales season.
The S&P Retail Index fell almost 4% in midday trading, amid
a drumbeat of downbeat economic news that weighed heavily on Wall
Street.
On Thursday, data showed existing-home sales plunged to an
eight-month low in July while initial jobless claims rose back
above the 400,000 mark last week. Inflationary pressures also
appeared to have accelerated with the Labor Department reporting
the rate of increase in consumer prices during August saw its
biggest jump since March. Food and gasoline prices have both headed
higher, as well as apparel prices.
Wal-Mart Stores Inc. (WMT), the world's largest retailer, said
on Tuesday food inflation has overtaken gas at the pump as
customers' biggest household expense concern.
Ross Stores, which sells name brand products at a discount, on
Thursday forecast a third-quarter profit of as much as $1.04 a
share, missing the $1.12 average estimate of analysts surveyed by
FactSet Research. Despite better-than-expected year-to-date
results, the company said it's not changing its second-half
outlook.
"We believe it is prudent to be cautious in our outlook for the
back half of the year mainly due to the unknown impact on consumers
from the recent stock market volatility and increased economic
uncertainty," said Chief Executive Michael Balmuth. "It is also
unclear how higher sourcing costs and expected price increases
throughout all of retail will impact our business."
Ross shares dropped 3.6%.
Limited Brands, parent of Victoria's Secret and Bath & Body
Works, also offered a cautious third-quarter outlook even after it
reported another profit and sales upside, driven by full-priced
demand at Victoria's Secret. It projected third-quarter profit of
17 cents to 22 cents a share, compared to analysts' average
estimate of 22 cents, and sees a lower margin rate because of
increased costs.
Still, its shares, after zigzagging in early trading, rose 1.5%
-- one of very few gainers in a sharply lower market.
"We believe momentum can continue -- even if the economy slows
-- as lingerie and beauty care products are relatively low priced,
and purchases are highly emotionally driven," said Lazard Capital
Markets analyst Jennifer Davis.
"With its unique product assortment, (Limited) has greater
pricing power than many other specialty retailers, so it is more
favorably positioned to raise prices selectively and absorb
inflation."
-Andria Cheng; 415-439-6400; AskNewswires@dowjones.com