5 Analysts On Q1 Retail Earnings

Retailers issued a barrage of quarterly reports this week that for the most part reinforced the sell-side's prior ratings. 

Here are some of the analyst's reactions. 

JCPenney's 'Disappointing' Quarter 

J C Penney Company Inc JCP missed Street estimates on comps, revenue and earnings per share.

“All in [all], we view this as a disappointing quarter given the favorable calendar shift ... less bad negative 1.5-percent industrywide store traffic, strong consumer confidence and greater spending across retail overall,” Morgan Stanley analysts Kimberly Greenberger and Lauren Cassel said in a note.

The analysts question whether positive comps are possible this year considering JCPenney’s challenging second half. Nonetheless, they deemed guided gross margin improvements achievable through opportunities in women’s apparel, appliances and general e-commerce.

Morgan Stanley maintained an Equal-Weight rating on the stock with a $3 price target.

Nordstrom: Good Postitioning In A Tough Sector

Nordstrom, Inc. JWN soundly beat estimates in both revenue and EPS, although KeyBanc Capital Markets was concerned by “somewhat soft” comps.

KeyBanc expects upcoming outperformance driven by Nordstrom’s strong digital assets and investment cycle.

“Ultimately, we view the company as one of the best-positioned in a secularly challenged mall retail environment given its technology investments,” analyst Edward Yruma said in a note. “Rack weakness ... has been a recurring theme, but the magnitude seems manageable.”

Nordstrom’s generational investments are forecast to yield a profitability inflection this year. Yruma reiterated an Overweight rating and $52 price target.

Bernstein Neutral On Walmart 

Walmart Inc WMT barely exceeded bottom-line estimates but posted a sizable top-line beat and demonstrated looming stability in the contracting Sam’s Club segment, according to Bernstein. 

“It's a good quarter for WMT as tailwinds of forex uplift the international business coupled with high gross margin,” analyst Brandon Fletcher said in a note. “We expected the gross margins of grocery retailers to perform well in this quarter based on the CPI inflation of food.”

Nonetheless, Walmart’s comps growth dipped below expectations, and Fletcher expressed concern about rising expenses and “good but not great” e-commerce growth. More information is needed about the retailer's e-commerce picture to shift in either direction from a Market-Perform rating, the analyst said. He maintained a $104 price target.

Limited Visibility For Dillard's

Dillard’s, Inc. DDS reported a bottom-line beat, top-line miss and better-than-expected comps.

“However, despite a strong start to the year and our belief that the company is a creeping management buyout (with another $500-million buyback just authorized in March), we remain Neutral on Dillard’s shares,” Susquehanna Financial Group analyst Bill Dreher said in a note.

Upcoming quarters face difficult-to-beat metric comparisons, and conservative guidance limits visibility for Susquehanna estimates, the analyst said. 

“Since Dillard’s now trades at a premium to its department store peers, we don’t believe that investors are being properly compensated for their investments,” Dreher said. He reiterated a $75 price target.

Deutsche Bank Constructive On Macy's 

Macy’s Inc M reported adjusted EPS 37 percent above consensus with a 2.7-percent revenue beat. The department store also raised guidance far beyond estimates and flipped sales projections from negative to positive.

“Macy’s unquestionably surprised to the upside on 1Q comp, but the rest of the story is highly debated from our vantage point,” Deutsche Bank analyst Paul Trussell said in a note.

Trussell concedes valuation is stretched and, given that two- and three-year stack comps have decelerated sequentially, the top-line may not accelerate into the second half.

Improvement in apparel, healthy inventory levels and initiatives such as Backstage and the loyalty program merit confidence, the analyst said. A solid start to the second quarter, strong gross profit margins in the first and an exit of the firm’s China joint venture leave Trussell ultimately constructive on the stock. He maintained a Hold rating but raised the price target from $29 to $33.

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